Major Changes with Appraisals for Conforming Loans

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This post was first written at Rain City Guide earlier this month.  I’m taking a few days off and thought I would share this information with you here.

This morning it was announced from OFHEO that Fannie Mae and Freddie Mac have agreed to some major changes with regards to how appraisals will be ordered for conforming mortgages:

“…including eliminating broker-ordered appraisals, prohibiting appraiser coercion, and reducing the use of appraisals prepared in-house or through captive appraisal management companies in underwriting mortgages. The agreements also enhance quality control in the appraisal process and establish a complaint hotline for consumers. The agreements include a Home Valuation Code of Conduct that the Enterprises will apply to lenders selling mortgages to Fannie Mae or Freddie Mac. The Code becomes effective on January 1, 2009.”

It’s ironic to me this is eliminating “broker-ordered” appraisals and “reducing the use of captive appraisal management companies” when it was Washington Mutual’s actions with eAppraisal that caused New York Attorney General Cuomo to investigate.

The appraiser I use has been doing his job for over 30 years. I trust him and respect his work. Last year, when he had an appraisal come in low on a property that was in a bidding war with zero down financing, I didn’t doubt him. The agents were furious…even the homebuyer wanted a new appraisal. They wound up buying the home for the appraised value instead of the bid-up price. I wonder if they realize what a favor he did for them by providing a true appraisal? (He’s come in low on some refi’s too). I have to admit, I’m less than happy realizing that I may not be able to rely on using his services for appraisals once the new guidelines go info effect.

I’m concerned that obtaining a conforming appraisal will be very similar to how VA appraisals are done: a crapshoot lottery. This is all well and good as long the appraisers in the pool are all competent and efficient. However when there is no competition for business, will it breed complacency?

I’m also wondering what will happen with the cost of appraisals. Presently, I have a rate sheet from my appraiser and I know how much the cost will be for each transaction after we have loan approval. Unless Fannie and Freddie decide to control what an appraiser will charge, the fees can vary. How will loan originators be able to provide accurate Good Faith Estimates without knowing who the appraisal will be through?

More questions than answers right now…and more changes with mortgages are on the horizon with HUD’s announcement of what the median home prices are due in about ten days.

Update: Fannie Mae is accepting comments until April 30, 2008.

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