Hey, everyone!
If you've been in Real Estate for a while, you've most likely encountered lenders who select appraisers to value property. Although they were never supposed to, I'm sure they had an "understanding" with the appraisers they selected that the property would appraise out for the purchase price - no less! Here in Chicago, I've seen this happen, more than once, over a decade and a half in the real estate business.
Many "in the know" feel rampant over-valuation within the last few years may have been a key contributing factor to widespread loan delinquencies we are experiencing today, and, perhaps, some current over-compensation, on the low side, with today's property valuations. As recently as a couple of years ago, even more recently, properties appraised high, risky loans were routinely approved, and low initial mortgage payments made by borrowers.
Fast forward to 2008!
Concerned about irregularities on some Washington Mutual mortgage loans made for borrowers in his state,New York Attorney General Andrew Cuomo began negotiating stiffer appraiser standards of practice with The Office of Federal Housing Enterprise Oversight, with the goal of creating more stringent rules of property evaluation. He used a 1921 New York State securities fraud statute as the basis for his initial investigation.
As part of the settlement in this case, Fannie Mae and Freddie Mac have adopted, and are in the process of implementing, tough new rules governing lenders and appraisers. Unless challenged, these new, tighter appraisal standards will go into effect in January, 2009.
The rules affect how appraisers providing property valuations interact with lenders. Some key provisions -
- Without a signed statement that the appraiser was not coerced, pressured, or influenced during the appraisal process, lenders will no longer be able to fund a mortgage loan.
- A new, more detailed coder for interaction between lenders and appraisers.
- A National Hotline for appraisers and consumers would be established, if either felt the valuation decision was being influenced by the lender.
- Mortgage Lenders with in-house appraisers or owned appraisal firms will not be able to use these in-house valuations if they plan to sell their loans in the secondary mortgage market.
- Independent Mortgage Brokers will not be able to order appraisals used by end lenders.
- An Independent Valuation Protection Institute will monitor appraisals. They will have the power to mediate complaints of influenced valuation. They can also report suspected violators to state and federal authorities.
Although many in the mortgage industry, including the trade group representing Mortgage Brokers, feel many provisions in the law need work, virtually all agree that tighter regulation of the home valuation industry will soon become reality.
That said, it seems, the feeling, "Of course, the property will appraise!" may not be said with that old-fashioned confidence very soon.
Please see our post today at BlogChicagoHomes.com, along with the link to Kenneth R. Harney's article in the March 16th edition of the Chicago Tribune, for more info.
Be careful, folks!
DEAN & DEAN'S TEAM CHICAGO
Hi Dean-excellent posts and so true today I learned so much more about the guideline changes by fannie mae for the start of Florida...We service two counties and both are now declining market. I do think its great that appraisers have some guidelines...I have heard too many times agents giving the appraiser a hard time and even the best of markets the property won't appraise out! Congrats this post was selected for the blogger's choice selection.