WASHINGTON – July 13, 2010 – It’s a common Realtor complaint: A property going to contract appraises for less than expected. The buyer cannot put more down; the seller will not lower the price; the sale falls apart.
In some cases, however, the appraiser is not the cause. Banks – fearful of Fannie Mae and Freddie Mac policies that mete out punishment if a house is over-valued – err on the side of caution by shaving value off the appraisal. If guilty of price inflation, they could be forced by Fannie Mae to buy back the mortgage at a substantial cost. By dropping the appraisal value, they hope to avoid any suggestion that they inflated the numbers.
Frank K. Gregoire of St. Petersburg, vice chairman of the National Association of Realtors’ Appraisal Committee, calls the problem widespread. Many sales are “sabotaged by lenders and underwriters arbitrarily reducing the (appraiser’s) value estimate.”
According to Gregoire, many lenders try to double-check an appraiser’s work by ordering a low-cost electronic valuation. The electronic version uses only readily available public records and no on-site inspection, making it less reliable than a true appraisal. However, banks many times get scared if the electronic version is lower than the physical version, and they downgrade the true appraisal value to protect themselves. At other times, they ask the appraiser to explain the price difference, which can also delay closing.
The rules are about to change
Recognizing a problem, Fannie Mae instituted a new rule that becomes effective on Sept. 1. After that date, banks selling their loans to Fannie Mae can no longer simply drop the appraisal value. In guidance issued June 30, Fannie Mae told its participating lenders that they must contact the appraiser to “resolve” disagreements. If that fails, banks must order a second appraisal. In either case, lenders cannot simply drop the original value that supports a sales contract.
A number of appraisers hailed the change as great news.
Pat Turner, an appraiser in Richmond, Va., said that electronic appraisals don’t consider property condition and “are often inaccurate.” According to Turner, he once did a physical appraisal of a property that a California-based firm also did electronically. Afterward, the lender’s review company asked Turner why he did not use one of the comps the electronic firm used. Turner investigated and said he found out that one “comp” was actually a vacant lot, and worth far less than the property being sold.
Fannie Mae’s rule change also attempts to deal with other appraiser complaints, such as the use of inexperienced appraisers who travel to unfamiliar territory by clarifying “appraiser selection” standards.
Fannie Mae and Freddie Mac back about half of all U.S. mortgages, and Freddie Mac officials, when asked about Fannie Mae’s announced rules, said they’re “looking at it.”
Source: Kenneth R. Harney
© 2010 Florida Realtors®
In some cases, however, the appraiser is not the cause. Banks – fearful of Fannie Mae and Freddie Mac policies that mete out punishment if a house is over-valued – err on the side of caution by shaving value off the appraisal. If guilty of price inflation, they could be forced by Fannie Mae to buy back the mortgage at a substantial cost. By dropping the appraisal value, they hope to avoid any suggestion that they inflated the numbers.
Frank K. Gregoire of St. Petersburg, vice chairman of the National Association of Realtors’ Appraisal Committee, calls the problem widespread. Many sales are “sabotaged by lenders and underwriters arbitrarily reducing the (appraiser’s) value estimate.”
According to Gregoire, many lenders try to double-check an appraiser’s work by ordering a low-cost electronic valuation. The electronic version uses only readily available public records and no on-site inspection, making it less reliable than a true appraisal. However, banks many times get scared if the electronic version is lower than the physical version, and they downgrade the true appraisal value to protect themselves. At other times, they ask the appraiser to explain the price difference, which can also delay closing.
The rules are about to change
Recognizing a problem, Fannie Mae instituted a new rule that becomes effective on Sept. 1. After that date, banks selling their loans to Fannie Mae can no longer simply drop the appraisal value. In guidance issued June 30, Fannie Mae told its participating lenders that they must contact the appraiser to “resolve” disagreements. If that fails, banks must order a second appraisal. In either case, lenders cannot simply drop the original value that supports a sales contract.
A number of appraisers hailed the change as great news.
Pat Turner, an appraiser in Richmond, Va., said that electronic appraisals don’t consider property condition and “are often inaccurate.” According to Turner, he once did a physical appraisal of a property that a California-based firm also did electronically. Afterward, the lender’s review company asked Turner why he did not use one of the comps the electronic firm used. Turner investigated and said he found out that one “comp” was actually a vacant lot, and worth far less than the property being sold.
Fannie Mae’s rule change also attempts to deal with other appraiser complaints, such as the use of inexperienced appraisers who travel to unfamiliar territory by clarifying “appraiser selection” standards.
Fannie Mae and Freddie Mac back about half of all U.S. mortgages, and Freddie Mac officials, when asked about Fannie Mae’s announced rules, said they’re “looking at it.”
Source: Kenneth R. Harney
© 2010 Florida Realtors®
No comments:
Post a Comment