Loan Modification

New FHA Appraisal Standards Take Effect

By Peter G. Miller

Here it is the 16th of February and the world has not ended.

This is likely a surprise to some folks because yesterday the dreaded and new FHA mortgage appraisal rules went into effect, rules which will merely allow borrowers to get a better shot at a fair valuation of their property.

According to the Coester Appraisal Group in Gaithersburg, MD, the new FHA guidelines will create an array of new requirements for lenders:

___Prohibits Loan Production Staff or anyone compensated with the closing of a loan from ordering an appraisal for both Conventional and FHA.

___ FHA Stresses ?Absolute lines of independence.?

___ Lenders will get sanctioned if appraiser’s names is not correct in FHA Connection. Appraisal on report must be the same in Connection

___ Requires timely Payment to appraisers (net 30).

___ Lets the appraiser enjoy the freedom from any person to Provide ANY Estimate of value on the appraisal request verbally or e-mail.

___ Establishes the Appraiser Independence Hot-line.

___ Provides appraiser written notice of a removal from a list or for any reduction of work.

___ Forbids lenders from ordering a second appraisal without putting both in the loan file.

___ Prohibits ?appraiser shopping? where lenders order more appraisals to assure the highest possible value for the property and/or the least number of deficiencies and/or repairs.

The Cuomo Case

The new standards were worked out in a settlement between New York State Attorney General Andrew Cuomo and Fannie Mae and Freddie Mac in March 2008. Something called the Home Valuation Code of Conduct (HVCC) was created.

This settlement was instantly challenged by federal regulators because it was NOT a settlement between them and Cuomo. In other words, the traditional monopoly over national mortgage affairs was broken.

How do federal bureaucrats have total control of mortgages made by national banks and their mortgage subsidiaries regardless of state and local laws? They claim authority based on the National Bank Act — of 1864.

Amazingly enough, Cuomo challenged the absolute right of federal regulators to control the mortgage lending process, took his case to the Supreme Court and won. Now, for the first time, you will see state attorney generals suing national banks over their mortgage policies and practices.

And this, of course, is the point: You never saw federal regulators protecting the public interest. If they had we would not have had a mortgage meltdown.

Here’s the clearest possible example: under the Home Ownership and Equity Protection Act of 1994 (HOEPA), the Federal Reserve can stop ?unfair and deceptive acts or practices.?

So why are the new appraisal rules such a bother to lenders? Under the old system if appraisers came in with the “wrong” valuation they might find their payment delayed or that the lender had located other, more, er, flexible, appraisers. Now the the government is saying hands off appraisers and that’s great for FHA mortgage borrowers who need to know the real value of the properties they’re buying.

Full post as published by FHA Mortgage Guide on February 16, 2010 (boomark / email).