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Shopping homeowner wants appraisal transferred to new lender

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Doug in NC

Thread Starter
Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
North Carolina
What is the USPAP rule on this? A lender orders an appraisal, the inspection is done, appraisal is completed, delivered, and paid for by the homeowner. Apparently, the homeowner has found better terms at another lender. The homeowner now wants to transfer the appraisal to the new lender.

I assume USPAP wants me to get permission from lender A before transferring the appraisal to lender B, correct (since the lender ordered and was the client)? Why USPAP is so anal about this, I wish someone could explain to me. This lender-client legal stuff is really made confusing by USPAP IMO!
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
Yes, you need permission from Lender A to transfer this appraisal to another lender. I always ask for this in writing. Also, put somewhere that the Appraisal Report was originally for lender A and the permission to transfer is in your workfile. Same effective date on the appraisal. I always change the signed date though.

Yes indeed, USPAP sure is a wonderful thing!
 
Joined
Jan 16, 2002
Professional Status
General Public
State
North Carolina
Doug

First, the question is why does the new lender need to have his name in the appraisal report? Federal regulations say that a "regulated instituiton may accept an appraisal that was prepared by an appraiser directly engaged by another financial institution if the appraiser has no direct or indirect interest, financial or otherwise, in the property or transaction; and, the regulated institution determines the appraisal conforms to this part (of the FFIRA rules) and is otherwise acceptable. See USPAP 2002 AO-10 lines 38-52. This does not require a change in the text of the report, and not even an entirely new certification page, just the comment that you have no interest in the new party to the transaction.

In short, lender a can get the report released from lender B and use it, all they need from the appraiser is a certification that he has no direct or indirect interest, financial or otherwise, in the new party to the transaction. Of course, this certification would have a different date than the original report, and makes the report "messy" for the underwriting down the road.

What the lender is really asking you to take care of the adminsitrative end of this issue for them (get the release), then "clean up" the work for them so they do not have to provide the explanation for different dates and get your certification at the same time. What they would like is for you to do the work for free, or at nominal cost.

Aside from working for free which is in general a bad business practice, the problem with the appraiser "readdressing" by merely changing the references to the client in a prior report , even with approval of the original client, is that it would be misleading, ie, there is no trail of what really happended. Clearly, the very fact that you reissue the report without changing the date of the signature when in fact you would be sending out the report on a different date would be considered misleading to an investigator following the paper trail.

So you then have to change the signature date of the report, then you are posed with the issue of resolving the issue is this now an update with a new date of value, and if so, has there been any new data that should be included or is it a retropsective appraisal. If it is a retrospective appraisal, Statement 3 kicks in and poses some additional requirements about reporting dates.

Am I being to picky with this issue? If you recognize that some loan officers and some borrowers are not acting ethically, and that these yahoos are just setting the appraiser up to take the fall, it is not too picky.

Posters on this forum have had different solutions to the problem, some are good and others not so good. The most common solution is to change the lenders name in all the appropriate places with a disclosure in the report. Those suggestiong this as a simple fix does not really address the effective date of value and the date of the report conflict.

Personally, I think the best thing is to tell the new lender to get the release, have the new lender send you a copy for your workfile along with a request for a certification. You can then respond in a letter which states the original report, the original client, the new client, and a simple certiffication that states that you have no direct or indirect interest in the new client, along with an admonition that the lender is supposed to attach the letter to the original report.

Is this cumbersome and a lot of paper work? From your perspective, it is only a one page letter, I say that is better than having to reproduce a new report. Have template made up, and all you have to do is plug in the pertinent pieces of information and print it. Should not take 5 minutes since the lender has to do the phone calls and get the release and write you the letter. Is it extra work for him, yes, but heck, he is the one making the bucks off the deal. Is there some work for you, yes, but you should charge for it. Further, it is better to do it the right way than possibly getting unintentionally caught up in some fraudulent scheme.

Just remember, most of the time when you are asked to do "something simple" for someone else, it is because they found it to be more difficult than what they want to undertake. So charge a goodly amount for the hassle. If the lender wants you to do all the leg work, fine, then you should charge more.

You can take the short cut like many and just readdress the report based on the phone call, it is your choice. But....

Regards

Tom Hildebrandt GAA
 

Ben Vukicevich SRA

Senior Member
Joined
Feb 9, 2002
Professional Status
Certified General Appraiser
State
New Jersey
Tom,

I think part of the confusion lies in the fact that most of us do not work for regulated institutions which can accept an appraisal report from another lender with the approriate release.

You stated:

Federal regulations say that a "regulated instituiton may accept an appraisal that was prepared by an appraiser directly engaged by another financial institution if the appraiser has no direct or indirect interest, financial or otherwise, in the property or transaction; and, the regulated institution determines the appraisal conforms to this part (of the FFIRA rules) and is otherwise acceptable. See USPAP 2002 AO-10 lines 38-52.

which is correct. But if you're completing the typical FHA,VA,FNMA&FHLMC appraisal report (which are not FRT's) for the typical mortgage broker, then they seem to have their own guidelines requiring their name on the report.

While USPAP is clear on the procedure for regulated institutions and FRT's, it leaves the rest of the mortgage morons (brokers) to their own devices to prey on the consumer with this "I want my company name on the appraisal report" stuff.

I think this would be a good topic for additional postings as to why non-FRT lenders require that the appraisal report be in their name.

I have my ideas but I would like to see some other opinions first.

Ben
 
Joined
Jan 16, 2002
Professional Status
General Public
State
North Carolina
Ben

For what it is worth, I can not imagine that these lending folks would have such a rigorous administrative rule except in an attempt to prevent misuse of reports. Clear and factual disclosure with an attached letter would obviate the need for such a administrative guideline.

If the agency client, such as those you mention, has a requirement that their name must be on the client line and the reason is for ethics and to prevent misrepresentation, they should order an appraisal to get that work product. They should not be asking the appraiser to dance around ETHICS and to accept that level of risk.

But I recognize the underlying sentiment in your post that the real world appraiser are trying to make their clients jobs easier rather than harder, and that my position is kind of apple pie type stuff.

Just as you suggest, it would be nice to hear from some of those who are in the know about those types of lenders clients so we would know what the real motivation is behind this requirement.

Gosh am I glad I do not do that sort of work!.

Regards

Tom Hildebrandt GAA
 

Ben Vukicevich SRA

Senior Member
Joined
Feb 9, 2002
Professional Status
Certified General Appraiser
State
New Jersey
Tom,

The real reason behind it is to basically screw the borrower. It happens mostly in the BC paper business. Here's how it goes: Lenders hate appraisers but will use us via USPAP to meet their needs. Lender A is an "A" paper lender and takes the initial loan application, but after many weeks can not get the borrower approved so they send it to their "buddy" B/C paper guy (Lender A gets some money out of this so don't feel bad for them). The B/C paper guy, whether the borrower was referred to them by Lender A or started out with them initially because they had bad credit, now turns the screws. The closing date is imminent, the borrower has told all his friends he's buying a new home, the kids are excited, etc and the B/C paper lender knows this. So at the last minute, the BC paper guy cranks-up the fees, or the interest rate or the points and the borrower rightly says, "No thanks" and searches out a more understanding B/C paper lender, if one exists. This scenario is sort of like toned-down predatory lending.

Now comes the sticky part. The second B/C paper lender can offer better terms but the one slow item in the loan approval process is the appraisal. So, it's time to call the orginal appraiser to see if he can help-out. Here's where USPAP helps the original lender screw the borrower. The appraiser can't release the report without a release from Lender A. Lender A says "No" and the borrower goes back to Lender A because they must close the loan by the upcoming settlement/closing date. So we help screw the borrower via USPAP. I can't wait for some smart attorney to pick up on this cash cow.

I usually have no problem with my lenders in getting the release because they are the "A" paper guys who refer the borrower to the B/C paper guys for the "raking over the coals." :oops:

Now, if the borrower could shop lenders with his copy of the appraisal in his hand, that would be great but that's not the way it goes. All we do is protect Lender A's income stream via Client Confidentiality. After all, how much confidential stuff is in the typical residential appraisal-none. Non- residential appraisals, I could see Client Confidentiality issues.

Ben
 
Joined
Jan 16, 2002
Professional Status
General Public
State
North Carolina
Ben

I follow the logic. It has always intrigued me why some people take out the type of loans that they do.

Heresy coming now from this appraiser. I personally do not like the idea that lenders are required to have an appraisal. I like the idea of any buyer having the choice of ordering an appraisal ( or not ordering) and shopping the world for a loan. If the lender wants to make the loan relying on the buyers appraisal, great, that is the lenders risk. If the lender does not like the appraisal, they order up one of their own.

Of course, if no one wants an appraisal, that is fine too. A loan deal can be struck on whatever value basis the two parties can agree on. In a free market system, each person takes his own risk.

Of course, this free wheeling risk is just not possible since the federal government, either directly or indirectly, finances all the risk, and they say that appraisals are needed. This has created an artificial market for lending appraisals, and since the lender is the one the feds say must show why their portfolio is good, they are in control of ordering the appraisal.

At any rate, what is the official position on why they "must have their client name on the report?".

Regards

Tom Hildebrandt GAA
 

Ben Vukicevich SRA

Senior Member
Joined
Feb 9, 2002
Professional Status
Certified General Appraiser
State
New Jersey
Tom,

I have no idea of the "official" reason why the lender's name must be on the report. As I suggested in my prior post, I think it is there just to keep the borrower from shopping lenders. The excuse I get from most lenders is that they have all this time invested in processing the loan and the "lousy borrower" is demanding to switch lenders at the last minute and has wasted their time. They never ask themselves why did the borrower want to switch lenders. If they did, they would know the answer.

Like I said, we, via USPAP help the lenders achieve their goals. The last scenario I had, I posted on the forum recently. Lender A took the application on a new home and waited until it was framed and sheathed-months and months. They find out the borrowers are B/C paper. Lender A called me with the following instructions: Ben, we can't do the loan but it has to close. Here is the most recent sale price revision which includes additional options chosen by the borrowers. I need three reports forwarded by email. One to us, in our name, showing the revised sale price. One to Lender B, who is the B/C paper guy, in his name. Lender B will fund the first mortgage. Another to Lender C, in his name, as he is doing the second mortgage on the home. That's to avoid the PMI on the first 80%.

Who's on first. What's on second. And I Don't Know's on third. Yep, it is a comedy. Abbott and Costello weren't too far off.

Ben
 

Doug in NC

Thread Starter
Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
North Carolina
Ben,

Your reasoning makes a lot of sense. The borrower who has paid for the appraisal is somewhat at the mercy of lender A, even though the borrower paid for the appraisal! If lender A is a decent human being, he will release the appraisal with no problems, but some mortgage broker in another state could probably care less. If he wants to be a real a- -, he can refuse the borrower's request if he really wants to (if he understands how the laws work).

Tom,

Your comments, following along in USPAP (or USPOOP as some call it), are enough to drive an appraiser batty. Not your fault, but that's the way it is written. It is confusing, and to most practical appraisers, it makes very little sense (certainly doesn't amount to any common sense). I find myself constantly wondering, "Gee am I following USPAP on this? Maybe I am this year, but I wonder if I will be next year after the leadership has made more changes."

Doug
 

Ben Vukicevich SRA

Senior Member
Joined
Feb 9, 2002
Professional Status
Certified General Appraiser
State
New Jersey
Tom,

You're correct regarding the intrigue in the type of loans people end up with. It's all what the FICO computer spits out at that particular time when you need credit. This is what the B/C paper guys live for. I guarantee there will be a government investigation shortly into this bait and switch stuff.

Unfortunately, most of the buyers/borrowers who are informed that they are B/C paper at the last minute can not walk away from the deal and are locked in to going to closing no matter what terms or rates are offered to them. Client confidentiality is just another tool that the lender uses to close the loan. The borrower is boxed into a corner that he can not get out of.

Ben
 
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