What exactly are the rules?

[Steve Taylor]

Here is what the financial institution regulators say about transfer of an appraisal:

ACCEPTING A TRANSFERRED APPRAISAL

Question:Can a regulated institution accept an appraisal from a prospective borrower and determine its acceptability based on a review?

Answer: No, a regulated institution cannot accept a borrower-ordered appraisal.

Question: Can an appraisal be transferred from one lender to another and, if so, under what circumstances?

Answer: A regulated institution may accept an appraisal transferred from another regulated institution or from a financial services institution (that is, a non-regulated institution), provided 1) the appraiser is engaged directly by the institution transferring the appraisal, 2) the appraiser has no direct or indirect interest in the property or transaction, 3) the existing appraisal or evaluation remains valid, and 4) the regulated institution determines that the appraisal conforms to the agencies’ appraisal requirements and interagency guidelines and is otherwise appropriate. (A financial services institution describes entities that provide services in connection with real estate lending transactions on an ongoing basis.)

Regulated institutions are expected to perform a more thorough review when accepting an appraisal from another financial services institution to confirm that the appraisal complies with the regulation and has sufficient information to support the lending decision. Moreover, the regulated institution accepting the appraisal should determine whether appropriate documentation is available to confirm that the financial services institution (not the borrower) ordered the appraisal.

Question: May an appraisal be readdressed to a regulated institution from the borrower or another institution?

Answer: A regulated institution cannot accept an appraisal that has been readdressed or altered by the appraiser with the intent to conceal that the original client was the borrower. Readdressing appraisals to conceal the original client, whether the client is a borrower or another financial services institution, is misleading and violates the agencies’ regulations and USPAP.

Question:May an appraisal be routed from one lender to a regulated institution via the borrower?

Answer: A regulated institution cannot accept an appraisal from the borrower unless the regulated institution can confirm that the appraisal was in fact ordered by another regulated institution or financial services institution. In accepting the appraisal, the regulated institution must also confirm that the appraiser is independent of the transaction and that the appraisal conforms to the agencies’ appraisal regulations and is otherwise acceptable.

Question: How can a regulated institution ensure appraiser independence when accepting an appraisal prepared for a financial services institution?

Answer: Documentation (that is, an engagement letter) should be available to indicate that the financial services institution (not the borrower) ordered the appraisal and that the appraiser has no direct or indirect interest, financial or otherwise, in the property or the transaction. The original lender’s engagement letter to the appraiser should be made part of the appraisal report to provide additional information on the identity of the client in order to ensure independence in the appraisal process.

 

[Webbed Feet]

To all,

But honestly, everywhere that says "borrower," it should say "mortgage broker," and "Loan officers."

Webbed.

 

[Hal Mann]

I wanted to highlight the following from the regulators' statement:

Here is what the financial institution regulators say about transfer of an appraisal:
ACCEPTING A TRANSFERRED APPRAISAL

Question:May an appraisal be routed from one lender to a regulated institution via the borrower?

Answer: A regulated institution cannot accept an appraisal from the borrower unless the regulated institution can confirm that the appraisal was in fact ordered by another regulated institution or financial services institution. In accepting the appraisal, the regulated institution must also confirm that the appraiser is independent of the transaction and that the appraisal conforms to the agencies’ appraisal regulations and is otherwise acceptable.

Highlighting this portion of the statement because several posters here have incorrectly stated that a lender cannot accept a borrower-delivered appraisal. Note that while the answer starts in the negative, it does specifically state that lenders are permitted to accept these. Not borrower-ordered appraisals or borrower-selected appraisers, of course.

So in Kalli's case, the second lender could have accepted the Countrywide appraisal if they had wanted to. But they obviously had problems with it because they were asking for additional analysis. Therefore it was going to be a new assignment anyway. Why then go back to the appraiser that raised issues the first time?

When dealing with borrowers directly, I always make a point of mentioning how heavily regulated the practice of appraisal is. If there are issues later, it's easy to remind them that it may seem arcane, but most of the rules actually do make sense.

 

[kalli1582]

Hello Everyone,
Since this became such a hot thread, I wanted to update you all on what all happened to me after this! its a crazy ride, so hold on!

First of all I am going to clear a couple of things up for ya. After not recieving any phone calls on adding comps to our first appraisal, our broker called to schedule a new "assignment" no call was recieved and we were forced to call another appraiser to do a rush job. our original appraisal (for countrywide) came in @ $155,000 and I paid $500 for it. my second appraisal for my new lender, Provident Funding, came in @ $135,000 and I paid $350 for it. I am not quite sure of the huge discrepancies of numbers cause the appraisals were done within 30 days of each other, so time was no factor. However, I do understand that an appraisal is an opinion and there was really nothing I could do about it at that point. During this whole process I did call another appraiser to just ask some questions to and he informed me of the management company that he is a member of and is assigned appraisal to be done in one day for about $150 bucks. I asked him if he would do a review of my first appraisal, and he said he would but it would cost just about as much as an appraisal, so I didn't.

Anyways, the second appraisal still worked out because I was gifted an amount to cover my second mortgage (20%), and was only trying to refinance $120,000 plus closing costs (80%). However, as we hear in the news with the forclosure crisis in full swing, lenders are getting stiffer and stiffer with the qualifications you are required to surpass in order to get a loan. gone are the days of income verification and good credit, nowadays you are to provide no less than the color of your underwear it seems!! The second appraisal did not come in time and the lock on our rate ran out, it jumped a whole .5%! we re locked and didn't close until 15 days later, hung up on the technicality of $200 because of an tax amendment filed for 2006, which didn't show on the copy of my orginal 1040. However, when we ordered a tax account statement, that didn't match my refund amount, which was due to my math mistake. This then had to be certified by an IRS office before closing. Then the day before closing, my broker called and told me I would have to bring $3000 more to the closing table than I had orginally told them! so they had to restate the loan to match the money I was bringing to the table!! finally we did sign the papers and my nightmare was over!

My lessons are great and plenty after all this, but blame everyone involved for the time it took to complete. I appreciate all your answers to my question, and I understand that their are rules appraisers have to follow, and me being a borrower are really powerless in choosing who to do the appraisal, which leaves me to put all my faith in another company, who I have to trust has made the correct decision and has screened the appraiser and knows he/she can do a good job. it still boggles my mind why there was such a difference between the two appraisals, but I have guessed that the second appraiser was more familar with the area of my house and was able to make a better judgement of the actual value of my house. while it doesn't make me very happy that I possibly paid $15000 more than I should have for my house, I understand how the market is right now and there is nothing I can do about that.

Thanks all for your opinions and definitions. It will all help the next time I get myself in deep water. I have considered a career in the appraisal business because I love analysis and real estate, and I always love being the bad guy!!!