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Where's the Appraisal?

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Posted On: 03/18/2009

Q: What's the deal with appraisals? We've made an offer on a home and gotten an appraisal, but the lender won't give us a copy.

A: Access to appraisal reports has sometimes been a contentious issue. Appraisers often make the point that they do not want appraisals re-used, in part because an appraisal is a snap-shot, a valuation that likely grows less accurate over time as new sale data comes into the marketplace. Borrowers make the argument that they paid for the report and thus are entitled to a copy.

In practice, what really happens is that a lender orders an appraisal report, a report that is paid for by the borrower. In this situation, the lender is regarded as the "client" by the appraiser - not the borrower.

Frank Gregoire, an appraiser for more than 30 years in St. Petersburg, Florida, says "appraisers must comply with the Uniform Standards of Professional Appraisal Practice. The confidentiality section of the ethics rule prohibits an appraiser from disclosing assignment results (value, opinions and conclusions, etc.) to anyone other than the client or persons specifically authorized by the client.

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"Some appraisers," says Gregoire, a past chairman of the Florida Real Estate Appraisal Board, "use this section as an excuse to avoid providing a copy of the appraisal to the borrower. However, if the client is aware and agrees with the disclosure, there is no problem with an appraiser providing a copy of the appraisal to the borrower or any other party to the transaction."

Gregoire points out that the the Equal Credit Opportunity Act requires a lender to provide a copy of the appraisal to the borrower upon written request within a reasonable time period. What's reasonable? The ECOA doesn't say.

Now, however, there's an agreement between New York State Attorney General Andrew Cuomo and Fannie Mae and Freddie Mac that says that appraisal reports must be delivered to borrowers within three days. This agreement will cover most -- but not all - loans originated from this point forward.

"The lender shall ensure," says the agreement, "that the borrower is provided a copy of any appraisal report concerning the borrower's subject property promptly upon completion at no additional cost to the borrower, and in any event no less than three days prior to the closing of the loan. The borrower may waive this three-day requirement. The lender may require the borrower to reimburse the lender for the cost of the appraisal."

This language raises several issues:

First, be wary of boilerplate wording that lets the lender waive your right to an appraisal report. You have no reason to agree to a waiver. Instead, explain that you want a copy of the appraisal and mention the Cuomo agreement if anyone objects.

Second, as a seller I might want the sale contract with the buyer to say that I too will get a copy of the appraisal report. Why? If the appraisal value is less than the sale price it may allow the buyer to exit the agreement without penalty. In such circumstances I want to know exactly what the appraisal report says and why.

Q: What are "non-conforming" loan limits?

A: Generally we think of "conforming" or "conventional" limits as the largest loans that Fannie Mae and Freddie Mac and other purchasers are willing to buy from local lenders each year.

In contrast, non-conforming loans are mortgages that for some reason do not meet the usual standards outlined by Fannie Mae and Freddie Mac. So-called "jumbo" loans, as one example, are non-conforming loans because they're too big for Fannie Mae or Freddie Mac to buy.

One of the attractions of non-conforming loans is that they have no limits. You can borrow as much as you want, all you have to do is convince a lender to give you the money.

A number of "portfolio" lenders offer non-conforming mortgages. These are lenders that make loans and keep them until the notes are repaid. Since the loans are not being sold to Fannie Mae, Freddie Mac or any other buyer, the lender can establish whatever standards it wants for down payments, to qualify borrowers for the loan, to set a maximum loan amount, etc.

Q: What happens to mortgage rates during times of inflation?

A: If you have an existing fixed-rate loan hang on to it. If you have an adjustable-rate mortgage then rates and monthly payments will generally rise with inflation. If you need new financing, you will face higher rates during inflationary times because lenders are trying to preserve the buying power of their capital.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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