11 responses so far ↓

• 1 Vince Slupski // Feb 4, 2008 at 10:38 pm

  Terry Lamb - I am intrigued by your suggestion that the homeowner should order the appraisal and transfer it to the lender as needed. FIRREA requires that appraisals be ordered directly by the lender, to prevent undue influence by borrowers over the appraisal. Doesn’t your suggestion go against the spirit and/or letter of FIRREA in this respect? What has been the response of loan officers, in your experience, when they are offered a borrower-ordered appraisal?

  I do agree with the general intent here: a major problem with our current home finance paradigm is that the customer is married to the loan originator before the deal is priced. In the usual pattern, the customer approaches an originator based on published rates, gets a good faith estimate, pays $400 for the appraisal + ?$50 for a credit report, possibly some other fees, and is 3 weeks in and maybe $500 or more down before he gets a reliable quote for terms. That’s if the originator is being straight, let alone the bait and switch guys.

  I think it would be great to have a 3rd party “escrow” the loan application materials. Let a title or escrow company take the app, compile the tax returns, order the appraisal. When the app is complete, transmit it to several lenders for firm price quotes with closing in 15 days.

  You should check the Seattle P-I seattlepi.nwsource.com for 2/4/08 for an article about a bill to require mortgage brokers act as fiduciaries for their clients. See the “sound off” link on the bottom for a great discussion on mortgage brokers and their responsibilities.

  Disclosure: I’m an MAI appraiser, also a licensed real estate broker.

• 2 Terry Lamb - Managing Editor // Feb 5, 2008 at 12:07 am

  Vince,

  Thanks for the comment and your input.

  I’ll be up front and say this: I’ve never heard of the FIRREA. I did Google it and read it however I’ve never seen it applied in the mortgage loan origination business.

  I will say that I’ve had many clients approach me with an appraisal completed already, either by themselves for some reason OR ordered by another lender. In my eyes, either way all I do is transfer ownership of the appraisal to the mortgage company I’m working with — which seems to be all that’s required from the lender to get the loan completed.

  In a nutshell, if a client comes to me with an appraisal - I simply transfer ownership to the mortgage originating company and we do the loan. I’ve never seen a lender require anything else, and never have they required themselves (i.e. the lender) to be the appraisal owner/order designation.

  Sometimes the lender may require the appraiser be on a certain “approved” list - but other than that - the lender never requires that they themselves order the appraisal.

  My opinion: How many times have I had a client start doing business with me, and want a quote based on thier “estimated” home value - only to then order the appraisal and find out the value is considerably less than what the client “estimated”? Many, many times. A client is always easier to deal with when I’m not in between them and the appraiser because value is not there. The home value is key to the loan approaval and it’s nice to know up front (without all the hassles) if the home is even carrying enough value to proceed.

  I’m curious to see where exaclty the FIRREA really applies and in what situation. It has never applied in the residential mortgages I’ve originated.

• 3 Vince in Seattle // Feb 5, 2008 at 3:07 am

  You should take a look at this site:

  http://tinyurl.com/2mpo9p

  …especially including the following:

  “12. 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.

  13. 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. ”

  This is my understanding of what is required for any federally-related transaction, including commercial and residential, including banks and Fannie/Freddie. I am frankly baffled that re-addressed appraisals engaged by borrowers have not been rejected on this basis.

• 4 Terry Lamb - Managing Editor // Feb 5, 2008 at 3:52 am

  Vince,

  I think we might be getting caught up in the terminology here. For example on #12, the effective statement is “with the intent to conceal that the original client was the borrower” - that doesn’t apply to what my original post is about.

  And in #13 the statement “routed from one lender to a regulated institution via the borrower” — I’m not talking about that either. I’m not saying the borrower is routing the appraisal.

  In fact, what I was originally saying isn’t even as complicated as we might be making it. It’s actually very simple.

  Here are some facts that I was attempting to make in my original statement/post.

  1. Can a consumer order an appraisal from an appraiser? YES

  2. Can appraisals have ownership transferred, from borrower to mortgage broker, or from broker to broker firm? YES

  3. Who owns the appraisal? Who ever is stated on the appraisal document.

  4. Will a lender accept an appraisal with the borrowers name on it as opposed to the mortgage broker? NO

  The operative concept is this. The appraisal is less than 90 days old and is NOT being re-addressed (i.e. an old appraisal being updated without another appraisal, outside of the 90 days typical appraisal life). What I’m attempting to tell borrowers is, the current and valid appraisal is actually being re-typed (i.e ownership transferred from borrower to broker or from broker to broker).

  The terms “regulated institution and financial services institution” as they are used are not terms we would use when originating a loan from broker to wholesale lender. Maybe when attempting to use an older appraisal between direct lenders and banks - but not in the wholesale mortgage broker business. Bank to bank and direct lender to direct lender is totally different than originating a loan from mortgage broker to a wholesale lender.

• 5 Vince in Seattle // Feb 5, 2008 at 2:35 pm

  To understand this point, you have to understand the context of bank and appraisal regulation. As the 1980s closed out the S & L crisis, Congress looked for causes and solutions and strengthened both bank and appraisal regulation. Poor appraisal quality was identified as one cause of the S & L failures. And one cause of poor appraisals was that appraisers were perceived to be beholden to borrowers. It was common practice for borrowers to commission appraisals and shop them as part of the loan package to multiple lenders. Congress and the regulators reasoned that if the borrower controls the appraiser’s paycheck, then the appraisal is certain to report the value the borrower wants. Plus, borrowers are not regulated by federal banking regulation - banks are. So in order to insulate appraisers from the control of borrowers, as well as enable effective regulation of the appraisal process, it was decided that only financial institutions would be able to hire appraisers for “federally related transactions” (which include any transaction by a bank, S & L, credit union, VHA, FHA, or Fannie/Freddie).

  What is proposed above - borrower orders the appraisal, then the appraiser substitutes a lender’s name as directed by borrower - defeats these intentions, which is why it is specifically prohibited per a 2005 memo from the financial regulators, and by USPAP. It conceals the fact that the borrower paid for the appraisal. It makes the file appear that the appraisal was engaged (as required) by the financial institution, when this is not the case. That fact is not concealed from the mortgage broker, who obviously knows he didn’t order the appraisal, but it IS concealed from Fannie or the bank, Fannie and bank regulators, and the secondary market, where the loan will eventually end up.

  There is no concept in appraisal regulation of “retyping,” except as equivalent to the term “readdressing.” Readdressing is covered in USPAP Advisory Opinions 25-27. (USPAP is the Uniform Standards of Professional Appraisal Practice, published by the Appraisal Foundation, and is the governing set of rules for all appraisers in the US. It’s available online at appraisalfoundation.org.) As I re-read these sections, I find that what you recommend, Terry, is specifically prohibited by USPAP. An appraiser cannot simply re-address the same report to multiple lenders. An appraiser CAN re-appraise the same property for different clients under certain circumstances. I will admit the distinction between re-address and re-appraise is a little muddy: after all, if it’s the same property, same time frame, won’t the data and report be pretty much the same? But I think there’s a positive burden on the appraiser to show that he did new work for a new client, to disclose the prior relationship, and show he wasn’t merely attempting to mislead readers of the file into believing that the borrower didn’t order the appraisal. Furthermore, there’s no guarantee a lender would accept an appraisal under these circumstances. I would like to think they wouldn’t but perhaps I’m being naive.

  Finally, the last paragraph of the preceding message is way wrong. A loan made by a broker to a wholesale lender that ultimately winds up with Fannie Mae or a bank is every bit as subject to regulation as a “federally related transaction” as a bank loan. Unless the funding source is private, hard money, these regulations apply. And USPAP governs all appraisers in the US, no exceptions.

  Now, bank and appraisal regs don’t apply to borrowers. The homeowner is free to tempt the appraiser and lender into whatever they can get them to do. But it should be recognized that both are putting their licenses at risk. As for the appraiser, I’ve sat on discipline committees for my professional organization and can tell you that an appraiser who re-addressed reports would be disciplined by both the state and his professional organization. You have to ask yourself, if “your” appraiser and broker will violate these rules in your interest, will they violate rules against your interest too?

• 6 Vince in Seattle // Feb 5, 2008 at 3:47 pm

  Let me follow on to my previous comments with what I CAN do as an appraiser to transfer a report among different parties.

  First, as stated above, I can’t just change the name on the transmittal letter from “Borrower” to “Lender A,” for a fee or for no fee. It’s absolutely a prohibited practice: it conceals who paid for the appraisal.

  Now, say Borrower starts with Lender A, Lender A orders the appraisal, and Borrower and Lender A can’t come to terms. Borrower wants to take the appraisal and do a loan with Lender B. If all three of those parties are friendly, the easiest thing is for Lender A to “assign” the appraisal to Lender B. As the appraiser, I’m not a party to this - I don’t have to give permission, I can’t prevent it, I may not even know about it.

  However, sometimes Lender B isn’t happy with this. Lender B can’t sue me, since I don’t have a relationship with Lender B. (Lender B could sue Lender A who could then sue me, though.) Lender B often wants its name on the report, so that I’m directly liable and so the file looks cleaner. In this case, I will get a written release from Lender A to re-appraise the property for Lender B. I will do new research, probably re-inspect the exterior at least, use a new date of value, conform to any special Lender B requirements, and disclose in the report that I previously appraised it for Lender A. I will charge less than a new appraisal, but more than a copy fee. I can’t just change the salutation from “Dear Lender A” to “Dear Lender B.” - that’s prohibited.

  What if Lender A won’t cooperate with Lender B? In this case, I first have to make a business decision - will I tee off Lender A if I appraise the property for Lender B? Second, I have to make an ethical decision - can I appraise the property without using confidential information that I received from Lender A? In most cases, everything that was confidential came from the Borrower anyway. So if I wanted to take the assignment, I would ask for a new copy of confidential info from Lender B or the borrower and proceed with a new appraisal. Again I would charge less than a new appraisal but more than a copy fee.

  In any case, I’m not forced to do anything for Lender B if I don’t want to. I’m free to take any assignment I choose or turn down any I choose.

  I’m not saying that this is the only way or the best way these relationships and requirements could be set up in theory. But these are the only avenues permitted by appraisal and bank regulation at this time.

  Final disclosure: I’m an MAI commercial appraiser with 21 years experience, certified general license, have served on discipline committees for the Appraisal Institute, been a director of our local Appraisal Institute chapter as well as a regional representative, and I think have a pretty good reputation in our appraisal community. Also a licensed real estate broker, but for my account only.

• 7 Terry Lamb - Managing Editor // Feb 5, 2008 at 4:25 pm

  Excellent, so without all the jibber jabber we went through, an appraiser CAN move the appraisal from one lender to another (whatever his process is, the borrower doesn’t care). It’s done all the time. It’s normal.

  Appraisal transfers happen all the time. Borrower to lender, lender to lender. If that particular appraiser wants to re-inspect, so be it - but it can and is done frequently.

  The point is, if a borrower wants to get his property appraised, he can by simply finding an appraiser who will do the job.

  Then, if the borrower wants to refinance since his value is adequate he can take that appraisal to a mortgage broker who contacts the appraiser and the appraiser does whatever he has to - to make the appraisal legal (i.e. re-inspect, update appraisal with broker firm as new owner, etc.).

  Vince, you are making mountains out of mole hills here.

  I’m not talking about concealing original payee, transferring an appraisal without doing what is legal, such as re-inspecting, etc.

  What I’m saying is (without all the inner workings and details of HOW it’s done) — the fact is it can and is done all the time. Within the letter of the law. I or no one I’ve ever known in the mortgage business has ever called an appraiser, who completed an appraisal say “a week ago” who didn’t simply do whatever he had to do to bring the appraisal up to snuff in terms of what is needed to take that appraisal to a lender for underwriting.

  It’s simple.

  “Hey Mr. Appraiser, you did this appraisal for borrower X a week ago and he’s doing his financing with me. Please do whatever it is that you have to do to update this appraisal and get my brokerage firm listed as the mortgage originator so we can get this loan into underwriting.”

  The order is faxed to the appraiser, he charges and does what he sees fit and wammoooo! Were in business.

  I understand you are dealing with the “how it’s done” concept but neither I or the borrower care what YOU have to do to make it happen. Call it a release, call it a re-type, call it a readdress - we don’t care - we simply ask that the appraiser updates the appraisal in the way he needs to.

  The horse is dead. We really shouldn’t beat it any more.

  If you do feel we should beat this dead horse more, answer these questions with a yes or no.

  1. can an appraisal be transferred from lender to lender (who cares what the appraisers process to do that is)?

  2. can an individual order an appraisal of their home?

  3. can an individual who has a home appraisal, who then wants to take that appraisal to a mortgage broker do so and use such appraisal without being required to have a completely new appraisal done (by the same appraiser)?

  You are NOT allowed to “read into” the scenario. The answers are either yes or no. We aren’t teaching an appraiser class here. Either someting CAN be done (however the heck it’s getting done who cares) OR it can’t.

  Don’t make me register the domain; stupidappraisers.com!!

  haha — I’m kidding!

  OR, maybe VinceIsAnal.com!

  Ok, I’m done having fun with you. Laugh a little will ya Vince.

• 8 Vince in Seattle // Feb 5, 2008 at 6:28 pm

  OK, I’ll try to retain my sense of humor, but I do appreciate the chance to answer your three questions in a straightforward way:

  1. YES, appraisals can be transferred from lender to lender.

  2. YES, an individual can order an appraisal of their home. But NO, a BORROWER cannot order an appraisal of their home for a federally-related transaction (any loan touched by Freddie, Fannie, bank, S &L, credit union, FHA).

  3. NO, an appraisal ordered by a borrower cannot be used by a mortgage broker. NO, it cannot be transferred, assigned, re-typed, re-addressed, or any permutation you can think of, from a borrower to a lender.

  I won’t dispute your experience that this is commonly done. All I can tell you is it is contrary to public policy as determined by Congress and the financial regulators and violates lending and appraisal regulations. If exposed, would certainly result in discipline to the appraiser. There, that’s as clear as I can be; believe it or don’t.

• 9 Terry Lamb - Managing Editor // Feb 5, 2008 at 7:01 pm

  Vince - I appreciate your input and value your professional opinion.

  Thank you so much for getting involved.

  Take care and I hope to see you back here, keeping me on my toes.

  Warmest Regards,

  Terry Lamb
  The “Stupid Home Owner” Authority (says me!)

• 10 Vince in Seattle // Feb 5, 2008 at 7:26 pm

  I appreciate your gracious final comment and will leave it there.

  I do recognize that letting the lender control the appraiser is a major disincentive to fair dealing and competitive pricing. One solution, as I think I wrote in my first comment, would be a system of trusted application processors. A title or escrow company could order the appraisal and credit report, process and error-check an electronic mortgage application, and compile tax returns and other documents. They would do this for a flat fee, paid by the borrower. When the application is complete, the application could be competitively priced by several lenders. The basic problem with home mortgage finance is that the loan can’t be reliably priced until several weeks and several hundred dollars into the process – not good for either producer or consumer, and requiring an expensive and unreliable system of preliminary pricing (GFE) and final pricing, with conflicts guaranteed. A trusted processor entity, not controlled by either lender or borrower, would eliminate these conflicts.

  A simpler fix to the appraisal issue would be to simply require any lender to transfer an appraisal and possibly a credit report to any other lender within 2 days of written request. That would ensure that a lender couldn’t hold the borrower hostage.

  A third way, which is in our WA legislature, would make mortgage brokers into fiduciaries. A fiduciary would presumably have to comply with the borrower’s request to transfer an appraisal.

  Personally, I like a requirement to transfer within 2 days. It doesn’t rock the boat too much, but would make it much easier for a borrower to take his business elsewhere if his lender isn’t making him happy.

  Thanks for listening, Vince Slupski, MAI.

• 11 Richard Hagar // Feb 6, 2008 at 11:30 pm

  Well thanks for referring people to my site, (www.americanappraisals.com) I appreciate it .

  By Federal law (applicable to appraisers, mortgage brokers and lenders) appraisers can NOT simply readdress an appraisal to someone else. There is an absolute ban on this practice. The ban is at an administrative level via Uniform Standards of Professional Appraisal Practice (USPAP), federal regulation; Title 12 (FIRREA Laws of 1989), and Title 12 CFR and Fraud statutes under Title 18 USC.

  I understand you idea on making life easier for the consumer and ordering the appraisal first…. but this practice was found to be a major indicator of fraud and one of the major problems that brought on the S&L bailout of the 80’s. As a result this specific process was outlawed in 1989 and again under the Banking Safety and Soundness Act of 1992. In simple terms….it is not allowed.

  While this may seem unfair for the borrower, its purpose is to protect the banking system of the US (The Golden rule applies here) and not the borrower. It is the banking system that needs the protection since they are lending more tens if not hundreds of thousands of dollars on the deal. The borrower would have only a $400 appraisal fee at stake. So the rules favor protecting the lender.

  While USPAP may seem like an appraisal law/rule….. the laws are applicable to ALL users of an appraisal. So the laws apply to everyone including a mortgage broker, escrow agent, real estate agent and yes….. the appraiser. This is not simply my opinion…. it is the opinion of dozens of US Attorneys and the Attorney General of the US.

  So I’d skip the “ordering the appraisal first” method and work harder on finding a qualified/good lender or mortgage broker who knows the rules and law. Then test to see if that person has enough ethics that they deserve your mortgage business.

  Richard Hagar SRA

  By the way I teach a great class on “How to Identify and Prevent Real Estate and Mortgage Fraud”…… and the assistant attorney general from your state, is my guest speaker. So if your interested in having it taught in your area, let me know…. it’s clock hour approved for appraisers, agents, mortgage lenders, attorney’s and law enforcement officers.

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