Will New Fannie Mae Appraisal Rules Wreck Your Home Sale?
Will New Fannie Mae Appraisal Rules Wreck Your Home Sale? Get ready to jump through yet another hoop when you sell your home. Fannie Mae has rolled out a new program that will second guess a Mortgage Lender’s Appraisal – and this will probably happen only days away from your anticipated closing date.
“Thank you sir – may I have another” is not just a line from the movie “Animal House” It will probably be heard around Atlanta, GA as Fannie Mae implements a new software program that reviews the comparables used by a third party Appraiser hired by a Mortgage Lender and forces the Appraiser to anser questions about while specific comparables were used and why comparabe homes sales chosen by the new software program have been ignored. Before a home loan can be closed, the appraiser will have to provide satisfactory answers to Fannie Mae and have the appraisal approved. All of this is to occur AFTER THE LENDERS UNDERWRITING has already approved the loan.
Here is a description by Kenneth Harney in the New York Times
Starting Jan. 26, Fannie plans to offer mortgage lenders access to proprietary home valuation databases that they can use to assess the accuracy and risks posed by the reports submitted by appraisers. The Fannie data will flag possible errors in the appraiser’s work before the lender commits to fund the loan, will score the appraisal for overall risk of inaccuracy and may provide as many as 20 alternative “comps” — properties in the area that have sold recently and are roughly comparable to the house the lender is considering for financing but were not used by the appraiser.
Lenders can then forward Fannie’s alternative comps and risk scores to the appraiser or the management company that hired the appraiser, requesting explanations and changes to the appraisal.
Professional appraisers rely on comps as key indicators for value. If two houses in a neighborhood sold within the past three months for $250,000 and are similar in size and features to the house under consideration by the lender, the appraisal should come in close to that number, absent any dramatic recent marketplace changes. But if the appraiser values the house at the contract price of $300,000 agreed by the seller and buyer, the valuation may be judged too high. Excessive valuations create the risk of future losses to lenders and investors if the borrower defaults and the house goes to foreclosure.
I was particularly alarmed to read that appraisers might start picking the lowest value comps just to avoid having to answer questions from Fannie Mae
Critics such as Mike Turner charge that Fannie’s data will not be able to recognize differences between adjacent neighborhoods — a key factor in valuations — because it is based on census tract groupings, which may include mixes of lower-priced and higher-priced homes from different neighborhoods. He believes the risk-rating system inevitably will be biased toward lower-priced comparables — something he says appraisers “will figure out quickly” — and will therefore reward appraisers who choose less-costly properties for their comps.
My prediction is that a lot of home sales are going to “BLOW UP” as a result of these new appraisal deals. It might all work itself out over time with some tweaking. But why throw a wrench in the first good home market we have had in 6 or 7 years.
Will New Fannie Mae Appraisal Rules Wreck Your Home Sale? The answer is YES, my dear.