Realtors Seek to Make All Appraisals Portable
by Bob Hunt
Reality Times
Effective January 1, 2010, all FHA appraisals (with limited exceptions) became portable. According to FHA Mortgagee Letter 2009-29, this was "for the purpose of facilitating the loan process when a borrower switches from one Federal Housing Administration (FHA) approved lender (first lender) to another (second lender) and an appraisal was ordered by and completed for the first lender." In such cases, "the first lender must, at the borrower's request, transfer the case to the second lender." A second appraisal could be ordered by the second lender only if (i) a material deficiency in the first appraisal had been determined, or (ii) the first appraiser was on the second lender's exclusionary list, or (iii) the failure of the first lender to supply a copy in a timely manner might cause harm to the borrower [e.g. by losing an interest rate lock]."
Many people in the real estate business believe that all appraisals, not just those for FHA loans, should be portable. Thus it is that the California Association of Realtors® has sponsored state legislation, Senate Bill 1000 (Correa), which would "require lenders to accept a 'portable' appraisal, with specified limitations to all transactions, at the request of the borrower." This would cover mortgages for owner-occupied dwellings.
The legislation closely resembles the FHA rules. The appraisal must be done in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP). It adds that the new lender may require the borrower to purchase a new appraisal if the first one is more than thirty days old as of the date the second lender receives it. Also, the California legislation provides that the new lender may obtain a new appraisal, provided that the borrower is not required to pay for it.
Proponents of the bill argue that it is unfair to require borrowers to pay for a new appraisal "when they have a perfectly good one in hand." Furthermore, by removing the potential cost of a second appraisal, consumers would then find it easier to continue shopping for better loan terms and interest rates with other lenders while still moving forward with the first loan application.
SB 1000 has attracted a coalition of opponents which includes the California Mortgage Bankers Association, the California Land Title Association, the Credit Union League, and the California Chamber of Commerce.
The opposition points out that such legislation at the state level could cause problems with respect to the secondary market. We noted recently that a June 30 Fannie Mae lender made it clear that the choice of an appraiser is the lender's responsibility; yet this legislation could force a lender to accept work from someone with whom they have had no experience at all. Moreover, that same Fannie Mae letter pointed out that lenders may need to require even more stringent standards than those of USPAP.
Furthermore, the opposition notes that a second lender is still free to order another appraisal, and to build it into the overall costs of the loan, thus eliminating whatever saving the consumer might have had.
Much of the debate over the California legislation may be rendered moot by a preemption of the issue at the federal level. On July 21, President Obama signed HR 4173, the Consumer Protection Act, into law. Unknown to many, that bill contains a section dealing with appraisal portability. It can be found at Section 1472 §129E. (h). There it states that the (newly-created) Bureau of Consumer Financial Protection along with the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and other agencies "may jointly issue regulations that address the issue of appraisal report portability, including regulations that ensure the portability of the appraisal report between lenders for a consumer credit transaction secured by 1-4 unit single family residence that is the principal dwelling of the consumer … ."
This provision says that such regulations may be issued, not that they will be. Nor does it say what the regulations will be.
We were all famously told that we would need to pass the massive health care bill in order to find out what was in it. The Consumer Protection Act appears to be similar. Moreover, just passing it was not sufficient. We really won't know about appraisal portability until the regulators write the rules, assuming they are going to write some.
