Changing rules for home appraisals

April 24, 2009 4:32:35 PM PDT
With interest rates at all time lows, now is a good time to refinance your home. If you are interested, now may be the time to act for another reason: the rules are about to change. The rules will affect those trying to get a loan or refinance a loan with Fannie Mae and Freddie Mac and the changes deal with appraisals and how much you may be paying more for them.

The refinancing business has been booming for several months, falling interest rates are in part why Doris Goodman is refinancing.

She said, "The rates are good right now. We just finished paying for our kids' college and we are at a time that we can try to pay off all our debt."

There is another reason Goodman chose now to refinance. The rules for getting a loan through Fannie Mae and Freddie Mac are about to change, specifically in how mortgage companies hire appraisers. It's called the home valuation code of conduct and it means mortgage brokers can no longer hire their own appraisers to look at a property. Instead a third party will handle the process and some mortgage brokers worry what that will do to values.

Cathy Baker of Baker Mortgage explained, "I will no longer be able to order the appraisals for my customers. We will have to go through a national appraisal company and the price will go up from $325 now to an average of $495 to $595."

Baker says right now mortgage brokers know the people doing appraisals and the quality of the work, but starting May 1, that will change.

"We will not only not get to choose the appraiser, but we will not be allowed to have any contact with that appraiser," Baker said.

The rule change came about because in the past some lending institutions were getting appraisers to set values based on "loan size" rather than a "home's worth." While not all mortgage brokers think the shift to third party appraisers will cut values, most agree consumers may suffer because they too will not have any contact with the person appraising their home.

"Before if you wanted to talk to an appraiser and say, 'I just replaced my roof,'" said Steven Kaufman of Zeus Mortgage. "That could affect the value and you could tell that to an appraiser, and they are licensed and trust them to be independent. Now all that dialog is gone."

Appraisers we spoke with say the new rules will prevent fraud because home values will be based on an appraiser's opinion and they'll be free from outside pressure.

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