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   ARTICLE   |   From Scotsman Guide Residential Edition   |   October 2010

How to Promote Smooth Appraisal Transfers

When better deals come along, avoiding valuation roadblocks is critical

In a perfect world, upon finding their clients a better deal, mortgage brokers could transfer an appraisal from one lender to another quickly and easily. Unfortunately, when it comes to appraisal transfers, the world is far from perfect.

One of the main reasons for that stems from lenders' internal policies. Brokers would be wise to know about those policies if they intend to avoid glitches that can muck up their deals. They also should familiarize themselves with other ways to promote smooth and swift appraisal transfers.

HVCC and transfers

Although the rules for appraisal portability look straightforward, they can be confusing. The Home Valuation Code of Conduct (HVCC) allows for appraisal transfers. It doesn't, however, require lenders to accept or release appraisals. This can present a big issue when brokers find clients a better deal and run into portability roadblocks. To avoid such problems, brokers should monitor the transfer request from start to finish. Also, as of press time, HVCC was set to end by Oct. 20. That, however, doesn't mean its guidelines won't persist. See sidebar (next page) for more information.

According to HVCC guidelines, if a broker submits a loan to one lender, which orders an appraisal, but then decides to submit the same loan to another lender that offers better terms, the appraisal obtained by the original lender can be used by the second lender, assuming they both comply with the requirements of HVCC.

In theory, the original lender would ask the mortgage broker to fill out a transfer form and then send that form to the appraisal-management company (AMC), which would release the appraisal report to the second lender. This linear transfer represents the ideal. Unfortunately, many things can go awry.

For example, the original lender could refuse to release an appraisal report to another lender. Or the second lender could refuse to accept it.

In cases in which the original lender won't authorize the release, many brokers attempt to go directly to the AMC, mistakenly thinking their request will be honored. Although the AMC is responsible for releasing the appraisal to the second lender, it can't do so unless the original lender authorizes the release.

HVCC guidelines state that a transferred appraisal must have the original lender's approval and name listed on it. To be clear, HVCC rules don't require lenders to release appraisals. Nor do they require lenders to accept the original appraisal from another lender -- whether or not it's in the original lender's name.

The Federal Housing Administration's (FHA's) guidelines, meanwhile, are more definitive. They stipulate that a new lender must accept the original appraisal in the old lender's name. If an FHA borrower switches lenders, the first lender must transfer the case to the second lender.

Financial Reform's Effect

The Dodd-Frank Wall Street Reform and Consumer Protection Act calls for the Federal Reserve Board to implement interim appraisal-independence standards by Oct. 20. Those rules will end the Home Valuation Code of Conduct and will maintain appraiser independence.

The Federal Reserve, the Comptroller of the Currency, the Federal Deposit Insurance Corp., the National Credit Union Administration Board, the Federal Housing Finance Agency and the Bureau of Consumer Financial Protection will implement final appraisal regulations jointly.

The new standards will address appraisal portability. They also will allow mortgage originators to ask appraisers to:

  • Consider more property information, including additional comparable properties;
  • Provide details or explanations for the value conclusion; and
  • Correct errors in the appraisal report.
  • Coercive action will continue to be prohibited.

With one set of guidelines allowing transfers and another requiring acceptance, things can get confusing. Based on market trends, it seems there's an equal chance that lenders will release and accept appraisals.

Know lenders' policies

Mortgage brokers can improve the likelihood that appraisal transfers will occur smoothly in a few ways. First, find out the policy for appraisal transfers for each lender with which you work and favor lenders with a history of allowing appraisal portability.

It's imperative to learn the internal policies of each lender with which you do business. This can help protect borrowers from potential snafus or additional appraisal costs, which can be critical when moving deals for the sake of better rates or terms -- or both.

After initiating an appraisal transfer, stay involved in each stage of the process to make sure it proceeds smoothly and quickly. Stay in touch with both lenders and with the AMC. Ask questions, get answers and keep borrowers in the loop.

For loans being sold to Fannie Mae or Freddie Mac, get an HVCC certificate from the AMC. This will provide the new lender with proof of appraisal-specific HVCC compliance. This also can help convince new lenders to accept appraisal transfers.

In addition, brokers should know that transferred appraisals must be in the form of a first-generation copy of the original appraisal and not a second-generation PDF copy. After a transfer is approved, the AMC must send the appraisal directly to the new lender. It should never be in the hands of the broker, which would be an inarguable violation of HVCC rules.

Although mortgage brokers are barred from most parts of the appraisal process, they can play a critical role in preventing problems with appraisal transfers. By staying abreast of appraisal rules and lenders' reputations -- and by communicating early and often with all parties involved -- brokers can more easily move a client's loan upon finding a better deal.


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