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New rules for mortgage appraisals

Starting May 1, 2009, new rules will apply to most appraisals of single-family homes requested by banks as part of the mortgage process. Lenders will have to comply with these rules in order to have their mortgages purchased by Fannie Mae or Freddie Mac. The new rules are part of an effort to keep appraisals honest. In the past, some lenders had allegedly pressured appraisers to provide certain valuations for properties in order to allow a mortgage deal to go through. The rules were agreed to by Fannie and Freddie; the Federal Housing Finance Authority, which regulates them; and New York Attorney General Andrew Cuomo.

Originally, the rules required lenders to use outside appraisers rather than appraisers who worked for the lender. But industry officials complained that this would require them either to use less-qualified appraisers or to pay more for appraisals and pass the increased cost on to the consumer. Under a compromise, lenders will be able to use in-house appraisers, but a variety of “firewalls” must be created to ensure the appraisers’ independence. In addition, a lender may not give an appraiser a “target” value for a property or tell an appraiser how much the customer wants to borrow.

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