Aug. 17, 2012 at 10:49 AM ET
It doesn’t matter how much you want that house or whether you qualify for the loan, if the appraisal comes in lower than the amount of the mortgage your loan might be denied.
The Consumer Financial Protection Bureau has proposed a rule designed to improve access to appraisal reports so borrowers know – prior to closing – how the property’s value was determined.
“When looking to buy a home or refinance a mortgage, consumers need the best available facts and data,” said CFPB Director Richard Cordray in a prepared statement. “This rule would guarantee consumers receive important disclosures on how a lender determines the value of the home, making it easier for loan applicants to make informed decisions.”
Under the proposed rule, creditors would be required to inform customers within three days of applying for a loan that they have the right to receive a free copy of all appraisal reports and home value estimates. Lenders would have to provide those reports as soon as possible, but no later than three days before closing – even if the loan is denied.
The CFPB believes this will make it easier for borrowers to determine if a loan application was denied due to a discriminatory appraisal.
Applicants will be allowed to waive the three-day requirement for getting those documents as long they are provided at or prior to closing.
The proposed rule is the CFPB’s way of implementing a provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act which requires this disclosure.
Francois (Frank) Gregoire, a certified residential real estate appraiser in St. Petersburg, Fla. and past chairman of the National Association of REALTORS Appraisal Committee, supports the proposed rule.
“The more information the borrower has, the better decision they can make,” Gregoire told me. “The borrower will also know if there was more than one appraisal used and if those appraisals were close to each other.”
Glenn Crellin, associate director of the Runstad Center for Real Estate Studies at the University of Washington, believes it’s important for people to get the appraisal forms well in advance of closing. It will give them more time to work with the lender if that appraisal could jeopardize the deal or delay closing.
Keep in mind, this rule will not change the purpose of the appraisal, something a lot of borrowers don’t really understand.
“These appraisals are being done for the lenders to insure that they are confident that there’s enough value in the property to justify making the loan,” Crellin told me. “They are not done to tell the consumer whether they are paying a fair price for the property.”
In most cases, the lender charges the borrower for the costs of conducting the appraisal. Typically, the customer has to request the paperwork and there may be a fee associated with that.
Under the new rule, lenders could still charge reasonable fees for the appraisal process. But they could not charge a fee for providing a copy of the reports.
The Consumer Financial Protection Bureau will accept comments on the proposed rule until October 15. It’s expected to issue a final rule in January 2013.
Click here for a summary of the CFPB’s proposed rule and instructions on submitting comments.
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