On January 18, 2014 ,the new ECOA Rules regarding appraisals
went into effect. The new rules will apply to all loan applications which are
seeking a first lien home loan. This will apply to all new purchases and first
lien refinances from 1 to 4 units. In other words, it will include all single family
homes, duplexes, triplexes and quads. It will not apply to the majority of
commercial real estate deals. The rules also extend to townhomes, condominiums,
and manufactured homes purchased by individuals.
There is no differentiation between owner occupied units and
investments units, with regard to the new appraisal rules. Credit unions are
also no longer exempt.
Basics of the New
Valuation Rule
At the heart of the new ECOA Valuation Rule is with regard
to providing the applicant with a copy of the valuation or appraisal of a
property. When a buyer makes an offer, during the lending process the appraisal
is completed, and until now, generally the buyer never saw a copy of the
appraisal even though they were charged a fee for it. The buyer generally has
no say in the selection of the appraiser, which lenders generally choose at
random from a list of approved vendors. This measure is said to provide a more
objective appraisal and reduces fraud.
The new ruling requires lenders and creditors to provide the
buyer (or refinancer) with a copy of the appraisal “promptly upon completion,” or
within 3 days prior to consummation or account opening. If the lender chooses
to email the appraisal to the buyer, they must comply with existing eSign
requirements.
Banks or lenders may charge a fee for the actual appraisal,
as most already do. However, they cannot charge an additional fee for the copy
or mailing of the appraisal to the applicant. If the application is withdrawn,
cancelled, denied or incomplete, the lender still must provide a copy of the
appraisal to the borrower. They have no more than 30 days in the event of a
decline to provide the borrower a copy.
The only condition that would allow the lender to not
provide a copy of the appraisal is if the borrower waives their right to the
copy. This may be done orally or in writing.
Impact on Lenders
Part of the concern for lenders in providing an appraisal to
borrowers is that they will take it to another lender to complete the
transaction. Processing a loan has certain costs associated with the loan. By
the time the appraisal is ordered, many hours have been put into approving a
loan. This puts the lender at a disadvantage.
In the event that a buyer chooses to
switch lenders at the last minute this will impact and delay the closing. If
this becomes a frequent scenario then it will impact both lenders and realtors.
Overall it may be seen that the concerns are not justified. The lending process
is an arduous one and it is hard to imagine a borrower volunteering to go
through the process again over a slight change in interest rates, once the
process is nearly complete.
Overall this should be a good regulation change as borrowers
could become more educated about the appraisal process, providing more
cooperation and understanding when it comes to appraisal values.
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