One of the key steps to getting a mortgage approved is to value a home with an appraisal. In dealing with the mortgage and real estate crash in 2007-2008 Fannie Mae and Freddie Mac have changed the process of how appraisals are ordered and paid for - especially appraisals associated with loans coming from mortgage brokers.
In the past, mortgage broker loan officers in the processing of a mortgage application would order the appraisal from either an approved list of appraisers issued by their corporate office or a favorite appraiser or appraisal company. While this provided a lot of flexibility on behalf of the mortgage broker loan officer to use virtually any appraiser who had a license it did generate a lot of scrutiny from industry critics about the validity of how an appraiser would value a home.
For example, would the appraiser value a home based on kickbacks from the person who ordered the appraisal if the home's value matched what the originator wanted or was the value determined by legitimate standard appraising USPAP practices?
For the most part, appraisers do a great job staying as neutral as possible. However, most appraisers have faced some level of pressure on the part of the loan officer who needs to get the value of the home per the loan application in order to get a mortgage approved. Evidence of such sketchy business practices occupy the news wires as there have been plenty of mortgage company - real estate agent - appraisal scams uncovered in the aftermath of the 2007-2008 real estate market crash.
As a result of these scams and in an attempt to add an extra level of safety in the loan approval process, Fannie Mae and Freddie Mac have both been changed the process of how appraisals are ordered. One major industry professional most impacted by these changes are mortgage brokers.
New Appraisal Ordering Guidelines As Of May 2009 For Mortgage Brokers
Beginning May 2009, mortgage brokers and their loan officers must order an appraisal through a third party appraisal management company hired by the mortgage lender where the mortgage broker wants to place their loan. Further, homeowners will not longer be able to pay the appraiser direct as has been the standard practice for many many years. Rather, homeowners can pay the mortgage lender direct, the mortgage broker direct (if the mortgage broker is allowed to accept advance fees - not all mortgage brokers can do this), or the appraisal management company direct.
For more information on how appraisals must be ordered for loans insured by Fannie Mae or Freddie Mac - visit: Fannie Mae Home Valuation Code of Conduct.
Learn more about appraisals by reading: What Is An Appraisal.
