WASHINGTON — A new federal rule could give millions of home buyers insights they’ve never had before about a crucial element of their mortgage application: the appraisal, including the electronic cross-checks and reviews now used by lenders to determine the amount of the loan they’ll approve.
The new rule will also give buyers the time and ammunition they need to challenge appraisals that they suspect contain errors. Starting this weekend, lenders nationwide will be required to inform mortgage applicants that they can receive a free copy of whatever appraisals, reviews, computer valuations and other data are used in the transaction. They will be entitled to see this material promptly after the appraisal report is completed, or three days before their loan closes, whichever is earlier. The lender will have to inform them of their new rights within three business days after receipt of their mortgage application.
This contrasts with the current system, in which lenders don’t have to provide you with a copy of the appraisal unless you request it. The additional valuation data — which may include follow-up review appraisals by a second appraiser, multiple “automated” valuations and “broker price opinions” provided at low cost by realty agents — currently are not subject to disclosure, even though they may have played a role in the final decision on your loan.
Now everything will be mandatory. You have to be given any significant information that was integral to the valuation of the property, even if you had no idea it existed and didn’t ask to see it.
The new rule implements changes to the Equal Credit Opportunity Act made by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. It will be overseen by the Consumer Financial Protection Bureau. Unlike earlier rules, the disclosure requirements will be limited to mortgages that are first liens on a home, including reverse mortgages and construction loans. If you’re applying for a second mortgage or second-lien home equity credit line, the bank will not have to provide you appraisal materials, although you are still free to ask.
So what might this mean to you in practical terms? Potentially plenty. Say your appraiser works for a management firm that uses low-cost, inexperienced appraisers. By chance it turns out that your appraiser lives 80 miles away and is not familiar with local real estate trends. Then the valuation comes in low because the appraiser used inappropriate “comparable” properties, including a house that sold at a depressed price because the owners were in financial distress.