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New rule requires lenders to spill the appraisal beans; here's what to ask about

The Consumer Financial Protection Bureau now requires mortgage lenders to provide borrowers with information on appraisals and how they were put together. Here are some appraisal basics.
BY RICHARD MIZE Published: January 25, 2014

A new federal rule meant to make it easier for homebuyers to get appraisal information went into effect the other day, requiring lenders to spill the beans for mortgage applicants.

Buyers — borrowers — are to get copies of appraisals, reviews, computer valuations and other documentation promptly after a appraisal report is filed or three days before the loan closes, whichever is earlier. This includes follow-up reviews by a second appraiser, multiple automated valuations and “broker price opinions” used to supplement an appraisal.

Technically, the rule, overseen by the Consumer Financial Protection Bureau, requires the lender to reveal any information that went into a property valuation, without being asked — although the rule also allows buyers-borrowers to waive their right to the information, so watch what you sign.

Forgive my lack of faith here. As with any new rule or reg, you can be sure lenders have already figured out how to do the least required and plan to wait until pushed to comply fully. They've had time. This didn't come out of the blue: The bureau proposed it two years ago to implement changes to the Equal Credit Opportunity Act made by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The rule, in effect for any loan application dated Jan. 18 or after, is limited to mortgages that are first liens, including reverse mortgages and construction loans. Lenders of second mortgages or home equity lines of credit secured by a secondary lien are not required to provide the information. Ask anyway.

You may need to know what to ask for. Here are some home appraisal basics.

The value of existing homes — as opposed to newly built or never occupied — is determined with a sales comparison called a market data approach. Information from the recent sale of similar houses — “comparables” — is compiled, then adjusted, then compared to the one you're trying to buy, called the subject property.

Adjustments are necessary because no two properties are alike. Construction materials used, architectural and mechanical features, size of lot, location and other factors should be taken into consideration and used to adjust the estimated value of the comparables.

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