During the past two years lenders and mortgage insurers have added tougher underwriting requirements than those of Fannie Mae and Freddie Mac. Now Fannie is eliminating one type of "overlay."
Starting next week Fannie will prohibit lenders that sell loans to it from changing appraisers' valuations — a practice known as appraisal cutting. An underwriter who has an issue with an appraised value must contact the appraiser to resolve any disagreements about the valuation, Fannie told lenders in June.
If it is not possible to resolve an opinion-of-value dispute, then the only option available to the lender is to order a second appraisal. The lender cannot just cut the value of the appraisal, which had become a common practice, and the lender cannot shop around for the best — in this case, the lowest — appraisal either.
A lender can still be conservative about loan-to-value while accepting the appraiser's opinion.
"They aren't rendering an opinion on the value, but the lender is saying they will only loan x amount," said Griff Straw, president of Solidifi Inc., a Chicago valuation and risk management company. "What Fannie Mae has done is put some definitions around the process that is fair to everyone so you don't arbitrarily have an underwriter who whacks the appraisal. You have the flexibility to question it."
