Professional Home Staging and Photography Blog: Fannie Mae gets tough on appraisal changes made by mortgage lenders

Fannie Mae gets tough on appraisal changes made by mortgage lenders

Dollar sign and a houseThe real estate market meltdown has exposed many painful and game-changing weaknesses in how business was conducted in the years past. In the quest to make as much money as possible scores of mortgage files were pushed through with incomplete or doctored information. Now, with foreclosures the topic of the day, mortgage lenders are receiving growing demands from investors like Fannie Mae and Freddie Mac to buy back loans they originated haphazardly. That can be devastating to the bottom line.

To deal with the costly buyback menace many mortgage shops have commenced tinkering with appraisals, of all things. As an appraisal comes in some home loan providers will run an electronic valuation model based on public records - it involves no actual physical inspection - to see how close the two numbers are. They are double checking on the appraiser's work, is what they are doing. If the appraiser's report is higher the underwriter can randomly cut back on the value, so that the lender can't be blamed for using inflated figures should the loan go bad. Of course, many a deal has blown up into many little pieces as a result. This likely happens more in the hard-hit areas - Las Vegas comes to mind, as does Arizona, California and Florida - where values have eroded the most and where all the mortgage foreclosures and short sales can seriously trample with the price structure.

Mortgage brokers, real estate agents and builders are howling injustice at such a practice. Home buyers and sellers whose transactions disintegrate don't know whether to cry or laugh. Part of the housing market has indeed turned into an unpredictable mystery.

But things are about to change for the better. Fannie Mae is tackling the electrifying issue head on. The GSE will not accept mortgages where the appraisal numbers have been altered, the policy going into effect September 1, 2010. It requires home loan providers to get in touch with appraisers to work out any disputes over values. If plan B is needed, a second appraisal should be ordered.

The housing industry is raving about Fannie Mae's decision. Despite having withstood some genuinely tough times during this real estate chaos the GSE can still manufacture sensible policies. It can only strengthen its position as a key element in the mortgage marketplace. It wouldn't be a big surprise if Freddie Mac followed suit in the near future.



Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 6 commentsEsko Kiuru • July 11 2010 12:18PM


I have learned to get scared when they say things are "changing for the better."  Open mind here again but who knows :-/

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) almost 9 years ago

Jeff, I have not seen that happening here in Connecticut, but Fannie Mae has been sending loans back to lenders for a lot of reasons.  Most of them are ridiculous and after months of holding the loan.  Lenders have a lot of reasons to be gun shy.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 9 years ago


Fannie is taking small steps to help the market make more sense.

Posted by Esko Kiuru almost 9 years ago


Looks like lenders are just a bit too cautious over many underwriting issues, besides appraisals.

Posted by Esko Kiuru almost 9 years ago

It has to do that because sometimes these are ran off of false comps like a trustee sale deed.

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) over 8 years ago


It's a good move. I wonder where Freddie Mac stands on this?

Posted by Esko Kiuru over 8 years ago