FHA Moving To Digital Appraisals

Starting next year, HUD will require lenders to submit electronic appraisals for FHA mortgage applications. This mortgage news is important because appraisals are a form of consumer protection, a way to prevent buyers from overpaying for a property.

For many years lenders and mortgage investors have moved toward electronic appraisals for the usual reasons, speed and reduced paperwork. However, another reason for favoring electronic appraisals concerns new regulations under Wall Street reform.

According to Frank Gregoire, a Realtor-Appraiser based in St. Petersburg, FL and a former chairman of the Florida Real Estate Appraisal Board, under Dodd-Frank, "lenders must provide borrowers with copies of ALL valuations considered in making the lending decision."

This seems like a simple and obvious requirement since borrowers are paying for appraisals, but that's not quite the case.

One problem is that appraisals are getting longer. A recent appraisal, for example, ran 27 pages for a residential property we were buying. That's a lot of paper for lenders to shuffle and for borrowers to store.

Mortgage News: Appraisal Disclosures

A second problem is that lenders now have new appraisal disclosure deadlines. The Consumer Financial Protection Bureau says the new standards look like this:

  • The lender has to tell you within three days of receiving your mortgage loan application that you will promptly get a copy of any appraisal.
  • You must be provided a free copy of any valuation, which may include commonly used reports like appraisal reports, automated valuation model reports, or broker's price opinions.
  • The lender has to provide these copies promptly after the reports are completed, or three days before your loan closes, whichever is earlier.
  • The lender may ask you to waive the deadline so that any copies can be provided at closing.
  • The lender must provide these copies to you promptly, even if your loan does not close.
  • The lender may require you to pay a reasonable fee for the cost of obtaining the valuation.

Notice that lenders are not only required to give borrowers the appraisal, they must also supply such things as automated valuation model reports (AVMs) and broker price opinions (BPOs) if they are used to value the property.

For a growing number of borrowers this means they will not only be getting an appraisal but also an automated valuation model report. And what is the AVM? That's essentially an electronic review of the appraisal.

The result is that borrowers may well get the appraisal -- 27 pages in our case -- plus the AVM. For us the AVM ran 22 pages, a document almost as long as the original appraisal. In fact, the AVM may well have been as long as the original appraisal if it had not used smaller photos.

Given the need to disclose appraisals and related reports, and given the need to meet new federal guidelines, it's obvious why both lenders and HUD want to move to electronic reporting.

Is this good mortgage news for borrowers? You bet. First, you will be getting your valuation documents quickly. Second, if the lender uses an AVM -- and not all do -- you will be able to see how the appraisal stacks up against typical valuation standards. Third, these documents have a lot of useful information which may be of value to you sometime down the road when you ultimately sell the property, so hang on to them.

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