Stricter Appraisal Standards on the Horizon

One component of the Dodd-Frank Wall Street Reform and Consumer Protection Act (passed this summer) will affect future appraisal requirements. Appraisers and appraisal management companies will have new requirements that are aimed at making sure home valuations are both fair and accurate. Tougher penalties will also be set in place for those who don’t follow the new rules.

An interim final rule was announced in October by the Board of Governors of the Federal Reserve System. The public comment period on the rule are due this week, culminating a two-month period for these comments. Compliance to the new appraisal rule will be mandatory by April.

The new requirements will essentially take the place of the Home Valuation Code of Conduct, announced by Freddie Mac and Fannie Mae in 2008, to create appraisal independence standards for the loans the two government-sponsored enterprises purchase. Under the new rule, appraisers will have to decline an order if they are not qualified to complete it. In addition, any bribery or coercion that would result in an appraiser basing the appraised value on factors other than his/her own judgment are prohibited. Creditors are also not allowed to extend credit if they are aware of violations before the deal is completed. Any misconduct in the appraisal process must be reported to the authorities.

Other minor items and clarifications are included in the new requirements, but these are some of the more major restrictions. These new appraisal rules will apply to all mortgage loans.