Fannie's appraisal cutting ban takes effect
Fannie Mae's new policy to reduce appraisal cutting takes effect today. If a lender is trying to sell the GSE a loan, they are now prohibited from changing the market value of a home on the request form. Fannie Mae said Tuesday if a loan servicer does not properly handle a troubled mortgage loan in a timely manner, it will demand compensation from the servicer for the mortgage. Lenders and underwriters use the appraisal-cutting technique to undermine the property value of a home, according to Fannie Mae. The GSE now requires any changes to the appraisal be made by the original appraiser of the property. The GSE's Selling Guide outlines the new policy and mandates a lender take up any concerns with an appraisal with the appraiser himself. If the parties cannot reach an agreement about the property value, the lender must search for a second opinion. Fannie advises lenders to "pay particular attention and institute extra due diligence for those loans in which the appraised value is believed to be excessive or where the value of the property has experienced significant appreciation in a short time period since the prior sale." In Fannie Mae's Servicing Guide, the GSE set time frames, varying by state, for a servicer to complete routine foreclosure proceedings. And Fannie Mae reserves the right to impose a compensatory fee, if the servicer doesn't meet the deadline. Fannie Mae said it's implementing this policy to remediate a specific problem affecting alone or correct the servicer's overall performance. The timeline to complete proceedings is as follows: The chart was distributed with the following clarifications:
- Florida has an additional 35 days to allow for a mediation referral prior to a foreclosure suit beginning.
- Iowa's timeline represents the standard elapsed time for a judicial foreclosure; the standard elapsed time for a nonjudicial foreclosure is three months. Fannie Mae will sometimes allow a longer elapsed time for a judicial foreclosure if a borrower who occupies a one-family or two-family dwelling as a principal residence files a written demand to delay the sale—10 months, if the plaintiff's petition includes a waiver of a deficiency judgment; or 16 months, if the plaintiff's petition does not include a waiver of a deficiency judgment.
- Maryland's timeline begins when the case is referred to an attorney to file suit together with a loss mitigation affidavit. The servicer must execute a final loss mitigation affidavit at the commencement of the case, if appropriate. If a preliminary loss mitigation affidavit is required, the time frame can extend to 120 days.
- New York has a timeline of 300 days for all localities except the five boroughs of New York City and Nassau and Suffolk counties on Long Island, which are allowed 420 days.