As the result of a post-purchase review of mortgage loan files that identified a number of appraisal issues, Fannie Mae has updated its Selling Guide with additional appraisal guidance.

The new policy requirements and clarifications concerning existing lender requirements – which take effect on all mortgage applications dated on or after Sept. 1, 2010 — have been added to a number of appraisal sections of the Selling Guide, including:

• Inclusion of interior photographs in the appraisal report
• Lender changes to the appraised value and guidance on addressing appraisal deficiencies
• Appraiser selection criteria
• Sources of comparable market data
• Selection of comparable sales
• Communication under the HVCC
• Seller concessions
• Treatment of personal property
• Market Conditions Addendum to the Appraisal Report (Form 1004MC)

A copy of the Fannie Mae Selling Guide updates on appraisal policies can be found here.

AB 260 – Effective Jan. 1, 2010: Tightens restrictions on mortgage brokers so they cannot steer borrowers to riskier, higher-interest loans when they qualify for less-expensive ones.

Mortgage Broker Activities Restricted: Commencing January 1, 2010, a mortgage broker will be deemed a fiduciary with a duty to place the borrower’s economic interest above his or her own.  This fiduciary duty pertains to a mortgage broker who makes loans secured by residential property of one-to-four units.

Also starting with loans originated on or after July 1, 2010, the law will strictly regulate higher-priced mortgage loans as defined, including requiring upfront disclosure if a mortgage broker only arranges higher-priced mortgage loans, restricting prepayment penalties and yield spread premiums, prohibiting negative amortization, and prohibiting mortgage brokers from steering borrowers to higher-cost loans.

High priced mortgage loans are defined under federal law as:
1.    Loans secured by a principal residence, and
2.    The APR exceeds the rate for average prime rate offer rate by 1.5% for loans secured by a 1st, or
3.    The APR exceeds the rate for average prime rate offer rate by 3.5% for loans secured by a 2nd or junior loan.

The average prime offer rate is published by the Fed and is updated at least weekly.

SB 237 – Effective Jan. 1, 2010: Creates a Registration Program for Appraisal Firms.

Appraisal Industry Oversight: The Office of Real Estate Appraisers (OREA) will have regulatory oversight of appraisal management companies, which gained prominence after Fannie Mae and Freddie Mac adopted the Home Valuation Code of Conduct (HVCC).  Starting January 1, 2010, the OREA must implement a registration system for appraisal management companies, including fingerprinting and background checks for persons with operational authority as defined.

This law clarifies what conduct constitutes improperly influencing the appraisal process by anyone with an interest in a real estate transaction.  Such prohibited conduct includes withholding or threatening to withhold an appraisal fee, withholding or threatening to withhold future appraisal business, and promising future business, promotions, or compensation.

Bills currently pending in Congress may suspend or rescind HVCC so this law may have limited effect if those laws pass.

AB 329 – Effective January 1, 2010: Reverse Mortgage Program Revisions

Reverse Mortgages: Provides new disclosure and other requirements under the Reverse Mortgage Elder Protection Act.  These mostly duplicate existing federal laws.  The new provisions are that loan officers are prohibited from selling or referring borrowers to sellers of insurance or annuities.