Fha Reconsideration Request: Fill & Download for Free

The bank is required to give you a copy of the appraisal under the current laws and regulations.Many people are unaware of how the appraisal process works, so now might be a good time to go over that.Although an appraisal is referred to as an “opinion of value,” it is anything but arbitrary. The appraiser is a licensed person who goes through a specific procedure to arrive at that number that banks will use.The appraiser (I’ll use the male pronoun for convenience, but there are many people of other genders in the profession) first describes the “subject property” (the one being appraised) in a standardized way: room count, living area, amenities, condition and location, etc. He then finds other comparable properties in the area that have sold within six months (“comps”) and describes them in the same standardized way. He gets that information from public records and the MLS in most cases—he doesn’t go inside the comps, although most appraisers will drive by to take a photo of the exterior.Then he adjusts the selling price of each comp to be the equivalent of the subject. If a comp sold for $400,000 but had 200 square feet more living area, he’d apply an adjustment based on the local building cost. It could range between $45 and $150, possibly more or less. If the prevailing cost is $50, he’ll adjust the comp by $10,000, coming up with $390,000 if that was the only adjustment.He does the same for each of the comps, adjusting for differences like living area, room count, bathroom count, remodeling, condition, lot size and more.Once he has made all the adjustments, he’ll organize the comps by relevance, then calculate a weighted average to come up with the “opinion of value” as of that date.Although an appraiser will look at properties currently on the market and in escrow (“pending sales”), he can only use closed sales for his calculations. The others are used to show market trends. If a sale closes the day after the appraisal’s effective date, it can’t be used in the calculation of appraised value.There are only a few areas where an appraiser may screw up and give a value that’s simply incorrect. These include the following:Disregarding a comp that may support a higher or lower value—or using a comp that is much higher or lower because of some external factor, like a distress saleFailing to apply adjustments to the comps where they are indicated. We had one appraisal recently where the appraiser used a sale of a property backing up to the freeway, but in the same development. The subject was more than half a mile away from the freeway, with many houses and trees in between to buffer the noise, which was deafening. He failed to adjust the value of the freeway home, and that resulted in a value for the subject that was wildly lowFailing to apply adjustments for time in a rising market. The same appraiser claimed that a property that had sold seven months previously would sell for the same price today. He claimed that the market was flat, when in fact it had gone up over that time by over 6%This appraiser made several other egregious errors, which resulted in an unreasonably low value for the subject property. We followed the accepted procedure to deal with it. First, we submitted a form, “Request for Reconsideration of Value,” and listed the reasons why we felt the value was wrong. He agreed to raise his value—but only by about $8,000. In other words, he admitted that he had been wrong with his report, but only a little.After we had gone through that process, we successfully made the case that the appraisal was “insufficient,” and we were able to order a replacement appraisal (which we paid for). The second appraisal gave the property a value more than $100,000 higher than the first.It is no longer possible simply to “shop” for an appraisal. In some cases, like FHA and VA loans, the appraisal is “tied” to the property for a period of months. With conventional loans, a lender must demonstrate that they are not simply ordering appraisals to get the “right” value. A lender must demonstrate and document that they have gone through the correct procedure when an appraisal is questionable before ordering a replacement.Bonus commentary:Speaking as a mortgage lender with close to 3 decades’ experience, I find this approach somewhat unfair to consumers. After the crash of 2008, with banks going belly up right and left, people losing their equity in the blink of an eye as values plummeted, millions of homeowners losing their homes to foreclosure and short sale, regulators and politicians looked for someone to blame—yes, a scapegoat. Their best target turned out to be those who had the least representation in Washington: the appraisers and the independent mortgage brokers. The most stringent regulations and restrictions were applied to them.This not to suggest that the appraisers and small lenders/brokers were completely blameless; but the politicians successfully convinced the regulators that appraisers were largely to blame for the “bubble,” artificially (and sometimes fraudulently) inflating values. They made the case that without complicit appraisers, the values would not have fed the run-up in real estate prices, and the resultant crash. Appraisers were placed under considerable more regulation than ever before—and the cost of a report increased dramatically, while appraisers’ income dropped when Appraisal Management Companies began taking healthy chunks of the appraisers’ earned fees.The problem with this thesis is that every component of every loan is reviewed in detail by a person called an underwriter. This person’s job is to document that each loan is as described, and that it meets the requirements of the investor who will buy it. One of the components of a loan file is the appraisal. The underwriter is specifically tasked with reviewing every page of every appraisal submitted. This means evaluating each comparable sale for suitability. Analyzing the adjustments applied to each of the comps to ensure none is unreasonable, intended to inflate value. The underwriter is supposed to be the last line of defense against fraud in the loan application. That includes evaluating appraisals. If an underwriter has doubts about an appraisal, she (or he) is free to order a “desk review,” where someone reviews the data in the report and the adjustments applied to the data. The appraiser can also order a “field review,” where a licensed appraiser visits the subject property to double-check the original appraiser’s work.These reviews were done only rarely, in my experience. It is my opinion that the appraisals were done properly, for the most part. Because of the feverish activity in the market in those days—a feeding frenzy—values were escalating dramatically, and appraisers were applying appropriate adjustments to the comps for the age of the previous sales.The real culprits were the Senators who wrote the bills in 1999 and 2000 that were the sine qua non of the later crisis.But that’s a story for another time.