Fannie Mae to implement new policy to reduce appraisal cutting

Tuesday, February 07, 2012

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Fannie Mae to implement new policy to reduce appraisal cutting

Top News

Thursday, 02 September 2010 15:11

By Elizabeth Martinez

Miami, FL- Fannie Mae’s new policy to reduce appraisal cutting took effect yesterday. What this policy will do is that when 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.

The GSE's Selling Guide does a great job explaining the new policy; it outlines the new policy and mandates a lender to deal with any concerns related to an appraisal with the appraiser himself. In addition, if the parties cannot reach an agreement on the property value, the lender must search for a second opinion.

Fannie Mae said Tuesday that 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. According to Fannie Mae, lenders and underwriters use the appraisal-cutting technique to undermine the property value of a home. However, the GSE now requires that any changes to the appraisal must be made by the original appraiser of the property. The agency says it is monitoring all delinquent loans in its portfolio or securities pools and that it will begin notifying servicers of delays in processing delinquent loans.

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."

Furthermore, in Fannie Mae's Servicing Guide, the GSE sets time frames for a servicer to complete all necessary foreclosure proceedings. These time frames are assigned depending on the state. In addition, 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.

"A compensatory fee not only compensates Fannie Mae for damages but also emphasizes the importance placed on a particular aspect of the servicer's performance," the announcement explains. "In some cases, a compensatory fee will relate to the action the servicer took, or failed to take, in handling a specific mortgage loan. At other times, the compensatory fee reflects the impact of the servicer's performance deficiencies on Fannie Mae’s cashflow."

It is important to note that:
• Florida has185 days (includes an additional 35 days to allow for a mediation referral prior to commencement of foreclosure)
• Maryland has 90 days (extended to 120 days if a Preliminary Loss Mitigation Affidavit is required)
• New York - 300 days for Upstate New York, 420 days for New York City and Long Island.

The following table shows the different time frames for each state: