The Equal Credit Opportunity Act (ECOA) now requires a lender to give copies of the appraisal and other valuation data to a borrower applying for a first lien secured by a one-to-four unit residential property (and, other personal property used as a dwelling – for all you houseboaters out there.)
The appraisal is required to be delivered regardless of whether the loan actually closes with that lender. [12 Code of Federal Regulations §§1002.14 et seq.]
Documents required to be handed to the buyer include:
- the appraisal(s);
- computer valuations;
- electronic cross-checks;
- reviews; and
- any other valuation data used in the transaction (such as broker price opinions).
The documents are to be delivered upon the earlier of:
- the completion of the appraisal; or
- three days before the loan closes.
Lenders are prohibited from charging for providing your buyer with the report itself, but are able to recoup reasonable costs for copying and mailing the reports.
first tuesday insight
Lenders are making this new requirement sound like a financial Spanish Inquisition, but this law is 30 years overdue. Who thought allowing lenders to decide between disclosing and burying a disclosure about the right to request a copy was a good idea, to begin with? (If you give a lender a cookie…they sell them on Wall Street and disrupt the national economy.)
The appraisal (or other valuation, like the broker price opinion) is integral to the price agreed to between the seller and the buyer. A timely copy provided by the lender gives buyers and their agents time to find additional comps or otherwise renegotiate terms if the appraised value suggests they have agreed to pay too great a price.
A couple things to watch out for:
1. This rule only compels lenders to automatically provide the appraisal in connection with first liens. On equity loans, the borrower may still need to request the valuation data from the lender.
2. Lenders can (and most likely will) ask a borrower to waive their right to receive a timely appraisal. Don’t let your buyer fall into this trap. We can’t think of a reason why a lender needs to wait until closing to furnish a copy of the appraisal. The underwriter needs the appraisal to make a final decision on a loan application – and the buyer and their agent need it to review its content and pricing just as soon.
As all things Dodd-Frank, it’s just one more way to make sure lenders keep all their cards on the table.
Re: New federal rule gives home buyers better access to appraisals from Los Angeles Times