My Real Estate Blog

Effective January 1, 2010, all FHA appraisals (with limited exceptions) became portable. According to FHA Mortgagee Letter 2009-29, this was "for the purpose of facilitating the loan process when a borrower switches from one Federal Housing Administration (FHA) approved lender (first lender) to another (second lender) and an appraisal was ordered by and completed for the first lender." In such cases, "the first lender must, at the borrower's request, transfer the case to the second lender." A second appraisal could be ordered by the second lender only if (i) a material deficiency in the first appraisal had been determined, or (ii) the first appraiser was on the second lender's exclusionary list, or (iii) the failure of the first lender to supply a copy in a timely manner might cause harm to the borrower [e.g. by losing an interest rate lock]."

Many people in the real estate business believe that all appraisals, not just those for FHA loans, should be portable. Thus it is that the California Association of Realtors® has sponsored state legislation, Senate Bill 1000 (Correa), which would "require lenders to accept a 'portable' appraisal, with specified limitations to all transactions, at the request of the borrower." This would cover mortgages for owner-occupied dwellings.  

Proponents of the bill argue that it is unfair to require borrowers to pay for a new appraisal "when they have a perfectly good one in hand." Furthermore, by removing the potential cost of a second appraisal, consumers would then find it easier to continue shopping for better loan terms and interest rates with other lenders while still moving forward with the first loan application.

The opposition points out that such legislation at the state level could cause problems with respect to the secondary market. A June 30 Fannie Mae letter made it clear that the choice of an appraiser is the lender's responsibility.  This new legislation could force a lender to accept work from someone with whom they have had no experience at all. Moreover, that same Fannie Mae letter pointed out that lenders may need to require even more stringent standards than those of USPAP.