Actual Home Appraisal Still Required

A little piece of news was released last week that mostly flew under the media radar: the “special” appraisal requirements for higher-priced mortgage loans will remain at $25,500 for 2016.

This means that, if your mortgage amount is higher than $25k, the home must receive an in-person appraisal before the mortgage can close.

Imagine that.

You might remember that, during the frenzied real estate bubble years, homes were being sold, and mortgages closed, based on appraisals in which the appraiser never set foot in the home. They were appraisals based on “comps.”

When these – and other – stupid policies blew up in everyone’s faces circa 2008, a new law entered the books.

This law was The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which amended the Truth in Lending Act to add special appraisal requirements for higher-priced mortgage loans (defined as more than $25,000), including a requirement that creditors obtain a written appraisal based on a physical visit to the home’s interior before making a higher-priced mortgage loan.

In the old days, this would have been put down to simple common sense. But, as we now know, common sense was rare in the financial services industry for many years.

Of course, various interest groups would like to return to those good old days, when appraisers never actually appraised a home.

Some of these interest groups come up with an almost-reasonable argument: they say that this law unfairly penalizes low-income home-buyers by forcing them to pay for an expensive “in person” appraisal when buying a home.

We say this is an almost-reasonable argument, since it ignores that the fact that the 2000s-era “never set foot in the home” appraisals cost homebuyers the same fee as the old-fashioned “actually inspected the home” appraisals did. (Google around; you’ll find that people were actually complaining about this at the time.)

So, by keeping this requirement on the books, the good guys have won a minor victory.