Fannie Mae is turning up the heat on appraisals.

The government-sponsored enterprise announced several changes late Wednesday aimed at improving the quality of appraisals, including a requirement that lenders cannot use inexperienced appraisers.

Fannie also wants lenders to explain any changes made to the appraised value of a property, and provided further guidance on how to determine comparable sales, a process that has become more complicated now that the market is inundated with distressed properties.

And because there have been reports of borrowers trashing homes, lowering the value of those that are in foreclosure, Fannie is now requiring appraisals to include interior photos.

The changes are part of a wider effort within the lending industry to reduce the pressure on appraisers to overvalue homes and help loans get completed. They are effective for all new loans originated on or after Sept. 1.

"Lenders still want to make loans but their incentives remain misaligned," said Joan Trice, the president of Allterra Group LLC, which publishes the newsletter Appraisal Buzz.

Trice, a 23-year veteran of the business, said Fannie is trying to address some of the "unintended consequences" of the Home Valuation Code of Conduct that have resulted in as much as 70% of appraisals being routed through third-party appraisal management companies.

Many home purchases have been scuttled because the appraiser could not find enough comparable sales of similar homes. With distressed sales making up a greater portion of the real estate market, lenders fear that those sales will become the only comps, resulting in lower home values.

Fannie said that a minimum of three comparable sales must be reported. If a lender makes an adjustment to an appraised value, the dollar amount of the net adjustments should not exceed 15% of the sale price of the comparable sale.

"They just want better appraisals," said Tom Kirchmeyer, the president of Kirchmeyer & Associates Inc., a Buffalo, N.Y., appraisal management company that also has staff appraisers. "Fannie wants experienced appraisers that know the market. Any AMC that hires somebody that is not comfortable with the area is just hurting themselves."

Since the code was created in March 2008, appraisers have complained that AMCs have lowered the quality of appraisals by using inexperienced people who charge lower fees and are not familiar with specific neighborhoods.

Jeff Schurman, the executive director of the Title Appraisal Vendor Management Association, which represents the nation's largest appraisal management companies, said Fannie's post-purchase reviews show that "they're not getting an accurate condition of a property."

Fannie did not return calls. Freddie Mac has not issued any changes to its guidelines.

In May, the Federal Housing Finance Agency, which oversees the two government-sponsored enterprises, said Fannie and Freddie are preparing to field complaints from appraisers, consumers and others about violations of the HVCC.

The issue of how appraisers are paid also surfaced in the mammoth financial reform bill that passed the House Wednesday.

The Dodd-Frank Act would require lenders and AMCs to pay appraisers "customary and reasonable fees."

That requirement would be part of an appraisal independence standard that would be overseen by the new consumer protection bureau and expands on current requirements enacted through the Truth In Lending Act in 2008.

Lenders, appraisers and third-party vendors said they are trying to determine what effect that requirement would have on the industry and whether banks would choose to bring valuation personnel in-house.

Richard Maloy, chairman of the government relations committee at the Appraisal Institute, a trade group, said the new requirements may result in lenders rethinking their use of third-party vendors.

"The buck now stops at the lender," Maloy said. "Fannie is saying the lender is held responsible for the appraiser's selection even if they were selected by an AMC."

Trice said that banks may reconsider their options.

"It is quite possible that banks will return to having internal valuation departments rather than outsourcing to an appraisal management company," she said.

A key issue is the forced buybacks of loans by the GSEs.

Kirchmeyer said Fannie is also trying to crack down on lenders changing appraised values to make a loan work.

"Not allowing the lender to make a loan based on a lower appraised value than what the appraisal states is a good thing," he said.

Under the new Fannie requirements, lenders have to order a second appraisal or a field review but "only if they feel that the original appraisal is deficient in some way, not just because the value was too low to make a deal. Value shopping is always prohibited," Kirchmeyer said.

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