Mortgage Definition: Appraisal Cutting
Today’s Mortgage Definition is: Appraisal Cutting
Main Entry: ap·prais·al cut·ting
Pronunciation: \ə-ˈprā-zəl ˈkə-tiŋ\
Appraisal Cutting – A Simple Definition:
When you buy a new home or refinance an existing home, you typically will be required to obtain an appraisal for the property. Getting an appraisal done involves hiring a licensed appraiser who produces an opinion of value in the form of an “official” appraisal. This number is known as the “appraised value” of the property.
Occasionally, when an underwriter reviews the appraisal provided by the licensed appraiser, they will engage in the sport of Appraisal Cutting by reducing the appraised value provided by the appraiser by a random, arbitrary number.
Appraisal Cutting – An Expanded Definition:
The sport of appraisal cutting has long been practiced by many underwriters and has left plenty of potential homeowners wondering what exactly happened. In my experience, it was a common practice for many transactions involving cash-out-refinances but I thought it had tapered off recently. Apparently, it still happens enough to catch the eye of Fannie Mae who recently announced that they are outlawing the practice of appraisal cutting by underwriters.
Effective Sept. 1, Fannie Mae is prohibiting lenders who sell loans to them from changing appraisers’ appraised value numbers. In guidance issued June 30, Fannie Mae said that if an underwriter has an issue with an appraised value, they must contact appraisers to “resolve” any disagreements about the valuation. If it is not possible to resolve an opinion-of-value dispute, then the only option available to the lender is to order a second appraisal – they are no longer allowed to just chop the value that the appraisal states.
Which makes sense (to me at least) if you think about it – an appraiser goes through the licensing process and is a practicing licensed professional who physcially inspects the property and then comes up with an opinion of value based on his expert opinon according to standard methodolgies.
If an underwriter happens to have a different opinion of what a property is worth, does it make any sense to allow them to engage in the sport of appraisal cutting?
According to Fannie Mae, not any more.