Since the Office of the Superintendent of Financial Institutions (OFSI) decided to tighten mortgage lending rules, increasing numbers of Canadian consumers have been turned down by their lender of choice. As a result, mortgage brokers have had to become flexible in their approach and be willing to seek out more than one potential lender for each specific client.
Appraisals have become even more integral to the overall health of the financial ecosystem as the housing market has evolved, but they do come with some nuances. For example, if a broker has arranged for an appraisal to be completed but the borrower is then turned down by their first choice lender the original appraisal is not necessarily valid.
Where appraisals are concerned, the client is considered to be the user of the report, regardless of who pays for it. In most cases, the lender is the end user, which means that the same appraisal used to shop for a mortgage from Lender A cannot be used to shop for a mortgage from Lender B.
“From a practical application, we view a broker as a facilitator and ultimately, in the case of a mortgage loan, the client is the direct lender on the report,” explains Dan Brewer, AACI, P.App, past-president of the Appraisal Institute of Canada (AIC). “Brokers are sometimes a little taken aback by that, but our members need to ensure that whoever is relying on the report to make decisions is the one named as a client from a liability viewpoint.”
If the broker is forced to shop for a mortgage from Lender B, Lender A will have to agree to release the original appraisal. If the appraiser involved is prepared to have the report used by Lender B, they may provide a reliance letter, an extension of the original report. Each file is different, and at times an appraiser may not be able or willing to provide a reliance letter; in those cases, a new appraisal may be required.
“It is an issue that can cause confusion among brokers,” says Brewer. “As appraisers, we sometimes see misunderstandings that need to be explained with clearer information and presentations being provided to the broker community so they know what is needed through this important process.”