New Appraisal Guidelines from Fannie Mae
In a letter announcement to sellers and servicers, SEL-2010-09, Fannie Mae made some changes to both the appraisal reports and the process. One such significant change is the requirement for interior photos—of all the bathrooms, the kitchen, the living area, and any major remodeling projects. Previously, most appraisers only took interior photos if required by the specific client, or to illustrate a condition. However, interior photos have always been a good defense for the appraiser—“this is how it looked the day I was there”.
Another issue addressed was geographic competency. Fannie Mae reiterated the point that they have always differed from USPAP (Uniform Standards of Professional Appraisal Practice) on the Competency Provision in USPAP. That provision in USPAP states that an appraiser must have the competency to perform the assignment, or inform the client of their lack of competency and take steps necessary to obtain the competency to complete the assignment. In the case of geographic competency, that would involve an out-of-town appraiser taking the time to familiarize himself with the local market, usually by interviewing other appraisers, agents, etc. Fannie Mae makes it clear (and this is not new; this has been their position for some time) that they do not allow this guideline to apply---they do not want the appraiser to acquire competency in the local market, they want the appraiser to have competency in the local market. In other words, they don’t want anyone learning a market on one of their appraisals.
Fannie Mae went on to add a position with respect to the selection of appraisers, saying that the lender must ensure that the appraiser chosen has the “requisite knowledge” to perform an appraisal in that area, for that type of property. They also made it very clear that the “buck stops here” with the lender, even if a third party vendor, such as an AMC is used saying: “Lenders are ultimately responsible for representations and warranties related to the value, condition, and marketability of the subject property; and lenders must hold the AMC responsible for complying with Fannie Mae’s requirements.”
Two other issues addressed in this announcement refer to the thorny issue of foreclosures as comparables, and lenders cutting value. In my travel as a trainer, many of my students ask me about the validity of using foreclosures or short sales as comparables. Fannie Mae now states that the appraiser “must identify and consider any differences from the subject property, such as the condition of the property and whether any stigma has been associated with it….the appraiser cannot assume it is equal to the subject property.”
Lenders cutting value has been a nasty side effect of the current financial debacle. Many agents told me horror stories of a lender arbitrarily “cutting a value” in one case, by 30%. This makes the lender, in a chair in an office, who has never seen the subject property, double guessing an appraisal performed by an appraiser who has. Fannie is “concerned” about this, noting that during reviews they found lenders had reduced the opinion of market value “based upon underwriter judgment, automated valuation models, or other methodology.” Fannie is quite clear: “Any request for a change in the opinion of market value must be based on materials and substantive issues and must not be made solely on the basis that the opinion of market value as indicated in the appraisal report does not support the proposed loan amount.” The complete announcement from Fannie Mae can be found at: https://www.efanniemae.com/sf/guides/ssg/2010annlenltr.jsp
In the meantime, as a practicing appraiser, follow the guidelines; as a practicing real estate agent, make certain the lenders your buyers are dealing with know the guidelines.
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