Appraisal requirements have been updated by Fannie Mae. Among the areas impacted are photograph requirements, lender changes to appraisal values and foreclosure comparables. Fannie also said that appraisers cannot use the Home Valuation Code of Conduct as an excuse not to communicate with parties to a real estate transaction and noted that HVCC does not mandate the use of appraisal management companies.
In Announcement SEL-2010-09, Fannie outlined a number of changes to its appraisal policies. The updates are the result of issues identified in post-purchase reviews by secondary lender.
Interior photographs will now be required for the kitchen, all bathrooms and the main living area. In addition, photos will be needed for examples of deterioration or recent updates to the property. The update impacts loan applications dated Sept. 1 or later.
New policies have been created for when a lender reduces a market value based on underwriter judgment, automated valuation models or other methodologies. The lender should first attempt to reconcile concerns with the original appraiser. If that is not possible, a desk or field review can be obtained or an entirely new appraisal can be completed. At that point, the old appraisal cannot be used. The update also applies to applications dated on or after Sept. 1.
Fannie reminded lenders that appraisers must have the requisite knowledge to perform a professional quality appraisal for the specific geographical location and particular property types. Appraisers who don’t have the requisite knowledge, experience and access to appropriate market data cannot be used.
The selling guide was updated to clarify that third-party vendors — including appraisal management companies — are not mandatory under HVCC or required by Fannie. Sellers — which are ultimately responsible for representations and warranties related to the value, condition and marketability of the subject property — must hold the AMC responsible for complying with Fannie’s requirements. This is effective immediately.
When foreclosures or short sales are used as comparables in the appraisal report, the appraiser must identify and consider any differences from the subject property like 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,” the new guidelines state. “A foreclosure or short sale property may be in worse condition when compared to the subject property.”
This is also effective immediately.
The Washington, D.C.-based firm noted that some lenders prohibit communication between appraisers and other parties to a real estate transaction because of HVCC. But the code does not prohibit communication tied to a request for additional information, explanation about how the value was determined or factual report errors.
“It is incorrect for the appraiser to indicate that the HVCC does not allow for this type of communication with his or her client or an authorized representative,” the update states. “Section III-B of the HVCC, however, does prohibit anyone in loan production, or who is compensated on a commission basis upon the successful completion of a loan, or who reports ultimately to any officer of the lender not independent of the loan production staff and process, from having any substantive communication with an appraiser or AMC relating to or having an impact on valuation.”
Lenders were reminded that seller concessions can artificially inflate a sales price and impact the fair market value and should be accounted for in the report. Adjustments should be made for concessions such as interest-rate buydowns or the payment of homeowners association fees.
Another reminder involved the exclusion of personal property from the estimate of value for a single-family residence. Personal property pledged in a one to four family rider, however, can be permitted as security on a loan for a two- to four-unit property.
Fannie clarified that when determining the “months of housing supply,” appraisers should only consider the number of comparable active listings on the most recent date of the three-month period and not the cumulative number of listings for the entire three-month time period.
“If data is available for the previous time periods, such as ‘prior 4 – 6 months’ and ‘prior 7 – 12 months,’ the ‘total # of comparable active listings’ should be based on the most recent day in each of those time periods,” the announcement stated. “For example, in the ‘Prior 4 – 6 Months’ column, the ‘total # of comparable active listings’ should reflect the listings on the last (most recent) day in that time period. Likewise, in the ‘prior 7 – 12 months,’ the ‘total # of comparable active listings’ should reflect the listings on the last (most recent) day in that time period.”
