On June 30, 2010 Fannie Mae issued announcement SEL-2010-09, "Selling Guide Updates and Additional Guidance on Appraisal-Related Policies."
The new requirements and clarifications resulted from "Fannie Mae's post-purchase reviews of mortgage loan files [that] have identified issues with appraisals."
A number of the items addressed in this announcement have also been subjects of concern to Realtors® during the past couple of years.
- Lenders changing the value that had been determined by the appraiser
- The selection of appraisers who were not familiar with the marketplace in which the subject property was located and/or who did not have access to all the data bases containing information relevant to the local marketplace
- The use of short sales and foreclosures as comparable sales without giving sufficient consideration to the condition of those properties
- The inability of either Realtors® or the lender's representatives to communicate with the appraiser
The June 30 announcement noted, "During Fannie Mae's post-purchase reviews, cases were identified where the lender had reduced the opinion of the market value in the appraisal report based upon underwriter judgment, automated valuation models, or other methodology."
Fannie Mae has updated its appraisal policies to address the practice of lenders changing the appraiser's opinion of market value. The updated guidelines state that "The lender is responsible for ensuring that …any changes made to the report are made by the appraiser who originally completed the report…
If the lender is unable to resolve its concerns with the appraiser, the lender must obtain a replacement report." The guidelines also make clear that the lender may contact the appraiser to address any perceived deficiencies, and that, if that cannot be accomplished, a review of the report may be obtained. In any event, "It is not acceptable for the lender to exercise blanket discretion by arbitrarily changing the opinion of market value…"
The revised guidelines also make clear that lenders must use appraisers who "have the requisite knowledge required to perform a professional quality appraisal for the specific geographic location and particular property type," and also "who have the requisite knowledge about, and access to, the necessary and appropriate data sources for the area in which the appraisal assignment is located." The guidelines make clear that it is the lender's responsibility to select the appraiser. "While Fannie Mae allows lenders to use third-part vendors, such as appraisal management companies (AMC), for appraisal services, neither the HVCC [Home Valuation Code of Conduct] nor Fannie Mae requires their use." [my emphasis]
As to the use of foreclosures or short sales as comparables, the revised Guidelines say this: "If the appraiser believes a foreclosure sale or a short sale is an appropriate comparable, then 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." [my emphasis] "The appraiser must conduct the proper research in order to complete the assignment and provide an accurate opinion of market value."
Finally, with regard to the matter of communicating with appraisers, the Announcement notes, "Fannie Mae has determined that appropriate communication under the HVCC is permitted, and that Section 1-C of the HVCC does not prohibit any employee of the lender [with certain exception] or an authorized third party from requesting that an appraiser provide additional information or explanation…" The only exception to this is the prohibition of communication with the appraiser by anyone who works in loan production or who is compensated on a commission basis upon the successful completion of a loan. "The appraiser needs to address any concerns the lender has, including any errors that may have been found in the report. 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 revisions to the Appraisal Guidelines become effective October 1, 2010. For many agents and borrowers, that can't come soon enough.