Effective April 1, 2009, the Federal Housing Administration will require appraisers to use the Market Conditions Addendum (Fannie Mae 1004MC, Freddie Mac Form 71). According to Mortgagee Letter 2009-09 released on March 23, 2009, this will ensure greater transparency and accuracy of appraisals performed for FHA-insured financing. Properties located in declining markets must include at least two comparable sales that closed within 90 days of the effective date of the appraisal. A lack of available market data must be accompanied by a detailed explanation.
FHA states that a declining market is any “neighborhood, market area, or region that demonstrates a decline in prices or deterioration in other market conditions as evidenced by an oversupply of existing inventory or extended marketing times.” The 1004MC form will identify a declining trend in the market. FHA reminds Direct Endorsed lenders that both the lender and the appraiser are equally responsible for the integrity, accuracy, and thoroughness of an appraisal submitted to FHA.