Fannie Mae Announcement Addresses Several NAR Appraisal Concerns

Fannie Mae’s Selling Guide Updates and Additional Guidance on Appraisal-Related Policies, Announcement SEL-2010-09, addresses many concerns raised by the National Association of Realtors (NAR) regarding the Home Valuation Code of Conduct (HVCC) and the appraisal policies of the government sponsored enterprises (GSE), Fannie Mae and Freddie Mac.  The announcement addresses geographic competency, lender changes to the appraisal report, communication under HVCC, and the use of short sales and foreclosures as comparable sales.  NAR had previously called on the GSEs to provide additional guidance on these issues.

The guidance states that Fannie Mae requires lenders use appraisers with geographic competency.  Although USPAP allows an appraiser who does not have the appropriate geographic knowledge to accept an appraisal assignment, Fannie Mae does not allow this flexibility.  Further, the announcement states that appropriate communication with the appraiser is permitted under HVCC and nothing in the Code or in Fannie Mae appraisal policy requires the use of third party appraisal management companies (AMC).

Fannie Mae found that lenders are sometimes reducing the opinion of market value in the appraisal report.  Appraisal policies for Fannie Mae have been updated to provide information on steps lenders may take if an appraisal is found to be deficient.  The lender may request a field or desk review of the report in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP).  The lender may forgo the review and obtain a new appraisal.

Additional guidance is offered by Fannie Mae for the use of short sales and foreclosures as comparable sales.  The appraiser is responsible for determining which comparables are appropriate for the appraisal report and must account for all factors that affect value when completing the analysis.   According to the guidance, the appraiser may use a short sale or foreclosure as a comparable but must identify and consider differences from the subject property and cannot assume the properties are equal.

  1. Chuck Robertson

    This is a step in the right direction for appraisers. Of course, in the recent past any guidance from the government or the GSEs has been a mixed bag. The geographic competency provision should help Realtors will see more competent appraisal reports going to the lenders and maybe fewer deals will be killed from incompetent appraisals. Leaving the inclusion of short sales and foreclosures as comparable sales to the appraiser’s discretion is much better than having lenders require them to be included. This way the appraiser can truly report the characteristics of the market area.
    Now if they will just do something about brokers doing BPOs for lenders in jurisdictions where it is illegal, then maybe the valuation profession can be restored to some semblance of true professionalism. 😉

  2. Gary Crabtree

    Fannie’s SG 2010-09 is very welcome news to both appraisers and Realtors. Unfortunately, you can’t legislate morality and ethics and AMC’s will continue to use the “fastest and cheapest” appraiser they can find, regardless of geographical competency and the other issues addressed in the announcement. All they have done is increase the time to complete the appraisal by the addition of new requirements.
    If Realtors would “pre-screen” the appraiser assigned to the property, this will go a long way to stopping the abuses of the AMC’s and “sub-prime” appraisers. If an appraiser calls for an appointment, ask questions. Look them up in the phone directory. Is he/she local? Do they have access to the local MLS and what other databases do they have? When was the last time they performed an appraisal in the area/neighborhood? Check the State Appraisal Board website. That will give you information on the appraiser, including any disiplinary actions. Ask if they will consider comparables, if you provide them. If you don’t like the answers, deny them access to the property and ask for a competent appraiser. Its better to have a small delay in the sale process, than lose the deal entirely due to an incompetent appraiser, especially if it’s an FHA. Now your stuck with that appraisal for, at least, 4 months. Until Realtors stand up to the AMC’s and their appraiser abuse, nothing is going to change.

  3. I agree with the previous comment. As appraisers we have been buffeted by
    stupidly low fees and AMCs ordering appraisals they clearly do not understand
    ( I am in Alaska where I get calls to appraise in towns I have never heard of and areas
    500+ miles distant. ) BPOs became legitimate here several years ago and the obvious
    conflict of interest has played out obviously but no one in power seems to take notice or care. These are trying times for good realtors, good appraisers and good lenders.
    Let’s hope someone in the government may see the value of catching up with us soon and stop the seriously negative practices that are causing serious, long lasting pain and serious, long lasting problems for all of us in this state and in this country.
    There is political hay to be made here if anyone has the courage and the skill to take it on.

  4. Please note. You state above that my opinion is awaiting being “moderated”. Please either print it in its entirety or omit it in its entirety. Thank you.
    Colleen Patterson
    Certified Residential Appraiser
    Alaska #411

  5. Porfirio Rivera

    To whom it may concern;
    The only comment that I have is that when a property owner wants to sell, he hires a real estate company. Shortly after a real estate sales person shows up and from there he takes notes of the property and goes back to perform a market analysis. Many times the salesperson prepares a market analysis without taking in consideration the location of the property. He only goes by the square footage and comes up with a suggested list price. I do not care if the home has 3,000 sq ft. The location of that property and the area does not carry a high price tag. So what can we do? Some of the Appraiser obtain a copy of the contract and they try to come up with an appraised value to meet the lenders requirement and loan.
    What is a true market value? I think this area should be expanded and be more clearly to the appraiser or even to the sales person that is doing the market analysis. They need to have a deeper understanding of the neighborhood value and not the square footage.
    The Central Appraisal District wants to raised the value of the home because of the square footage. I think this area need to be addressed and carefully looked at when conducting an appraisal. Thank you but this is my personal opinion. Have a great day.

  6. Tobby H

    The FNMA announcements will have little impact on anyone. The practice of unilaterally cutting back appraised values will have to stop. However, lenders have other means to effectively do the same such as cutting the LTV or just saying no to the loan. The geographic competency rule simply mimics appraisal regulation. As the above commenter said, you can’t legislate ethics (or competence), and this problem is much less that it was six months ago.

    The FNMA memo is overshadowed by the Dodd-Frank bill (Financial Regulation) which passed the Senate on Thursday and will likely become law next week. Buried in the bill are about 50 pages of appraisal regulations, much of it with teeth for a change. Among them, appraisers will need to be paid customary and reasonable fees. Those fees CANNOT be based on past AMC fees. If appraisers are paid traditional fees this will at least cause AMCs to start using experienced appraisers and getting their money’s worth. This will hopefully drive the Wal-mart appraisers out of the AMC business.

  7. Part of this announcement also requires the appraiser to contact one of the Realtors involved, the buyer or seller to verify the condition of the property, financing and other conditions of the sale. This must be done before we can use the property as a comparable in our report. My question how much more is this going to slow down the appraisal process than the code of conduct?

  8. The geographic competency issue’s worked well for me; I find I save a lot of gas; generally however, if an appraiser’s geographically incompetent, it’s due more to the fact that short “turn around times” and quality appraisal reports do not mix. Appraisers as per USPAP have been required for many years to disclose potential geographic incompetency problems to clients, and it is therefore nothing new. It’s great that lenders have a stumbling block when pressuring appraisers to appraise such properties anyway.
    It’s unfortunate that in many areas throughout the U.S., property values continue to suffer, and most all of our citizens who’ve lost their homes, haven’t gotten much in the way of help from the bailed out banks which tax payers had to finance with money we don’t have.

  9. The appraisal industry is already the most heavily regulated service industry in the U.S., the problem with the AMC is that many are actually subsidiaries of bank parent companies. The S & L scandal in Arizona was caused in great part by people like Neil Bush and cronies, INC. Yet much of the blame for it , was focused on appraisers; this time Wall Street will have to cry “wolf.”

  10. Hopefully the new Financial Reform bill just passed by the Senate will stop the HVCC and the abuses by AMC’s. While AMC’s do have a place in the appraisal industry they should be regulated more. As a Broker and an appraiser with over 25 years experience I see the problems from both sides, agent/appraiser. I constantly have AMC’s calling me offering me $175. – $250. for a full appraisal when the typical fee in my area is $350. I just refuse the order or request a fee increase, sometimes they will agree to my fee. They are shopping for the lowest fee thay can find, the majority of them do not care about quality but how low of a fee they can get and how quick of a turn-around time you can provide. Most AMC’s rate you on your turn-around time so the sooner you complete a report the more orders they will send. This practice should stop. It’s usually very hard to provide a quality appraisal in 48 hours. Fannie Mae’s new announcement will have a very limited effect on appraisal quality. Until ALL appraisers stick together and speak with one voice the current problems with AMC’s will not change because to the financial influence that they have in the industry and the government.

    As far as agent’s are concerned, in my market they need to start measuring properties before they list them. How can an agent perform a credible CMA without knowing the square footage of a property? I have had several appraisals recently where the appraisal came in well below the sales price only to find out the the agent never measured the structure and basically used Assessor’s data which is very rarely correct. Agents are always blaming the appraiser when a deal falls through due to a low appraised value. While sometimes it is because of an incompetent appraiser that is appraising outside their market area more time than not is is due to the agent failing to do the proper research and not pricing the property correctly. Also, Buyer’s Agents should perform CMA’s before makiing an offer if possible to mkae sure their Buyer client is not over paying for the property.

    While there are incompetent appraiser’s that do appraise out of there market area there are also incompetent agents that should do a better job representing their clients as well. Look not only at the appraiser but at the agents as well, let’s all work together to improve our industry and provide our clients with the best possible service available.

  11. objectiv1

    I read a lot of frustration from the comments and I understand why. First I, must say that the quality of appraisers has diminished severely since licensing. A lot of these problems were practically unheard of before then. At one time appraisers were accorded the respect of a professional and most of them earned that respect. It was difficult to get on board as an appraiser before licensing because no one would think of training you unless you had a background in real estate, construction , architecture or anything related. After that you had to build a solid reputation before anyone would consider you for services. After licensing, anyone can come off the street and take a test and a few crash courses in banquet room seminars. Most of residential licensed appraisers now were products of banks who would hire tellers, burger flippers, shoe salesmen, etc., in groups then ram them through bootcamp training sessions so they could have cheap and submissive appraisers. They were known as ninety day wonders. A lot of them went on the loose during the boom . AMCs love them. They can crank out reports very rapidly as they are computer proficient; they will do it for peanuts for fear they will have to return to selling shoes or McDonalds. If you are looking for someone who actually knows real estate, architecture and all the nuances of market dynamics don’t go there. It is not happening; that is why the regulators and AMCs are micromanaging them trying to get some basic results. The skilled appraisers with talent and solid backgrounds, however, are boycotting FHA and FNMA. They don’t need a chokechain while they are trying to work at a professional level for discounted fees. Bureaucratic meddling and overkill has taken its toll. So now everyone is paying the price. Complain to the control freaks or it will get worse if you don’t.

  12. Objective1,

    Yours is the most spot on analysis of what has happened to our profession that I have read – from a Realtor, no less. AMCs care about two things, which appraiser can do the assignment the fastest & which appraiser can do he assignment the cheapest.

    I am an “appraiser expert” on the AllExperts forum and 60% of the questions of me over the last 3 mos. have been: “I got a bad appraisal, what can I do”?

    The residential appraiser is little more than a form filler, there is no time or money allowed for a proper analysis. I also belong to several “on-line” appraiser forums & the residential appraisers are saying that AMCs are exerting much more pressure than the “big-bad” mortgage brokers ever did.

    John C. Carlson
    CA Certified General Real Estate Appraiser
    Diamond Bar, CA

  13. I would agree that removing broker pressure was a good thing, handing the reins over to AMC’s turned out to be a bad thing. I have never ever ever ever been asked by an AMC if I could produce a high quality report for (name your fee and turn time). I’ve always been asked “whats your best/lowest fee and how fast can you turn (put address here). If I even mentioned a fee/turn that resembled something near a working salary and time with my family, I was told your fee is too high and we typically require 24 hour turn times. But But But I produce a quality well documented report with market supported adjustments and verified comparables. No interest in quality it was all about the fee and turn time. Sure their website mentions they are the largest AMC that provides high quality reports with a stable of appraisers that cover the entire USA.

    In an attempt to appear they were providing high quality, most AMC’s created a list of report requirements that pushed more and more crap out the door. Turn times kept getting tighter, fees lower, attempting to produce higher profit margins. When the local crop of skippy’s just couldn’t make any profit and quality still wasn’t on the radar the answer was to send in appraisers from out of the area that were willing to accept bottom feeder fees and 24 hour turn times. Tell me how much quality works into that equation? I’ve had the plesure of reviewing work turned out by appraisers willing to work for peanuts. Their work product cetainly does reflect the fee and turn times. Pure boilerplate, pre-determined adjustments, a complete generic report that could possibly be used over and over again…freshen up subject information and toss in a couple new comps…thats not appraising…… Finally someone saw the harm AMC’s have been and will continue to puke on the public. Have we learned any lessons from this AMC/HVCC fiasco? Will higher fees translate to better quality reports? I would like to think yes. I know several good appraisers as I believe we all do, that simply quit accepting bottom feeder AMC work. There was no money in it. Hopefully with a full fee they will come back. Hopefully the AMC’s take some interest in quality once the fee is taken off the table.

  14. Retired Appraiser

    When all is said and done we will find that the secondary dip in the housing market we are now experiencing was a direct result of Andrew Cuomo’s HVCC project. HVCC placed inexperienced / bottom feeder appraisers in charge of appraising the nations most valuable assets during one of the most difficult we have experienced in a century.

    Unfortunately the secondary housing dip is already leading us back into recession.

    All because of one man’s ingenius plan to gain the governor’s chair while helping out his banking buddies.

  15. James Scholl

    Is there an Appraisal Association within NAR? If there is how would I contact it?