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Released on June 30, new appraisal-related polices and additional guidance from Fannie Mae address many of the NAHB concerns that surfaced during the association’s appraisal summits late last year and have continued with ongoing conversations involving members, industry partners and the housing government-sponsored enterprises (GSEs).
The new policy represents good news on many fronts and should provide NAHB members with the guidance they need to navigate many of the appraisal issues that have been hampering their business.
Following are some of the highlights of the new guidance:
- Appraised Value and Appraisal Deficiencies. The new guidance bars lenders from making unilateral changes to appraisal reports, and only the appraiser who conducted the valuation is permitted to change the report. Previously, there were cases where lenders reduced the market value reported in the appraisal based on underwriter judgment, automated valuation models or other methodologies.
The new guidance addresses how lenders should work with appraisers when they want to see a change in the appraiser’s opinion of market value. If differences between the appraiser and lender cannot be reconciled, a new appraisal report will be ordered and the lender must adhere to the new appraisal’s findings.
Also provided under the new policies is specific guidance for determining whether an appraisal is deficient.
- Appraisal Selection Criteria. Fannie Mae previously followed USPAP (Uniform Standards of Professional Appraisal Practice) guidelines that enabled appraisers to accept appraisal assignments when they lacked the appropriate knowledge and experience to complete the assignment. These guidelines provided procedures on how the appraiser could gather the information needed to complete the job.
The new policy no longer allows the flexibility of the USPAP, specifying that lenders can only use appraisers who are knowledgeable and experienced in appraising specific property types located in a given market. The appraisers also must have access to appropriate data sources.
This puts the burden on the lender to ensure that the appraiser who is selected has the skills and information needed to produce a high-quality appraisal. Many lenders have been employing AMCs (Appraisal Management Companies) to ensure that they are in compliance with the HVCC (Home Valuation Code of Conduct) — an arrangement that many in the industry believe has led to the selection of appraisers based on cost and fast turnaround times.
- Selection and Use of Comparable Sales, Including Foreclosures and Short Sales. Effective immediately, an appraiser who believes a foreclosure or short sale is an appropriate comp must identify any differences between the distressed home and the subject property — such as the condition of the property and whether any stigma is attached to it. The appraiser can no longer assume the foreclosure or short sale has an equal value to the subject property. The inappropriate use of distressed properties as comps has raised major headaches for builders, resulting in unjustified decreases in new-home prices.
Builders are now identified in the new guidance as important sources of data for appraisers, and builder sales are acceptable as comparable properties, with appraisers directed to use HUD-1 data for new construction to verify a recent sale not yet available through other data sources.
Lenders must ensure that appraisers are analyzing listings, contract sales, closed or settled sales, and the most recent and similar sales available. Contract offerings and current listings can now be used as supporting data if appropriate. When performing valuations of newly constructed homes, appraisers may need to rely solely on the builder of the property for comparable sales data, Fannie Mae said.
Fannie Mae will still require at least three comparable sales in the appraiser’s report, and require using the best comparables available even if they are located in a competing neighborhood. However, when appraisers use comparables from a competing neighborhood, they must address any differences between the neighborhoods in the valuation.
- HVCC and AMC/Appraiser Communication Guidance. The new guidance clarifies that neither the Home Valuation Code of Conduct nor Fannie Mae requires the use of Appraisal Management Companies.
An authorized third party — including a builder — is allowed to communicate with an AMC or a specific appraiser to provide additional information or explanation on the basis for a valuation or to correct objective factual errors in an appraisal report.
Fannie Mae said it expects the reports to be of the best quality possible and that acquiring factual data from builders upfront helps ensure the appraiser has all the required data necessary to perform a high-quality valuation.
For more information, e-mail Steve Linville at NAHB, or call him at 800-368-5242 x8597.