Fannie Mae recently came out with Selling Guide Updates and Additional Guidance on Appraisal-Related Policies, which address many concerns raised by REALTORS® , builders and mortgage brokers regarding the Home Valuation Code of Conduct and the appraisal policies of government-sponsored enterprises 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.
The Home Valuation Code of Conduct, which applies to any mortgage sold to Fannie Mae and Freddie Mac, establishes standards on solicitation, selection, compensation, conflicts of interest and appraiser independence. The National Association of REALTORS® had previously called on the GSEs to provide additional guidance on these issues because much confusion in the code's interpretation has hurt and, in some cases, jeopardized transactions.
According to Jeff Bell, president of the Silicon Valley Association of REALTORS® , "REALTORS® believe an independent appraisal industry is important to restoring faith in the mortgage origination process, but Realtors in our area have complained of higher costs for appraisals, that appraisers unfamiliar with the area are using bad comps, resulting in valuations that do not reflect the characteristics of the market area. There have also been significant delays in receiving appraisals."
The new guidance states that Fannie Mae requires lenders use appraisers with geographic competency. The announcement also states 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. Effective September 1, if a lender believes an appraisal is deficient, the lender may request a field or desk review of the report according to the Uniform Standards of Professional Appraisal Practice, or 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 new guidelines state 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.
Also, whenever an interior inspection is performed, Fannie Mae now requires that an appraisal report contain interior photographs of specific rooms and areas, including all bathrooms, the main living area, any examples of physical deterioration and recent updates like remodeling or renovation projects.
"We are happy that Fannie Mae has recognized our growing concerns. The new guidelines are a step in the right direction," said Bell. "Fannie Mae's requirement of geographical competency from appraisers will lead to more accurate appraisal reports, less delays in the process, and fewer transactions falling through."
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please email or call the SILVAR office at (408) 200-0100.