New Fannie Appraisal FAQs including 1004MC

New Fannie FAQs – Appraisal and Property Related Frequently Asked Questions (FAQs) including 1004MC guidelines Published September 23, 2014

Fortunately, the document indicates which Q&As are new, as it is often hard to figure out what is new and what has already been sent out in other documents.

If you do lender work, read this document!!

Topics include:
– Comps with accessory units
– C&R ratings
– Comments on adjustments
– Sales over 12 months old and distance from subject – Ok to use
– Legal, non-conforming and proof of rebuilding – not required
And many more relevant and useful Q&As, including guidelines that have been around for a while, such as Net adjustments, etc.  Looks like Fannie has figured out many of the topics relevant to appraisers!!

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For many appraisers, the 1004MC comments will be very helpful:

Q16. What type of properties are to be analyzed for the data reported in the One-Unit Housing Trends portion of the Neighborhood section of the appraisal report form?

The data regarding trends to be reported in the One-Unit Housing Trends section must be reflective of those properties deemed to be competitive to the property being appraised. Additional commentary should be provided on the other segment(s) of the neighborhood when segmentation is present to aid in understanding the overall neighborhood dynamics.

Q17. Are the trends that are reported on the Market Conditions Addendum to the Appraisal Report (Form 1004MC) the same trends that are to be reported in the One-Unit Housing Trends section of the appraisal report (Form 1004)?

Yes. The conclusions regarding trends that are obtained from the Form 1004MC must be the same trends reported in the Neighborhood trends section of the Form 1004. The information reported on both forms must be consistent to provide the lender with a clear and accurate understanding of the market trends and conditions present in the subject neighborhood, based on properties that are considered competitive with the subject being appraised.

Read the additional 1004MC Q&As.

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Thanks to appraiser Dave Towne for some great comments on 1004MC:

Ever since the blasted MC Form was mandated in 2011, I’ve been saying the way appraisers have been ‘classically’ trained and used the Neighborhood check boxes on the primary forms did not mesh with the MC Form requirement.  (And in fact, I quit doing the ‘classic’ method then, and have been doing what Q16 & Q17 below say.)

I happen to believe one reason why the MC Form was instituted was that this ‘classic’ reporting methodology of reporting overall dissimilar neighborhood property trends (heterogeneous properties) did not (and does not) make sense when the assignment is to appraise a single property using comparable (or competitive) properties.

Dissimilar properties seldom have the same trend components that the comparable (competitive) properties have.  As such, they don’t need to be reported…..except as the last sentence of Q16 says …. ”Additional commentary should be provided on the other segment(s) of the neighborhood when segmentation is present to aid in understanding the overall neighborhood dynamics.”

An issue with the ‘classic’ methodology is the “predominate” value of an overall neighborhood with dissimilar properties can be much different than when only comparable (competitive) properties are used in the trend analysis.  So, when appraisers use the proper properties as outlined above, there should be no significant problems with that data point, because the “predominate” value will more than likely fall within the price range of the comparable (competitive) properties.

My comment: Finally some guidance on issues that have been driving appraisers crazy with lots of differing appraisal opinions. Now, we can use answers directly from Fannie!!

Hopefully, AMCs and lenders will use these Fannie guidelines instead of making up their own. Particulary, the guidelines that have been around for a long time that are repeated in these FAQs. You can refer them to this document.

Link to FAQs
https://www.fanniemae.com/content/faq/appraisal-property-report-faqs.pdf

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Appraisalport poll comments and results on 1004MC (from their Sept. 2 blog posting at www.appraisalportblog.com

“This month, I want to take a closer look at two recent polls – one related directly to the use of AppraisalPort and the other concerning a controversial form. Starting with the form, we asked: What do you think about the 1004MC form? This was a popular poll with a total of 5982 responses. The form doesn’t appear to be well thought of; with 66 percent of respondents selecting the answer “It really doesn’t work well and should be retired.”  Another 21 percent answered that “It is OK but in need of some updating or modifications.” It seems that the 1004MC form is going to have some trouble getting a date to the prom because only the remaining 13 percent of voters said “It still gives the client a good idea about current market conditions.”

“I did receive some additional feedback on this poll. Some appraisers just don’t like to use the 1004MC because it’s just something else that has to be done; takes more time out of the day; and may not provide accurate results – especially in rural areas. Others think it really is the first step to a more modern style of computer-assisted appraising.“

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FHA to require valuing green improvements?

Another great commentary from Dave Towne, the appraiser who keeps up on what is happening!! His comments are below this summary of a letter sent by the Appraisal Institute.

Excerpts from AI comments, contained in their Letter about the proposed letter:

Appraisal Institute Lauds FHA for Green Valuation Proposal
The Appraisal Institute and the American Society of Farm Managers and Rural Appraisers on Sept. 2 lauded the Federal Housing Administration’s proposal to allow appraisers to utilize residual techniques – such as cost and income approaches – to analyze market reaction to green and energy-efficiency improvements in the absence of comparable sales.

Under the draft handbook, appraisers would be required to analyze and report the local market acceptance of special energy-related building components and equipment, including solar energy components, high-energy efficiency housing features and components such as geothermal systems and wind powered components. The draft explains that in the absence of sufficient data to perform a paired sales analysis, the appraiser must consider the cost or income approach to calculate an appropriate adjustment.

AI article
http://www.myappraisalinstitute.org/ano/DisplayArticle/PastIssue/Default.aspx?volume=15&numbr=17/18&id=22399

Direct link to original FHA document:
http://portal.hud.gov/hudportal/documents/huddoc?id=SFH_POLI_APPR_PROP.pdf  See page 68. Dated August 27, 2014.

NOTE: this is proposed, not final. If you read the full document, I could not tell what is existing and what is proposed. The comment period has closed.

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Dave Towne’s email comments, sent to those who subscribe to his emails.

On the surface, this appears to be fair … primarily for the property owner/borrower who has applied for a FHA mortgage loan guarantee.

This appraiser agrees that appraisers who do these kind of assignments must have the appropriate competency, training and experience.  Appraisers are going to have to take specialized ‘green home’ appraising CE courses as one aspect of increasing their knowledge.

But the back end unintended consequence of this proposal is how much in additional fee will the appraiser be allowed to charge for providing an ‘approach’ documentation that is Not Required to be completed by USPAP?  The ‘requirement’ to include a CA or IA becomes an additional assignment condition, added to an already more complicated FHA Scope of Work for FHA assignments.

Secondly, these ‘approaches’ rely on accurate documentation for various component costs and analysis of the income stream resulting from the use of various ‘energy efficient attachments’ to the dwelling … something the average home owner/purchaser/borrower may not have access to or knowledge of.  Yet this proposed REQUIREMENT places the appraiser squarely in the middle of the bulls eye.

Third, adding this level of detail extends the time requirement for report completion.  For these kinds of assignments, a cheap fee and the desire of a “48 hour turn time” after inspection probably won’t be realistic.  Everybody connected to this kind of assignment is going to have to realize that the appraiser will need to be properly compensated and is going to need many more hours or days between assignment acceptance and report submittal … and they are just going to have to live with that reality.  (Appraisers are also going to have to learn to say ‘NO’ and negotiate fees and DD’s when it is appropriate.)

If this just becomes another layer-upon-layer of Scope Creep with no ability to recoup time spent with an appropriate additional fee for the REQUIRED added reporting documentation, then FHA may find itself hurting for appraisers willing to commit to this kind of assignment.  (Re-read the sentence above.)

Dave Towne, AGA, MAA
towneappraisals@clearwire.net
www.towneappraisals.com

My comments: I have never seen any adjustment indicated in my market for energy saving residential improvements except maybe once for a new infill completely “green” home. Of course, I live in the “mild climate” San Francisco Bay Area ;> This has been going on for a long time, without requiring dollar adjustments. The old Fannie Mae URARs had grid adjustment lines for energy efficient improvements.

 

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How to stem appraiser "low tide"

By Alan Hummel, Chief Appraiser Forsythe Appraisal

Excerpt:

The topic may seem peculiar at a time when mortgage originations are down from the heyday of the early 2000s, but if the issue isn’t addressed now, a shortage of qualified residential appraisers could have a dampening effect on the mortgage market at precisely the moment when it is trying to regain its past vibrancy.

The decline in the numbers of appraisers entering the profession can be attributed to many factors including (but not limited to): qualifications and licensing requirements, the economics involved in training, and unwillingness on the part of some financial institutions to allow trainee appraisers to perform services. The most significant obstacle for many trainee appraisers is completing the 2,500 hours of required experience to achieve Certified Residential status, after the education component has been completed.

My comment: The only answer is for lenders to allow trainees to “sign on their own”.Hummel proposes a training program. But, I don’t see this happening on a large scale.  Since Fannie and Freddie started loan securitization in the 1970s, the volume of appraisals needed has been very, very cyclical. Before licensing, most appraisers were employees of lenders. Lenders solved the problem by hiring armies of trainees during boom times and then laying them off when volume dropped. Few appraisers are employees of lenders now. Fee appraisers have been expected to train new appraisers. Lenders paid them a salary and experienced salaried appraisers were the supervisors. But, fee appraisers are not set up for it – no time, minimal supervisor training, little economic incentive, etc.

Read the full article at:
http://www.housingwire.com/articles/31233-how-to-stem-appraiser-low-tide

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