Fannie warning letters-GLA adjustments

Fannie has been sending out warning letters to appraisers about variations in Q and C ratings. Now they are sending out letters about using low GLA adjustments. According to people who attended, or heard about a recent speech that Bob Parsons of Fannie Mae gave an appraisal conference, $25 per sq.ft. Seems to be used by lots of appraisers for lots of properties that vary widely in size, etc. I wasn’t at the speech and don’t know what was actually said, but $25 per sq.ft. Was used in a large number of appraisals.

A quote from a recent email I received: “A friend of mine just got a letter from Fannie Mae stating that they have been monitoring his reports for 6 months. In that time they said he used $35 Psf for gla adjustments 14 times. This is a warning. Further action may be required if this continues.” I haven’t seen any of the letters myself but have been hearing about them for a few months. This The last two sentences have been pretty common in the warning letters sent about Q and C adjustments, which are a lot more shakey to support and are much more controversial.

Hmm… In my area, the San Francisco Bay Area, with a median home price of $601,000 in October, 2014, slightly down from June as many markets have slowed down. San Franciso’s median home price is around $1,000,000. I hope no one there is using $25 per sq.ft.!! Except maybe in neighborhoods with relatively low home prices or some lower priced condos condos. In my small city of 75,000 population the median price in October 2014 was $690,000. Our prices are around the median for the area. Very few homes or condos under $300,000.

Sq.ft. is one of the easiest adjustments to support, as compared with lots of other features. For many years, it has been one of the few almost always reliable adjustments when using regression analysis. You can sometimes even use matched pairs. I have no idea why appraisers don’t try to figure out an appropriate adjustment.

This is just a start. Read info on Fannie’s UCDP Fannie Mae Appraisal Messaging Change Notification” – link below, with a list of all of the appraisal data that Fannie is looking at below.


Dave Towne on Collateral Underwriter
Thanks to appraiser Dave Towne (again) for his Most Interesting Comments:


Many know by now that the GSE’s…primarily FannieMae……..have instituted a new ‘appraisal scoring’ procedure based on an electronic read of your reports ……….. specifically on a SFR 1004 or the Condo 1073Those are the only forms currently being analyzed by the CU process.

On Nov. 18, 2014, FNMA released a document named “UCDP Fannie Mae Appraisal Messaging Change Notification” which you can find here:

I encourage all appraisers to actually read this document … all 11 pages.

When you do read this document, you will learn that your reports are being compared to your peer’s reports, and to your other reports, and to some unidentified ‘model’ FNMA uses.

Some of the ‘checks’ being performed by the CU process include these:

The reported GLA is materially different than what has been reported by other appraisers.

The reported lot size is materially different than what has been reported by other appraisers.

The condition rating is significantly different than what has been reported by any other appraiser.

The quality rating is significantly different than what has been reported by any other appraiser.

Here are a few that can cause real concern among appraisers:

The GLA adjustment is larger than peer and model adjustments.

The GLA adjustment is smaller than peer and model adjustments.

The view adjustment is materially different from peer and model adjustments.

And I just love this one:

The appraiser-provided comparables are materially different than themodel-selected comparables.

It’s time for appraisers to get serious about meeting your peers in person, compare notes, and develop a regional adjustment chart for all variables … much like that yellow legal pad paper you were handed when you got in this business …. that paper with the ‘required’ adjustment amounts on it for almost all items.

Oh … and when you get that knuckle slapping letter from FNMA saying your adjustments or comparables don’t match the ‘model’ be sure to get the specifics and pass on ‘model info’ to your peers.

Yep, appraising real property and developing an opinio

My comment: Fannie, please send me all my adjustments. Then I won’t get questioned by my state regulator (hopefully), underwriters, reviewers, etc. I would really like to know what adjustment to be made for all the unusual features in the homes I typically appraise – most built before 1930 and many built before 1910 with all types of additions, remodeling, etc. Even tract homes have stuff like converted garages, original kitchen and baths, inlaw units in rear, views, etc. Of course, I have been using regression since the 1970s on homes and very few adjustments are very reliable. I wonder how Fannie is going to do it.

I remember commercial appraisers used to talk about getting cap rates from bottom of a stone monument ;> Maybe we are still looking for that darn piece of stone!!


Dave Towne on Big Data, Hedonic Regression, etc.


The new Collateral Underwriter electronic review process developed by FannieMae has many appraisers on edge. This will become the ‘ultimate authority’ or gold standard for reviewing appraisal reports as of January 26, 2015 …. at least as far as FNMA is concerned. Your reports will either ‘pass’ or ‘fail’, depending on many factors. Some of those factors are outside your immediate control.

“Big Data” is one giant pile of stuff that is being put into the CU pot, stirred together like a stew. Except there is no master chef involved that ‘we’ can interact with. Instead we have a bunch of secret sous chefs each contributing a chunk of meat, a bit of spice, some chopped carrots, and a few potatoes. None of them, or us, really knows the actual CU recipe, because part of what’s in the stew is a ‘model’ of something unknown. But some of that Big Data in the CU stew could be yours … or it might be data provided by your peer appraisers who work in your area – that your reports will be compared against. Not too tasty you say? Just add more pepper.

An aspect of this Big Data stew is Census Tract home price analysis, which is compared against your appraised property value. As an exercise, everyone reading this immediately write the neighborhood description using N, S, E & W directionals for the census tract in which your home residence is located. What? You don’t know the boundaries of your census tract? For shame! Some people using the CU stew might think you are deficient because you don’t know price trends in the exact census tract of the appraised property.

Then we have Hedonic Regression. It’s not a bad thing. But it’s becoming the buzz words of our appraisal adjustment process. It’s a ‘background component’ in the CU process, moving farther forward, faster than some might expect.

Bet you didn’t know that the adjustment grid is a form of Hedonic Regression! It’s a way a certain property’s components of value are itemized separately. By using Hedonic Regression, the individual value of the adjustable components can be calculated and plugged into the adjustment grid. In theory, this can lead to a more accurate property value.

The folks at Bradford Software were among the first to begin promoting use of regression techniques by appraisers. In other ways, the other appraisal software companies and some independent developers have been working on individual processes to make “Regression” more palatable and useful to appraisers. Bradford, and the independent developers, have either report software, or separate spreadsheets, that can help calculate property adjustable components, which in turn can lead to a more credible and supportable opinion of value for the appraised property.

The days of “I’ve been an appraiser for 27 years, so I know what this house is worth” are rapidly coming to an end. The Big Data CU stew is overtaking appraising like the snow avalanches that have closed State Highway 20 in north Washington State in the Cascade Mountain range, not far from where I sit in my cozy bathrobe and bunny slippers.

My observation in this process is that appraisers, as a group, are not statisticians by training and are somewhat scared of that term – even though ‘we’ deal with lots of statistics and data. Thus, appraisers don’t have a clear understanding of what “Regression” is, or does. As a result, ‘we’ have been reluctant to embrace this ‘actually old’ technology in modern appraisal reports. And ‘we’ certainly are skittish about FNMA’s soon to be released (to lenders only) Collateral Underwriter which will analyze reports using “Regression.”

Another perspective on this topic is from this blog:  This one is written by one of the regression spreadsheet developers, currently available to appraisers.

And for info on Hedonic Regression:

My comment: When I first started doing residential lender appraisals in 1986, we used census tract maps to find the code. Later, the codes were available on computers and we did not use maps. However, I found that they were very good for defining neighborhoods. I guess we all forgot about them since few, if any, appraisers look at the maps. I still have my old census tract books.

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  1. I think Fannie Mae has too much power over our profession and their threats are unfair and unreasonable. They say “peers” and others who have reported this and that but they won’t provide any further details. I would like to cross examine my accusers before I am convicted. I asked my state senator to ask Fannie Mae about disclosing their sources and providing more data but they did not respond. I told my senator I wanted someone in government to be aware of what Fannie is doing and there should be more oversight outside of Fannie Mae of their procedures and policies. They are not helping the profession, they are causing good appraisers to lose work and possibly leave the business. Since when did we have to be afraid of each adjustment because someone else adjusted for the same thing differently? Now we have to fight with the lenders, AMCs and Fannie Mae. It never ends.

  2. I got a letter todsy from Fannie Mae about c3 c4 being for the same comp. I change my mind. I forget whether I put c3 or c4. After completing many reports, a client changed my opinion about what I was calling c3 to c4. I have all these reports which I would change but the changes have minimal and no impact on my opinion of value. Its just a way to feed data for free to some computer somewhere. I will try to adapt to this, but I will leaving the profession if Fannie Mae starts harassing me about inconsistencies that are in every report and have no impact on value opinion. It just isn’t worth it.

  3. I am curious to see more conversation on the census tract being used for neighborhood boundaries. This is a new concept to me. I have always noticed the census tract noted in the subject section, the entire tract doesn’t appear to be relevant data for many neighborhoods in our area. Some areas cross census tracts while other are more narrowly defined.

  4. It sounds like Fannie is attempting to make “judgement” uniform. A unique idea. ! Many times, for an amenity, we survey buyers, to see what they were willing to pay extra, for an item. That might not be “uniform”. Also, I certainly hope, with the Models I’m sure Fannie ( and others ) are building, they are not violating Federal Copyright law. Most of what we develop, not in public records, is Intellectual property. I’d certainly like to see someone on the “inside” blow the whistle on that.

  5. Residential Appraisers:
    We are mind readers of people who are unknown to us. We are asked to take their emotional and often irrational thoughts and motivations and create some logic out of them to translate into “market data”.
    The appraisal value is an estimate, an opinion based upon this “data” that is as credible as we can determine. There is no one better to make this opinion that someone who has the competence from working in an area for years, seeing how people react as best as can be determined. Now, all appraisers have to agree to what they see, make similar adjustments just to please the computer geeks at FNMA? We all must think alike with this limited data. Unreal!
    These government companies couldn’t even manage their own businesses without bailouts and government intervention and they want to tell us how to dot every I and cross every T so their computers can log it.
    In a market outside of a metropolitan area that is composed of cookie cutter houses and developments, this is not logical. We do not have that abundance of data. What we have is experience in “mind reading” and an opinion of value based upon that experience. One “mind reader” may not have the same experience as another but somehow I have noticed among the peers in my county, that we are not that far apart. And remember it is an opinion not a scientific fact.
    And that’s another reason why the value may vary slightly from the predominate value of an area. These are not homogeneous neighborhoods in a rural community.
    Now the new requirement for December from FNMA: The 1004MC should stand alone to discuss the MARKET for the subject, the MARKET can be outside of the subject’s neighborhood. Let the Neighborhood description and One Unit Trends stand alone as well to really tell the reader what the area surrounding the subject consists of. These are TWO separate considerations and descriptions in a rural area.
    Stop beating us up with “revisions will cost you orders”, “long turn around times or missed due dates will cost you orders”, “demanding fair and customary fees will cost your orders”. Now we have FNMA saying “if you don’t agree with your peers, you will be eliminated”. Why is it that you think we aren’t trying the best we can to make this profession work for the industry, for you and for ourselves? And you continue to think that our time is worth nothing, revision after revision (many not justified) is just our free time.
    I do not know a single residential appraiser who would not give up this profession for something better. You are killing us and for no good reason or benefit to the industry.

    • I was dropped by my large lender in early sept. I worked for them for 5 years. They were constantly demanding more, more, more. For the 5 years I was with them my blood pressure was 138/90, moderately high. 30 days after I stopped working for them my blood pressure dropped to 113/70. Unfortunately, residential appraisal will figuratively and literally kill. Isolation, deadlines, low fees, pressure from borrower and lenders. I am sad for myself and the rest of us who chose a trade that has so radically declined during the past few years.

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