USPAP Q&A April 24, 2020

2020-04: Apppraisal Development – Inspections 

Personal Inspection of Exterior plus Remote or Virtual Inspection of Interior

Question: If an appraiser makes a personal inspection of the exterior of a property as part of a mortgage finance transaction (or in any other assignment) and then receives interior photos, video, or other technology-based view(s) of the subject, can the appraiser state that they performed an interior inspection?

Response: No. A personal inspection of the interior of the property by the appraiser is not the same as viewing the interior virtually or remotely. It would be misleading for an appraiser to indicate that an interior inspection of the subject property was performed, when, in fact, the appraiser only viewed interior photos, video, or other data from technological solutions. (See Conduct sectionof the ETHICS RULE, Disclosure Obligations of the SCOPE OF WORK RULE, and Advisory Opinion 2, Inspection of Subject Property.)

My comment: My apologies for last week’s very confusing explanation of this… The explanation plus USPAP references above is very clear.

To read the original document plus other recent Q&As, click here
Update to Fannie Lender Letter (LL-2020-04)

Impact of COVID-19 on Appraisals

May 5: Extension of effective date: extending the application dates eligible for these temporary flexibilities to Jun. 30, 2020

To read this Lender Letter click here. Has updates going back to March 23. Hard to keep track of all of them!

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Virtual Inspection Tools From Fannie’s letter above on April 14. 

Appraisers may use virtual inspection methods to augment the data and imagery that is used for either a desktop appraisal or an exterior-only appraisal. 

All traditional appraisals require the appraiser to perform a complete onsite interior and exterior inspection of the property. A virtual inspection cannot be used as a substitute for the onsite interior and exterior inspection for a traditional appraisal. 

Additionally, an onsite interior and exterior inspection is required for the Appraisal Update and/or Completion Report (Form 1004D) used to confirm completion of renovation for HomeStyle Renovation loans. Virtual inspections using video and photographs provided by the borrower or contractor can be used to evidence renovation progress to disburse additional renovation funds as described below.

My comments: YOU MUST GO INSIDE THE HOME FOR A INTERIOR INSPECTION APPRAISAL. YOU CANNOT:

– Stand outside the house and tell the borrower which photos to take.

– Take photos through the window.

– Use Virtual Inspection Tools

I guess appraisers are doing this. Don’t risk your license!!

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Why are so few exterior or desktops ordered?

One reason is that when the alternative appraisals were first sent out March 23 in a Lender Letter, the table said:

Permissible appraisals (order of preference)” – March 23

– Traditional appraisal

– Desktop appraisal

– Exterior-only appraisal

This was interpreted by lenders that the Traditional appraisal was “best”.

The Lender Letter from March 23 was updated Mar. 31, 2020 to remove “order of preference” for permissible appraisals, but many lenders missed the change.

The GSEs are trying to explain this change to lenders so lenders will order more desktop and exterior appraisals. They want appraisers and borrowers not exposed to health and safety risks. Lenders have to choose which type of appraisal. They tell appraisers what to do.

I heard about this in several webinars I attended.

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Requirements for the new COVID GSE exterior appraisals are NOT the same as the old drivebys!!

I did hundreds of lender drivebys in the 1990s. Assumed the interior was the same as the exterior condition and/or assumed average condition. Did not have to call the borrower, do extensive research, or get interior photos. I quit doing them because I was not comfortable with my value without information on the interior. I would do them now with Virtual Inspection Tools.

Danny Wiley, with Freddie Mac, wrote the following message, and asked that many of us circulate it to as many appraisers as possible. This applies to appraisals going to either GSE:

“As we are examining the appraisal reports that are being submitted under the COVID-19 flexibilities, the number one issue we are seeing is related to exterior only appraisals and the analysis/reporting of the interior condition.

For GSE work, it is NOT acceptable to simply assume that the interior condition is “average.” Nor is it acceptable to assume that the interior condition is similar to the exterior condition. Many non-GSE users do allow (and even instruct that) appraisals completed with such assumptions, but these assumptions are not acceptable for GSE work.

The appraiser MUST have a data source for the interior condition. The data sources could include any of the types of sources normally used for comparables. Or, under the revised COVID-19 certs, the data could include information provided by the owner, occupant, agent, etc.

If one cannot obtain a data source for the interior condition, then the appraisal should not be completed. However, the intent of adopting the revised certifications and allowing use of data by the property owner was to minimize the number of cases where the appraiser could not obtain such data.”

My Comment: THIS IS WHY THE FEES FOR EXTERIOR, DESKTOPS AND INTERIOR INSPECTIONS SHOULD BE THE SAME!! Decline work from lenders/AMCs who want a discount. 

NOTE: FHA does not use the 2055 form as it is not compatible with their system. GSEs use 2055 and 1004 for external and drivebys.

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New in the May issue of the paid Appraisal Today!!

  • Virtual Inspection Tools Make Appraisal External and Desktop Much More Reliable
  • Desktop and Exterior Appraisals: Virtual Inspection Tools Can Help!
  • Musings on Misleading by Tim Andersen, MAI
  • What Does Fannie Mae Really Want? By George Dell, MAI
  • Malwarebytes Keeps Your Computer Free of Worms, Trojans, Etc. By Wayne Pugh, MAI

To read the full articles, plus 2+ years of previous issues, subscribe to the paid Appraisal Today.

If these articles gave you one good idea, it is worth the subscription price!!Not sure if you want to subscribe?

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MISCELLANEATA

Confused about all these changes? I regularly use tables for GSE, FHA, VA.

Good resource: www.reaa.org/covid

Cat performs snowboarding tricks. Very interesting and funny with a great original rap music soundtrack!!

TAKE A SHORT BREAK. YOU DESERVE IT!!!

https://laughingsquid.com/cat-performs-snowboard-tricks/

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Use Virtual Inspection Tools

I strongly recommend this instead of having the borrower take photos and send them to you. Savvy borrowers are not going to include photos of kitchens and baths in poor condition, rear of house needing major work or will take a photo of a neighbor’s remodeled kitchen, etc. Photos MUST be geocoded. Then you will know if the photo was not taken at their home.

You start with the desktop software. Test it on your own house, posing as the borrower, and send yourself a link to your smartphone. For Bradford, if you use an iphone, you are told to download an app to be sure the photos are geocoded as Apple removes it for privacy purposes.

I tested two of them. The smartphone apps for the borrower were very similar. The appraiser web pages were different.

To test Bradford Software’s free Tool, OnSight, go to

www.bradfordsoftware.com/onsight/ If your forms software has this Tool available, see how it compares with Bradford.

Clear Capital AMC’s free Tool is OwnerInsight. It is targeting their lender clients, but is free to all appraisers. To test it, go to https://getownerinsight.com/ and click on Order Inspection.

I did not review Tools being sold by companies with no experience in the appraisal business. Also, I only reviewed Tools free to all appraisers.

I wrote a long article about these Tools in the May issue of the paid Appraisal Today.

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Fewer cash-out refis: Mortgage lenders have imposed steep pricing adjustments for cash-out refinancing as more borrowers seek forbearance 

Cash-out refinancing is drying up as banks and mortgage lenders tighten underwriting standards to cover the risk of millions of borrowers seeking forbearance on their home loans.

Despite ultra-low interest rates and the need by many homeowners to raise cash because of job losses and economic uncertainty, many homeowners are priced out of the market for cash-out refis, lenders say.

Mortgage lenders have released new rate sheets in the past week showing higher credit scores and loan-to-value ratios plus added fees for cash-out refis. The changes are in response to the Federal Housing Finance Agency’s policy last month that excludes cash-out refinancing from the single-family loans that Fannie Mae and Freddie Mac will buy in forbearance.

Good article. Worth reading for more details. To read more, click here

NOTE: This article is from American Banker and may be behind a paywall with the ability to open it once.

Very good article on Mortgage Credit Availability Index from MBA. Click here

Very big changes. Good graphs.

My comments: This will cause cash out refis with traditional appraisals to decline. I have been waiting for lenders to figure out that cash-out refis are very, very risky. Too many people are losing their jobs. The GSEs are restricting purchasing loans in forbearance. Jumbo loans are much more difficult to obtain. For purchases and refis with no cash out, sometimes exterior appraisals can be done on the 2055 form.

Forbearance means that borrowers can defer payments for a period of time. For GSEs, FHA and VA the conditions are specified. For example, payments for the next 6 months are added to the loan amount. This deferral can be continued for up to a year. If your loan is not sold to them, forbearance conditions vary widely, including repaying the deferred mortgage payments in full after 90 days deferral. It is a mess.

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How Infectious Disease Defined the American Bathroom

I somehow forgot to include this last week!!!

Cholera and tuberculosis outbreaks transformed the design and technology of the home bathroom. Will Covid-19 inspire a new wave of hygiene innovation?

Excerpt: Alter predicted that disease-avoidance would rise to the fore of bathroom design a few years ago, when he observed the traumatizing effects of the 2003 SARS outbreak on Toronto, which killed 44 people. But home design in general — and bathroom design in particular — has long been influenced by infectious disease. This isn’t a linear narrative with clear causation, but rather a convergence of advancements in science, infrastructure, plumbing, sanitation and design trends.

The modern bathroom developed alongside outbreaks of tuberculosis, cholera and influenza; its standard fixtures, wallcoverings, floorings, and finishes were implemented, in part, to promote health and hygiene in the home at a time of widespread public health concerns.

To read more, click here

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HOW TO USE THE NUMBERS BELOW. Appraisals are ordered after the loan application. These numbers tell you the future for the next few weeks. For more information on how they are compiled, go to www.mbaa.org Note: I publish a graph of this data every month in my paid monthly newsletter, Appraisal Today. For more information or get a FREE sample issue go to https://www.appraisaltoday.com/products.htm or send an email to info@appraisaltoday.com . Or call 800-839-0227, MTW 7AM to noon, Pacific time.Mortgage applications increased 0.1 percent from one week earlier,

WASHINGTON, D.C. (May 6, 2020) – Mortgage applications increased 0.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 1, 2020.

The Market Composite Index, a measure of mortgage loan application volume, increased 0.1 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 1 percent compared with the previous week. The Refinance Index decreased 2 percent from the previous week and was 210 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 6 percent from one week earlier. The unadjusted Purchase Index increased 7 percent compared with the previous week and was 19 percent lower than the same week one year ago.

“Mortgage application volume was unchanged last week, even as the 30-year fixed rate mortgage declined to 3.40 percent – a new record in MBA’s survey,” said Mike Fratantoni, MBA’s Senior Vice President and Chief Economist. “Despite lower rates, refinance applications dropped, as many lenders are offering higher rates for refinances than for purchase loans, and others are suspending the availability of cash-out refinance loans because of their inability to sell them to Fannie Mae and Freddie Mac.”

Added Fratantoni, “Purchase volume increased for the third week in a row, led by strong growth in Arizona, Texas and California. Although purchase activity remains almost 19 percent below year-ago levels, this annualized deficit has decreased as more states reopen amidst the apparent, pent-up demand for homebuying.”

The refinance share of mortgage activity decreased to 70.0 percent of total applications from 71.6 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 3.0 percent of total applications.

Looking at the impact at the state level, here are results showing the non-seasonally adjusted, week-over- week percent change in the number of purchase applications from Washington, California and New York:

The FHA share of total applications decreased to 11.1 percent from 11.5 percent the week prior. The VA share of total applications remained unchanged from 13.3 percent the week prior. The USDA share of total applications remained unchanged from 0.5 percent the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) decreased to 3.40 percent from 3.43 percent, with points decreasing to 0.30 from 0.34 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $510,400) decreased to 3.69 percent from 3.72 percent, with points increasing to 0.34 from 0.33 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.37 percent from 3.39 percent, with points remaining unchanged at 0.20 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.93 percent from 2.98 percent, with points increasing to 0.29 from 0.28 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The average contract interest rate for 5/1 ARMs decreased to 3.20 percent from 3.29 percent, with points increasing to 0.36 from 0.00 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.

The survey covers over 75 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100.

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Ann O’Rourke, MAI, SRA, MBA

Appraiser and Publisher Appraisal Today

1826 Clement Ave. Suite 203 Alameda, CA 94501

Phone 510-865-8041

Email  ann@appraisaltoday.com 

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