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Fannie warning letters – GLA adjustments and lots more coming

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.

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

Appraisers……..

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:  https://www.fanniemae.com/content/release_notes/ucdp-change-notification-01262015.pdf

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!!

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Dave Towne on Big Data, Hedonic Regression, etc.

Appraisers………

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: http://www.housingwire.com/blogs/1-rewired/post/32165-does-fannie-mae-support-appraisers  This one is written by one of the regression spreadsheet developers, currently available to appraisers.

And for info on Hedonic Regression: http://en.wikipedia.org/wiki/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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Fannie Mae – buy backs, adjustments, MLS fotos, etc

By Steve Costello, www.appraisalport.com

Steve reports on an educational session he attended at The Appraisal Institute (AI) annual conference in Austin, Texas, on Aug. 4-6, 2014. He also includes information from an Appraisal Institute seminar – Unraveling the Mystery of Fannie Mae Appraisal Guidelines

If you work for lenders, it is highly recommended that you read a summary of these recent changes for yourself in Announcement SEL-2014-03, dated . It can be found at
https://www.fanniemae.com/content/announcement/sel1403.pdf

Lenders are still concerned with buy-backs, where Fannie makes them buy back loans that Fannie purchased. Yes, they are happening today, sometimes due to appraisal “problems”.

Excerpts:

The ongoing scrutiny and updating of the Guidelines, combined with all these recent problems, are the reasons your lender and AMC clients now have to take great care screening your appraisal for any type of error. These days, it isn’t uncommon for a lender to be forced to buy back a loan that is still performing because an issue was discovered with the appraisal after the loan was sold on the secondary market. Many of the common UAD errors that cause problems may not have a direct effect on your final value, but these types of errors can still cause the lender to have to buy back a loan.
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Another area of close attention by Fannie Mae that Underwood mentioned is the proper supporting of adjustments. Fannie Mae has determined this to be a problem area based on the volumes of appraisal data they examine. Just saying you made an adjustment is not good enough. You now need to show how and why you are making the adjustment. They found a lot of appraisers using “standard” amounts for adjustments. Many of these are old and outdated or no longer apply to a particular neighborhood. Fannie Mae is now looking for the appraiser to completely document how they arrived at their adjustments for any given property.

Note: Fannie Mae has said that they are especially looking to see some support for the adjustments made for gross living area and those items on the adjustment grid above gross living area, which include such attributes as the room counts, location, site and so on. How did you decide how much to adjust?

You may find some of Fannie Mae’s requirements surprising, but remember your lender may have different, more stringent requirements. Be sure to meet the requirements of your client even if they are above and beyond the Fannie Mae requirements.

A few Fannie guidelines you may not be aware of:
– Acceptable photographs include original images or those from MLS or the appraiser’s files. (If you can’t get to the comp, for instance in a gated community, you can use the MLS photos from the sale but make sure to document what you did).
– The appraiser must identify items that require immediate repair and deferred maintenance items which may or may not require immediate repair.
– Market condition adjustments must reflect the difference in the market conditions between the contract date of the comparable and the effective date of appraisal for the subject. (The adjustment may be either positive or negative).

 

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Fannie's new Collateral Underwriter to check appraisals Using Fannie's Big Data.

Fannie’s new Collateral Underwriter to check appraisals Using Fannie’s Big Data. 

Another great email from Dave Towne in Washington!!

10-14 FNMA Collateral Underwriter Flyer showing info about the FNMA Collateral Underwriter process they will make available to lenders (NOT APPRAISERS) in January 2015. You should review it. It has to do with their Enhancement of Risk Controls.

This is what we know as Appraisal Quality Monitoring (AQM) …. which was announced almost 2 years ago. FNMA has already been using the ‘scope’ on your reports, but will soon allow the lenders to have access to the software so that they can do pre-submittal exams prior to uploading the loan file, and your appraisal, to FNMA.

Virtually everything is digital now in our real estate appraisal world. That makes it incredibly easy for ‘big data’ to be analyzed very quickly and efficiently. Hiding relevant property info under a rock, your clipboard [tablet?], or just ignoring it, is no longer possible. Discrepancies will be found fast, and you will be asked for explanations or corrections.

Note the examples from the flyer:
– Chain of property ownership
– Inconsistency in reported property data from your info compared to your peers (subject & comps)
– Checking adjustments made (or not made) – primarily the math
– Testing for comps in terms of location, characteristics, sales prices, etc.

FNMA’s news release about their Collateral Underwriter:
Introducing Collateral Underwriter
Collateral Underwriter™ (CU™) is a proprietary appraisal risk assessment application developed by Fannie Mae to support proactive management of appraisal quality. CU will:
– Provide additional transparency and certainty by giving lenders access to the same appraisal analytics used in Fannie Mae’s quality control process.
– Perform an automated risk assessment of appraisals submitted to the Uniform
– Collateral Data Portal® (UCDP®) and return a CU risk score, flags, and messages to the submitting lender.
– Be available at no charge so lenders can take full advantage of the application for quality control and risk management purposes.

The CU risk scores, flags, and messages will be available to all UCDP users in real-time beginning on Jan. 26, 2015 through UCDP. Find more information on the CU web page at https://www.fanniemae.com/singlefamily/collateral-underwriter?cmpid=sln102114 .

Dave Towne, AGA, MAA Owner / Educator
360-708-1196
towneappraisals@clearwire.net
www.towneappraisals.com
Mount Vernon, WA

My comments: The PDF only has three pages of the document. The other pages were not available. Real estate is location, location, location. What about the 4th approach to value: Curbside Approach. That is where you sit on the curb across the street from the subject and ask yourself: “Does this value make any sense?”

There are many appraisal review programs in use and being developed. I knew that Fannie would be using their Big Data to automate underwriting reviews of appraisals as well as monitoring appraisers.

Does this mean appraisers focus even more on making sure their appraisals pass these automated reviews rather than focusing on what counts – the value? Is this another path along the way to not focusing on what appraisers provide – reliable and accurate values? Plus, disclosure of any problems with the property?

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Appraisers receiving warning letters from Fannie about discrepancies in Q and C ratings

I keep reading online about appraisers receiving warning letters from Fannie that they are using different Q or C ratings on the same property.

Of course we do change our opinions about a property. Sometimes we have new information or just re-think the property and change our opinion. Be sure to explain this in your appraisal.

You need to set up a way to use your comp database to check the Q and C ratings for any property you use in your appraisals. It should only take a few minutes. Hopefully software vendors will automate this for you. Bradford has software for this.

What happened to the appraisers who got the letters? Nothing that I heard of. But, Fannie may be putting them on a special list so their appraisals are scrutinized. Fannie has stated for awhile they would be sending warning letters.

Why is Fannie looking at Q and C ratings? Who knows why they picked these factors. Maybe because they are absolute. But, I suspect that other factors are being looked at or will be coming soon. I don’t think they would want to get into the very hot issue of GLA…

Remember, Q and C ratings are absolute, not relative. If you don’t agree with this, don’t do appraisals for Fannie Mae loans as that is in their Scope of Work.

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Fannie's Appraiser Quality Monitoring(AQM) FAQs July 2014

I did not compare these FAQs with the 2013 FAQs but they seem very similar.

The Q&As below may be new or revised:

– Will appraisers have the opportunity to appeal or offer a rebuttal?

– What should an appraiser do if he or she believes that the rebuttal would violate the Confidentiality section of the Ethics Rule as set forth in the Uniform Standards of Professional Appraisal Practice (USPAP)?

– What actions will Fannie Mae take with respect to specific appraisers?
Part of the reply: Fannie Mae will provide information directly to appraisers whose appraisal reports exhibit a pattern of minor inconsistencies, inaccuracies, or data anomalies. The intent and expectation of communicating these issues to appraisers is for training and educational purposes, and to provide them with an opportunity to improve their work. Future appraisal reports from those appraisers will be monitored to assess improvement.
https://www.fanniemae.com/content/faq/appraiser-quality-monitoring-faqs.pdf

Fannie posts a list of appraisers subject to 100% review of their appraisals or are not approved to do appraisals for Fannie Mae loans. The Appraisal Quality Management list is only accessible to lenders who sell loans to Fannie. The last list was posted in May.

My comment: Maybe a few of those appraisers hiring armies of people to do their inspections and drive comps will get caught. For example, completing 40 appraisals a week in urban areas or 10 appraisals a week in very rural areas. Of course, they can make lots of money working for very low AMC fees!!

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Changes to Fannie's Selling Guide dated April 15, 2014

Fannie’s Selling Guide, which includes appraisal guidelines has been updated.

Be sure to use the new Selling Guide to find out what Fannie really says vs. what your client thinks Fannie says!!

Summary of appraisal changes

New or Updated Policies
Chapter B4

Some of the new requirements/changes:

Added the requirement that a front photograph of the subject must be taken when completing the Appraisal Update portion of the Appraisal Update and/or Completion Report (Form 1004D) to validate that the appraiser has inspected at least the exterior of the property when he or she performed the
appraisal update.

Unpermitted additions
If the appraiser identifies an addition(s) that does not have
the required permit, the appraiser must comment on the quality and appearance of the work and its impact, if any, on the market value of the subject property.

Older Comparable sales
Revised the policy by removing the requirement that an explanation is required when using a comparable sale that is older than six months

Provided an example to illustrate that in some instances it
may be appropriate to use older sales with proper time
adjustments rather than a dissimilar more recent sale.
An older sale may be more appropriate in situations when
market conditions have impacted the availability of recent
sales as long as the appraisal reflects the changing market
conditions.

Information related to Fannie Mae’s acceptance of unique
property types has been provided.

The definition/characteristics and the eligibility of an
accessory dwelling unit have been provided.

Be sure to use the new Selling Guide to find out what Fannie really says vs. what your client thinks Fannie says!!

Link to summary:
https://www.fanniemae.com/content/announcement/sel1403.pdf

Link to new Web based documents:
https://www.fanniemae.com/content/guide/selling/index.html

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Info on Fannie's "do not use" appraiser list available

Info on Fannie’s “do not use” appraiser list available

Many thanks to appraiser Dave Towne for sending the email below!!

FannieMae distributed this info below on 1/07/14 ….. shown here just as an FYI, because appraisers cannot access the AQM page.

But you can access the LL-2013-10 which describes some of the negative reporting issues the GSE’s have seen since the UAD was implemented.

Your UAD reports are subject to a higher level procto exam if:
–>you often use the same comp in different reports, but the data you report for that property is different between reports
–>you change the Quality and Condition rating for the same property used as a comp in different reports  (The first time it’s used the Q & C ratings should ‘stick’ thereafter)
–>you are contacted by a GSE reviewer who discusses the above item(s), and you don’t have a credible explanation as to why you have done the above
–>you continue to make the same reporting errors frequently

If you wind up on the GSE’s ‘do not use list’ you are effectively out of business – at least for federally regulated mortgage lending reports.  So “let’s be careful out there!”

Appraiser Quality Monitoring Information
Fannie Mae has published a new web page with information about the recently implemented Appraiser Quality Monitoring (AQM) process. The new AQM web page includes FAQs and a link to the AQM list identifying appraisers whose appraisals will be subject to 100% review by Fannie Mae or whose appraisals are no longer accepted by Fannie Mae. The AQM list is protected content, and approved Fannie Mae sellers/servicers may set up access through Technology Manager.

For more information, refer to Lender Letter LL-2013-10: Appraisal Quality, which reminded lenders of Fannie Mae’s appraiser selection requirements, highlighted several data quality issues, and described the AQM process that Fannie Mae has implemented to identify and monitor issues with individual appraisers.

Direct link to Fannie Appraiser Quality Management (AQM) web page at  www.fanniemae.com/singlefamily/appraiser-quality-monitoring

Dave Towne, AGA, MAA                                             towneappraisals@clearwire.net                           www.towneappraisals.comMount Vernon, WA

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What do I think? This can be good for the appraisal profession!

Appraisers have been complaining for years about the “other” appraisers who are unethical, incompetent, lazy, or stupid. For many clients, since licensing, all appraisers are seen as the same. Why not use someone who gives you what you need – turn time, fee, no problems with underwriting, etc.?

Unfortunately, AMC hassles have driven many very experienced appraisers out of the business, or refusing to do AMC work. This makes the problem more difficult.

Maybe more AMCs will start using appraiser quality rather than fee, turn time, etc. to select their appraisers.

Also, the preference by many AMCs for low fees makes it very tempting to skimp on the time and effort for doing appraisals.

A low fee does not mean that you can do a poor job on an appraisal. I know what it is like to work for a low fee. I tried doing low fee jobs a few times over the years, but found I had a really “bad attitude” about the appraisal and had to force myself to do the same appraisal no matter what the fee. Doing a good appraisal is more important to me than using a low fee as an excuse for doing less work on an appraisal.

It is great to see that Fannie is using objective criteria, rather than a reviewer that gives an appraiser a bad rating, removing them from the list of a major lender. Just like appraising, reviewing is subjective. Particularly with the use of reviewers not familiar with your local market.

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