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Q&A provided with the permission of Patrick Egger of Stewart Title - Reformatted for this web site How will they impact your business?
Over the past two years, FNMA has been undergoing the process of changing all of the major 1-4 residential appraisal forms. This is the first major revision of the URAR and related forms in more than 10 years. When the current URAR appraisal was introduced in the early 1990’s, all of the major users of residential appraisal reports joined together for the development and implementation of the forms. This time, FNMA has taken the lead and as a result, there will be different implementation dates. Below is a summary of questions and answers regarding the new forms. Additional references at the bottom of this pabe are are the announcements from FNMA regarding the release and use of the new forms along with an article covering many of the most significant changes and how appraisers will address the new reporting requirements. 1. How many new appraisal forms are there? In total, there are eleven new forms covering all residential appraisal types including single family, 2-4 units, condos, manufactured homes and co-operatives. 2. What is the required use date of the new forms? Appraisals completed on or after November 01, 2005 (destined for FNMA) are required to be on the new forms. FHLMC and FHA have set a required use date at January 01, 2006 but have announced that they will accept the new form after November 01, 2005. 3. Won’t my appraiser know which form to use? Brian J. Davis, RAA has been to classes on the new forms and is familiar with the implementation dates, however it is the client’s responsibility to know what format they need based on where the intend to place the deal (FNMA, HUD, FHLMC, etc.) and whether they need an interior inspection, etc. 4. Since my appraisers already know about the forms, why could this be a problem? There are many reasons for problems to occur. Some lenders are not up to speed on the required implementation date for FNMA. The new forms have significant and in some cases controversial reporting requirements. As such, its highly likely that appraisers, underwriters and reviewers will have different opinions on what is expected with regards to completion of individual sections of the report. This occurred when the URAR was introduced and caused delays in loan closings until appraisers, underwriters and reviewers collectively agreed on what constituted the “minimal reporting requirement” on various issues. Underwriters, processors, etc have checklists and often “internal policies” that require the appraiser to include such things as a cost approach, special maps, additional photos, etc. that may not be applicable or necessary under USPAP standards. Habits, procedures and mindsets that have been in place for decades won’t disappear overnight. If you are a mortgage broker or loan officer, make sure you know what the underwriting requirements are 5. What other issues should I be aware of?
6. In the past, appraisers reported the property’s condition in relation to those in the area. How has this changed? Now FNMA is requiring the appraiser to rate the subject’s actual condition, i.e. if the area homes are generally in average condition and the subject needs work, it will be rated “fair.” Historically, a “fair” rating on the subject will cause a secondary or primary lender to reject the property. In addition to the condition rating, the appraiser will also be required to specifically list the condition of various items (carpeting, walls, etc.) that may need some attention. As such, you can expect lenders to require repairs on more items prior to funding. This will also require the appraiser to re-inspect the property, hence time delays and re-inspection charges. As a side note, for those of you familiar with HUD’s Valuation Conditions sheet where appraisers were required to report property deficiencies on a 4-page attachment to the URAR, FHA (after a review of the new FNMA URAR form with its new reporting requirements on condition) has announced that it will be eliminating the need for the VC sheet. This is significant for several reasons: 1) FHA believes the expanded reporting requirements of the new FNMA form now covers the items formally covered by the VC sheet and 2) its likely that appraisers will begin reporting property deficiencies similar to those required by FHA. 7. Have the flood hazard reporting requirements changed? In the past, a property was only considered to be in a flood area if the improvements themselves were in the zone. Now, if any part of the site is in the zone, flood insurance will be required. 8. What are the new certification requirements? Appraisers are now required to disclose not only the use of an assistant or trainee, but also specifically the extent of the trainee’s contribution to the report. Some lenders now prohibit the use of trainees or mandate that trainees have only a minor role in the appraisal. This could be an issue in a pre-funding review or if you have multiple lenders you fund with. Loan officers/mortgage-brokers; make sure that you understand the “use of a trainee” requirements of the lender the loan is being funded by. 9. How does the new “appraisal scope” differ and will it cause me an issue? Historically, agents, buyers and sellers all believed that appraisals not only were used to justify the loan amount, but to substantiate or validate that the property’s contract sale price as being “market value.” With regulation and guideline changes, this hasn’t been the case since after the S&L crisis. While the reported value by the appraiser may be the same or close to the sale price, contract terms, financing, etc. may be in conflict FNMA’s guidelines, appraisal regulations and the client’s definition of market value. Under the Grahmm-Leach-Bliley Act, the lender is required to give the borrower a copy of the appraisal report. Most do without explanation of the “unique conditions, guidelines etc” under which the value was derived, because they really don’t understand it themselves. While the GLB requires you to give a copy of the appraisal to the borrower. It does not require you to explain the unique conditions and valuation premises of that value opinion, but it is very important that you do exactly that. The seller, buyer, agent, etc all believe that the appraiser’s role in the transaction is to justify the sale price as being representative of market value. On the new forms, FNMA has made it very clear that the report is for “mortgage lending purposes only.” The new appraisals are not intended to establish market value for the sale, but rather market value for underwriting purposes and specifically market value based on FNMA’s guidelines … guidelines that mirror the marketplace, but also remove unique or unusual sales from consideration. The appraiser is required to develop the value opinion based upon USPAP and the client’s supplemental guidelines. The client is making the loan, it’s their appraisal for their use, developed under their guidelines …its their underwriting tool and it is based on their needs. Not explaining this unique subtleness does a great disservice to the borrower, agent, etc. You run the risk of alienating your clients because you do not make this issue clear enough. Conclusions There are several key business considerations when it comes to considering appraisals over the next several months.
FNMA ANNOUNCEMENTS:05-02 Amends the Seller Guides and includes a copy of the new URAR that has key areas highlighted. WARNING: 17 Pitfalls To Avoid With FNMA URAR: 17 Perilous pitfalls to avoid when using the new Fannie Mae URAR. An article by Henry S. Harrison designed to alert appraisers to some key reporting provisions of the new forms. Q&A originally presented by: Patrick Egger Certified General Appraiser #A.0000154-CG Marketing Representative Stewart Title of 8363 W. Sunset Road (702) 400-8639 |