11/15/07 - Freddie Mac Update Bulletin: Lending practices in "Declining Markets", Appraiser-Seller Responsibilities, Underwriting, and Maximum Financing Concessions
Freddie Mac has just released their November 15 Bulletin
The following are excerpts from this bulletin:
DECLINING MARKETS
Lending Practices in Declining Markets
Many areas of the country are experiencing significant and on-going property value depreciation. While the decline in average home prices is widespread, the amount of the decline varies and may be significantly worse than the national average in some areas. In light of these market conditions, we are reinforcing our appraisal standards and underwriting expectations related to maximum financing in declining markets.
Appraiser responsibilities when performing an appraisal.
In reporting the property-value trends, appraisers certify that they have performed an objective and complete analysis of quantifiable data supporting their conclusion.
The purpose of an appraisal is to provide the Seller with an accurate and adequately supported opinion of value, based on our definition of market value. Appraisers must determine whether the property they are appraising is located in an increasing, stable or declining market.
- Appraisers must support their conclusions by providing relevant information relating to the property-value trends, demand/supply and marketing time.
- Appraisers must also provide a description of the prevalence and impact of financing assistance, e.g. concessions, gifts, or down payment assistance, paid on behalf of a Borrower as well as the assistance generally available in the market.
- They must also research and comment on the days-on-market, including expired listings of the subject and comparables, as well as list-to-sale price ratios, and the availability of financing. The opinions of value must reflect the value and marketability of the property without concessions.
Seller responsibilities for appraisals
While it is an appraiser's responsibility to indicate the property-value trends in the market in which subject properties are located, Freddie Mac expects Sellers to he aware of market trends in their lending areas. We hold the Seller accountable for the quality, integrity and accuracy of the appraisal.
Among other things, Sellers are responsible for:
- Selection of an appraiser qualified to perform an appraisal of the subject property, without attempting to influence the appraiser's results;
- Providing the appraiser with the sales contract and other information available about the subject property and transaction, including any funds paid on behalf of the Borrower, whether or not the funds are considered an interested-party contribution subject to contribution limits
- Properly underwriting the appraisal to ensure that the appraiser's opinion of value meets the definition of `market value', and that the appraisal is accurate and fully supported
Sellers are reminded that appraisals must comply with the Uniform Standards of Professional Appraisal Practice (USPAP), applicable Advisory Opinions, laws and regulations, and Freddie Mac
requirements
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