Appraisal Scoop

First Impressions: Fannie Mae's New Market Conditions Addendum

If you attended my class at the "a la mode Regional Appraiser Conventions", I mentioned that Fannie Mae was working on a "one-page Market Conditions addendum" (similar to Wachovia and RELS forms). Fannie Mae has released the 1004MC form as part of Announcement 08-30, which also includes clarifications and amendments to the existing Fannie Mae Selling Guide. Download MCA_Appraisal_Report.pdf

Key Highlights of Announcement 08-30:

•  New Market Condition Addendum form 1004MC

• Supervisory appraisers must now inspect the subject property

• Reporting prior sales and listing history

• Appraising a property on sites over 5 acres

• Effective age adjustments

• Cost approach for insurance purposes

The 1004MC: "Houston, we have a problem"

My initial thoughts, I think we have some bridges to cross here, one of the reasons I started the series on URARS – Uniform Residential Appraisal Reporting Standards. While I believe this is a step in the right direction, the form and instructions appear to be in conflict with other Fannie Mae Appraisal Guidelines, The Appraisal of Real Estate and "generally accepted appraisal practice". 

As an example, the 1004MC requires the appraiser to report housing trends based upon "sales and listings of properties that compete with the subject property, determined by applying the criteria that would be used by a prospective buyer of the subject property".The conclusions for those trends (based on properties that are competitive with the subject) are to be "reported in the "one-unit housing trends" area of the URAR.

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Appraisal and Evaluation Guidelines - Appendix B - Evaluation Alternatives

The federal bank, thrift and credit union regulatory agencies today jointly issued for comment proposed Interagency Appraisal and Evaluation Guidelines that reaffirm supervisory expectations for sound real estate appraisal and evaluation practices.

Within the proposed guidelines are new appendices:

• Appendix A provides further clarification on real estate transactions that are exempt from the agencies' appraisal regulations;
• Appendix B addresses acceptable evaluation alternatives and use of automated valuation models; and
• Appendix C contains a new glossary of terms.

Here are some excerpts from Appendix B:

 

 

Agencies Seek Comment on Proposed Interagency Appraisal and Evaluation Guidelines

The federal bank, thrift and credit union regulatory agencies today jointly issued for comment proposed Interagency Appraisal and Evaluation Guidelines that reaffirm supervisory expectations for sound real estate appraisal and evaluation practices.

The proposed guidance builds on the existing federal regulatory framework to clarify risk management principles and internal controls for ensuring that financial institutions' real estate collateral valuations (both appraisals and evaluations) are reliable and support their real estate-related transactions. The initiative is intended to respond to heightened concerns over appraisals and credit quality.

The proposed guidance would replace the 1994 Interagency Appraisal and Evaluation Guidelines to incorporate recent supervisory issuances and reflect changes in industry practice, uniform appraisal standards and available technologies.

As with prior issuances, the proposed guidance would apply to all real estate lending functions within a federal financial institution, including commercial and residential lending departments, capital market groups, and asset securitization and sales units. Volatility within certain real estate markets and associated credit risk underscore the importance of independent and reliable collateral valuations.

In this regard, there is an expanded discussion of portfolio management techniques and circumstances under which an institution should update or replace a collateral valuation for an existing real estate transaction.

The proposed revisions address:

• Additional detail on the agencies' expectations for an independent appraisal and evaluation function. 
• Greater explanation of the agencies' minimum appraisal standards, including clarification of requirements for appraisals of residential tract developments.
• Revisions to the Uniform Standards of Professional Appraisal Practice, which are incorporated by reference in the agencies' appraisal regulations.
• Risk-focused appraisal and evaluation reviews separate and apart from an institution's compliance function.
• New appendices – Appendix A provides further clarification on real estate transactions that are exempt from the agencies' appraisal regulations; Appendix B addresses acceptable evaluation alternatives and use of automated valuation models; and Appendix C contains a new glossary of terms.

The agencies request comments on all aspects of the proposed guidance. Comments are due to the agencies sixty days after publication in the Federal Register, which is expected shortly. A copy of the Federal Register notice with the proposed guidance is attached.

Attachment: Proposed Interagency Appraisal and Evaluation Guidelines 

Source: FDIC

E&O Insurance Co. - Liability Administrators - Answers questions about the new FNC "User Agreement"

On Nov. 11th Appraisal Scoopreported that a new AppraisalPort® User Agreement scheduled to become effective December 13, 2008 had been released.  The old and new versions were compared:

According to the Liability Administrator's Appraiser Legal Defense and Insurance Blog:

The only material difference between the two versions is that FNC took the following words out of the last item: “whether any such liability, damages, loss, or claim arises from any act or omission of AppraisalPort (including its sole ordinary or gross negligence) or act or omission of any supplier of data to AppraisalPort (including their sole ordinary or gross negligence).”

While facially appealing, in our view, this deletion does not really change the meaning of the indemnity provision. In other words, if FNC gets sued for any reason based on an appraisal delivered by you through AppraisalPort, FNC could still argue that you are obligated to indemnify FNC for losses or damages that FNC incurs as the result of that lawsuit even if the lawsuit is based on a problem caused by FNC.

This means that, for example, if FNC is sued by a lender for a problem that occurred in your report such as the omission of appraisal data caused by an error inherent in the software, FNC could potentially argue that you must pay FNC’s costs in defending that lawsuit and any damages that FNC may pay to the lender. In this way, the two versions are more or less the same. And again, your insurance cannot cover these additional liabilities that you agree to assume to FNC and its suppliers in the user agreement.
 
Click Here to Read Full Post

Thanks to Al Torres for the tip!

HUD requires lenders provide "Good Faith Estimate" that CLEARLY discloses closing costs.

For the first time in more than 30 years, the U.S. Department of Housing and Urban Development today issued long-anticipated mortgage reforms that will help consumers to shop for the lowest cost mortgage and avoid costly and potentially harmful loan offers.

HUD will require, for the first time ever, that lenders and mortgage brokers provide consumers with a standard Good Faith Estimate (GFE) that clearly discloses key loan terms and closing costs. HUD estimates its new regulation will save consumers nearly $700 at the closing table.

 

  Click here for the complete article

What is a "Tribe" and how would it impact real estate appraisers? FREE Audiobook!

A tribe is any group of people, large or small, who are connected to one another, a leader, and an idea. For millions of years, humans have been seeking out tribes, be they religious, ethnic, economic, political, or even musical (think of the Deadheads). It's our nature.

Now the Internet has eliminated the barriers of geography, cost, and time. Blogs like Appraisal Scoop and social networking sites like the Appraiser's Water Coolerare helping existing tribes get bigger. But more important, they're enabling countless new tribes to be born - groups of ten or ten thousand who care about AMC regulation, the HVCC, or creating Uniform Residential Appraisal Reporting Standards (URARS).

You've probably read here and on other forums the suggestion that appraisers need a "Union"! Isn't a union just another form of "Tribe"? And so the key question: Who is going to lead us on all of the important issues facing appraisers?

The Web can do amazing things, but it can't provide leadership. That still has to come from individuals - people just like YOU who have a passion about the appraisal industry. The explosion in tribes means that anyone who wants to make a difference now has the tools at there fingertips.

Want to learn more?!Seth Godin's book - Tribes - We Need You To Lead Us is being offered for FREE from Audible.com Click Here! This book is a MUST READ (or listen) for 2008! If you're one of those that still want to read from a paper book (wink) click here for the Amazon.com link.

If you ignore this opportunity, you risk turning into a "sheepwalker" - someone who fights to protect the status quo at all costs, never asking if obedience is doing you (or your organization) any good. Sheepwalkers don't do very well these days.

Tribes will make you think (really think) about the opportunities in leading your fellow appraisers, clients, forum members, or readers....It's not easy, but it's easier than you think

Watch the Appraiser's Water Cooler Tribes Group for more stories and ideas!

Please . . . share yours!!

URARS Sidebar - Focus on the "Common Ground"

The Right Start was about the "possibilities", collective action to move the profession ahead as opposed to going backwards or standing still. That led to The URARS, ways to convey the message, enlist the support of appraisers and get the process started. While I anticipated debate, I also expected a spirit of cooperation. After all, the URARS was about "improving our lot in life" so to speak something all would benefit from.

 After witnessing (and participating in) a conversation on the WinTotal User's Group regarding "effective age", I had to take a step back and rethink our course of action. While the discussion was (for the most part) constructive, a simple question prompted 80+ responses. To be honest, I don't think there was a clear consensus in the end, although I do believe most involved (and those lurking) have a far better comprehension of the issues surrounding effective age and the use of the term in the URAR.

Having watched Brian Davis, Lee Hill and others "get busy" with the topic, my observations led to a few fundamental conclusions. Appraisers are in the "opinion business", so like other things, we all have one (or more), often we are quick to give it (asked for or not) and when we do, we defend it vigorously (right or wrong). 

What starts as a simple question or observation can quickly become "sport" and in doing so, all bets are off and we lose perspective. This is a key point for the URARS and the state of the appraisal profession. At times, we are so quick to take a position that we lose objectivity and become indifferent to the views of others.

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AppraisalPort's New & Improved "Users Agreement" Released

On September 12th, Appraisal Scoop reported that "The new AppraisalPort® User Agreement scheduled to be effective September 13, 2008 has been deferredto accommodate further industry comments. The current AppraisalPort Subscription Agreement shall remain in effect until further notice."

That deferral was presumably the result of a heated debate over the renewed awareness of the "Hold Harmless" clause that the User Agreement contained.  Here's what the original "Hold Harmless" clause looked like . . .

On November 10, 2008, AppraisalPort issued the following memo to registered appraisers:

"This message is to notify you that the AppraisalPort® User Agreement has been updated and the amended version will become effective for all users on December 13, 2008. Your valuable feedback was taken into consideration in developing this version, which you may view by clicking here. Upon your first login to AppraisalPort after the effective date, you will be asked to acknowledge that the AppraisalPort User Agreement has been amended before you can gain access to your AppraisalPort account."

In contrast, here's what the *New* Hold Harmless clause looks like . .

 

What do YOU think?!   Does changing the language from "Subscriber" to "User" effect the appraiser's liabililty?   Will this effect how the E&O insurance companies view our liability. 

Join the AppraisalPort discussion on the Appraisers Water Cooler!

Runt Rants - Veterans Day and Dog Tags

I once did a Runt Rant on the subject of Dog Tags. A friend of mine lost a son to the Iraq War. He honored me with a gift of his son's commemorative dog tag. I vowed to wear it every national holiday that honored our veterans. I hoped other veterans would do the same. Maybe they will.

One evening as I removed the Dog Tags from my neck, I wondered why I was removing them. What else would hang around my neck the next day? Nothing? If so, why? It was then that I experienced a rare creative thought....I'm not very creative. I could wear the Dog Tags around my neck permanently, wherever I go, whatever I do.

A reminder: to me, possibly to others who I come in contact with. Mine are now a fixture. The Geezer wears dog tags. Occasionally someone will notice them and comment. It sparks conversations, leaves a thought behind that might not have been there before. A reminder that we have what we have, we enjoy what we enjoy, because others have sacrificed to ensure that we can.

  This week is Veterans Day week. It's to remind us of our service men and women, past and present. The gift they give us. The one we often take for granted. Freedom. This week I'm wearing my dog tags outside my shirt. Sparking more conversations, more thoughts that might not have been there before.

Thanks guys and gals for protecting what I have, what we all enjoy!

AUTHOR: Ken Verrett is the owner of Acorn Appraisal Associates, a 23 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities in the greater Houston SMSA

HUD Announces New, Permanent FHA Mortgage Loan Limits

New limits range from $271,050 to $625,500

WASHINGTON - U.S. Department of Housing and Urban Development Secretary Steve Preston today announced the new Federal Housing Administration (FHA) mortgage loan limits for single-family homes as prescribed by the Housing and Economic Recovery Act of 2008.

Beginning January 1, 2009, FHA will insure single-family home mortgages up to $271,050 in low cost areas and up to a maximum of $625,500 in high cost areas. The February 2008 Stimulus Package temporarily raised the FHA maximum to $729,750 through December 31, 2008. The new $625,500 maximum, however, represents a significant increase over the $362,790 limit that was in effect prior to the Stimulus Package.

"In today's environment where access to credit is being restricted, we need to make mortgage loans readily available to households throughout the country, and especially in high-cost areas," said Preston. "These new loan limits will ensure FHA can to continue help struggling homeowners refinance into safe, affordable government-insured loans, and allow many first-time buyers take advantage of today's buyers market"

For several years, FHA's loan levels were below the cost of the average home in communities across the nation. As a result, families who needed FHA mortgage insurance to qualify to buy a home were effectively locked out of the process. In some cases, borrowers turned to exotic subprime loans.

FHA mortgage insurance makes home financing more available to low-income and first time homebuyers. This is because the mortgage is backed by the full faith and credit of the government, freeing lenders from assuming the risk of default.

Higher FHA loan limits do not cost the government any money because the FHA Insurance Fund is fully supported by premiums paid by borrowers who receive FHA-insured mortgage loans.

The Housing and Economic Recovery Act pegs the national conforming mortgage loan limit to a house price index chosen by the new Federal Housing Finance Agency (FHFA). For 2009, the national conforming limit will remain at the current level of $417,000.

The Act says that the new FHA loan limits will be set at 115 percent of the median house price in a given area, as determined by HUD, but can not be lower than 65 percent of the conforming loan limit (the national floor). Also, the FHA mortgage limit cannot exceed 150 percent of the national conforming loan limit (the national ceiling).

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