Fannie Mae Addresses Appraisal Issues

Implemented last spring by Fannie Mae and Freddie Mac, The Home Valuation Code of Conduct (HVCC) banned lenders from selecting appraisers to valuate homes in the deals which they are brokering. The purpose was to prevent inflated and fraudulent appraisals which played a part in the bubble leading to the mortgage crisis. While The HVCC does not require lenders to use appraisal management companies, many choose them to ensure compliance with the code.   Builders, Realtors and    independent appraisers have reported dissatisfaction with the work produced by them. Fannie's new guidelines will address issues that have arisen, including the widespread use of inexperienced appraisers unfamiliar with local market conditions. Effective immediately Lenders must use appraisers who "have the requisite knowledge required to perform a professional quality appraisal  for the specific geographic location and particular property type, as well as access to "necessary and appropriate  data sources for the area in which the appraisal assignment is located.". If an appraiser believes a foreclosure sale or a short sale  is an appropriate comp, the appraiser is required to consider any differences from the subject property, such as the condition of the home and whether any stigma has  been associated with it. If comparable sales data is not available when appraising new construction, appraisers may verify recent sales of new homes by viewing a copy of the HUD-1 from  the builder. Fannie Mae will continue to require at least three comparable sales and comps from the property's  neighborhood are preferred. Comps located in competing neighborhoods are allowed, but appraisers must indicate the  comparables are from a different neighborhood, and address any differences that exist. This Week's Real Estate Insight: As is often the case, the HVCC "cure" seems to be worse than the desease it was created to treat. Hopefully the new guidlines will address the delays and frustrations it has added to so many transactions.