HUD Mortgagee Letter 2009-09

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

I had originally planned to start a multi-part article in regards to credit and repair but since I ran across this most recent Mortgagee Letter at HUD’s website yesterday, I thought it best to communicate about it and start the credit articles next week.

In Mortgagee Letter 2009-09 HUD communicates that FHA has adopted the Fannie Mae Form 1004MC which is the Market Conditions Addendum to the appraisal. Fannie Mae originally communicated the release of the new form back in November with their Announcement 08-30 with a targeted effective date of April 1, 2009. HUD’s communication simply confirms that they’ve adopted the same form and will also be requiring that the 1004MC be included with all FHA appraisals dated on and after April 1st.

So what is this Market Conditions Addendum and what does it really mean?

In order to thoroughly explain the addendum itself, one must first define what a declining market is. According to HUD’s definition, “a declining market is considered to be any neighborhood, market area, or region that demonstrates a decline in prices or deterioration in other market conditions as evidenced by an oversupply of existing inventory or extended marketing times.” Form 1004MC was designed to create more consistency across the board on how to evaluate and determine if a subject property is or is not located in an area of market decline. Appraisers must provide complete and accurate data which includes such information as Inventory Analysis, Median Sale and List Price, Area foreclosure sales, interested party financing contributions and concessions, and they must also list their sources of data and information. The resources that the appraiser utilizes to complete and analyze the data must be able to be re-verified in case of question and the MLS is not to be solely relied upon for accuracy as the only source of data.

And it doesn’t end there. Mortgagee Letter 2009-09 also adds specific guidance and requirements for appraisals associated with properties determined to be located in areas of market decline. Such guidance includes the following:

• Appraisals of properties located in declining markets must include at least two comparable sales that closed within 90 days prior to the effective date of the appraisal.

• The inclusion of comparable listings and/or pending sales as per guidance provided within the Mortgagee Letter

• Adjustments must be reasonable as per guidance provided within the Mortgagee Letter

• Appraiser is to utilize data sources that are directly familiar with the area such as real estate agents, buyers, sellers, lenders and is not to rely on media outlets for data which cannot be deemed accurate. The key is that the sources used to supply the data should be able to reproduce the data upon any need for re-verification or audit of the data.

HUD also includes their standard “friendly reminder” that it is ultimately the lender’s responsibility to review and determine if the appraisal data supports the value assigned to the subject property. The majority of risk really still lies on the lenders who review and approve the property appraisals.

Fannie Mae offers a recorded web training on the Market Conditions Addendum and I highly recommend participation. The session will help you gain a more thorough understanding of the purpose of the addendum, the data elements and how to potentially evaluate the information. Go to https://www.efanniemae.com/sf/formsdocs/forms/1004mc.jsp# to access the recorded session and to also find a link to FAQs on the 1004MC.

Be sure to read Mortgagee Letter 2009-09 in its entirety!

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)