New Appraisal Requirements

Written By: Bonnie Wilt-HildSenior DE Underwriter & NAMP Instructor

As if we didn’t expect it, FHA is now addressing declining markets by implementing additional standards where appraisal review is concerned. Beginning with case numbers ordered on after April 1, 2009, as indicated in Mortgagee Letter 2009-09 the following requirements will be in place for property appraisals provided for properties which will be secured by FHA financing.

This mortgagee letter has implemented provisions that would require the use of Fannie Mae form 1004MC or Market Conditions Addendum to the Appraisal Report as mandatory for use by FHA Roster appraisers when completing property appraisals for a subject property that will be insured by the Federal Housing Administration. In addition to completing this form, FHA appraisers will further be required to provide additional data where standard appraisal practices are concerned, more particularly implementing the use of active listing and pending sales for appraisals when the property is located in a declining market.

Per this directive, previous mortgagee letters, more particularly ML 2007-11 and 2008-09 provide guidance as to appraisal practices in declining markets and when there is a need for a second appraisal required and these policies should continue to be followed however FHA has further stated that the following information will now be required when the property is located in a declining market:

- The appraiser must include a minimum of two active listings or pending sales on the appraisal grid of the applicable appraisal reporting form in comparable 4-6 position or higher in addition to three settled sales.

- Insure that the active listings and pending sales are market tested and have reasonable market exposure to avoid the use of over priced properties as comparables. Reasonable market exposure is reflected by typical marketing times for the neighborhood and the comparable listings should be truly comparable and the appraiser should bracket the listings using both dwelling size and sales price whenever possible.

- Adjust active listings to reflect list to sale price ratios for the market.

- Adjust pending sales to reflect the contract purchase price whenever possible or adjust pending sales to reflect list to sale price ratios.

- Include the original list price, any revised list prices, and total days on the market. Provide an explanation for DOM that do not approximate time frames reported in the Neighborhood section of the appraisal reporting form or that do not coincide with the DOM noted in the Market Conditions Addendum.

- Reconcile the adjusted values of active listings or pending sales with the adjusted values of the settled sales provided however note that the final value conclusion should not be based solely on the comparable listings or pending sales data.

- Include an absorption rate analysis which is critical to developing and supporting market trend conclusions as mandated by the Market Conditions Addendum.

In addition to the above information, FHA will also require that at least two of the comparable sales provided by the appraiser indicate that they have closed within the most recent 90 days (90 days from the effective date of the appraisal). If the appraiser is unable to provide this data due to current market conditions then a detailed explanation must be provided by the appraiser

As indicated above further information regarding these requirements can be found in ML 2009-09. Information regarding the Market Conditions Addendum can be accessed at: http://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0830.pdf

As always, happy underwriting

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a 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)