FNL Responsibilities for Lenders WP 2014

8/12/2019 FNL Responsibilities for Lenders WP 2014

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Appraisal Review Responsibilities for

Mortgage Lenders It Starts with You.

A LOANLOGICS WHITE PAPER

loanlogics.com


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Appraisal Review Responsibilities

for Mortgage Lenders

It Starts with You.It is essential these days for mortgage lenders & their underwriting staff to be fully

cognizant of the expectations that HUD and the GSEs have with respect to their

reviews of the appraisal reports being generated as part of the loan origination process.

Although this is certainly not a new responsibility or a compliance issue related to the

various mortgage-related legislation that takes effect in 2014, there has been some

hesitance by a number of underwriters to challenge or question the data and/or results

produced by appraisers on these reports. Ignorance is bliss, as the saying goes.

In fact, I have heard some underwriters and QC Managers in the past state that

underwriters are not licensed appraisers and, therefore, should not question theappraisers selection of comparable data and/or adjustments or value determinations.

This practice, however, could prove to be very costly to mortgage lenders in todays

elevated compliance and enforcement environment.

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It Starts with You.


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In this regard, when HUD transitioned from rotational assignment of appraisers to the

Lender Select process in 1994 it was clearly stated in ML 1994-54 that lenders

must accept responsibility equally with the appraiser for the integrity, accuracy and

thoroughness of the appraisal and will be held accountable by HUD for the quality ofthe appraisal. Also, in their Mortgagee Letter dealing with Appraiser Independence

(ML 2009-28) HUD states that the DE underwriter who has responsibility for the

quality of the appraisal report is allowed to request clarications and discuss with

the appraiser components of the appraisal that inuence its quality. Therefore, it

should not come as any surprise to any lender that, when HUD recently revised its

indemnication policy (as outlined in ML 2013-12) allowing the Department to

demand indemnication from the underwriting mortgagee where the loan was

insured under the Lender Insurance program, two of its indemnication standards

included the following:

Failing to address property deciencies identied in the appraisal affecting the

health and safety of the occupants or the structural integrity of the property inaccordance with HUD requirements; and

Failing to ensure that the appraisal of the property satises HUD appraisal

requirements and other applicable HUD requirements.

As a result, HUD is now authorized to execute an Indemnication Agreement on an

FHA insured loan transaction if they conclude that the Lender Insurance mortgagee

knew or should have known of serious and material violations of HUD appraisal

requirements.

In addition, Fannie Mae and Freddie Mac can request repurchases if they determine

that their appraisal guidelines were not met on loans that they purchased. In fact,

Fannie Mae is now electronically validating 100% of the loans that they purchase and

have recently announced a change in policy in which they can demand a repurchase

- even on a performing loan - for eligibility defects within a three year timeframe.

It should be noted that Fannie Mae has begun sharing specic appraisal deciencies

with lenders based on their analysis of millions of appraisals that have been submit-

ted through their Uniform Collateral Data Portal (UCDP). The following are some

examples of these deciencies which are outlined in Lender Letter LL-2013-10

dated December 10, 2013.

Fannie Mae Appraisal Deciencies.

Fannie Mae performs an analysis of all appraisers licensing information when

appraisals are submitted through their UCDP. Based on these reviews, Fannie

Mae has identied instances where lenders have delivered loans that have been

completed by appraisers whose license has been suspended or revoked as of the

date of the appraisal. To help lenders identify these transactions, UCDP will issue

a warning message which will require the lender to conrm the validity of the

appraisers licensing information. Failure to comply with this requirement will

result in a repurchase request.


must accept responsibility

equally with the appraiser for

the integrity, accuracy and

thoroughness of the appraisal

and will be held accountable

by HUD for the quality of

the appraisal.

Lenders




It Starts with You.


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Fannie Mae has been identifying certain inconsistencies and inaccuracies in

appraisers work products through their analysis of data provided through their

UCDP. This information is provided directly to appraisers with the intent that they

will learn from these mistakes and/or omissions and improve their work productsin the future.

The Uniform Appraisal Dataset (UAD) mandates that rating selections should be

determined on an absolute basis and not on a relative basis. This means that

the condition rating should not change when that property transaction is compared

to other properties.

Recently, Fannie Mae began developing lists of appraisers who have been

identied as needing 100% review on a post-purchase le review basis based

on Fannie Maes data analysis. Also, those appraisers that Fannie Mae will no

longer accept loan appraisals from will also be identied. New messages are now

being sent in UCDP to lenders notifying them when they submit an appraisal froman affected appraiser. These notications began on December 10, 2013 and a new

Appraiser Quality Monitoring (AQM) web page has been established on Fannie

Maes website enabling approved Fannie Mae Sellers and Servicers to check to

see if a specic appraisers name is contained on this list. These AQM lists will be

posted on a monthly basis. It should be noted that Fannie Mae will offer a formal

rebuttal process to the appraisers identied on these lists.

In HUDs Lender Insight quarterly publications, a listing of the most common

underwriting deciencies based on results of HUDs Post Endorsement Technical

Reviews (PETRs) is provided. The following are some of the most common appraisal

deciencies - along with some applicable FHA appraisal guidelines that I have

provided which should prove helpful to DE underwriters:

HUD/FHAS Most Common Appraisal Deciencies:

Poor comparable sales selections (e.g. use of dissimilar style properties such as

a rancher when the subject property is a 2 story Colonial, older sales > 6 months

when more recent sales data is available, comp sales outside the area and in

excess of a mile from the subject property in urban or suburban areas -

when other sales in closer proximity are available, etc.).

Inconsistent and/or inappropriate comparable sales adjustments, e.g.:

when an appraiser does not utilize a consistent GLA adjustment factor,

large adjustments exceeding the 10% line item, 15% net adjustment and 25%

gross adjustment thresholds without adequate explanation AND inappropriate

location, condition and/or view adjustments that are not supported.





It Starts with You.

Deciency examples

identied through Fannie

Maes UCDP:

appraisers reporting differ-

ent sales prices and/or GLA

measurements on the same

property when using themas comparable sales and

reporting a comp sale as

having a condition rating

of C4 on some appraisals

and C3 on others.


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Repair items not acceptably addressed. Any FHA Minimum Property Requirements

(MPRs) outlined in the Appraisal Report should be conditioned for on the 92800.5B

Form (Conditional Commitment) and a clear Inspection Report provided in the

case le.

Property does not meet FHA Minimum Property Requirements or standards.

Some examples are as follows:

commercial portion exceeds 25% of the GLA,

a Manufactured Housing unit without a permanent foundation or le lacking

a Professional Engineers certicate that the foundation complies with HUDs

Permanent Foundation Guide for Manufactured Homes,

distances between the well, septic system, draineld and/or property line do

not meet FHA requirements,

no access provided to the appraiser to inspect the crawl space and/or

attic area.

Concerns related to the Neighborhood, Site and/or Improvements section of the

appraisal report. Some examples are as follows:

property is located in a declining area and at least 2 comp sales within

3 months were not provided and at least two active listings or pending

sales were not provided,

the property does not have proper zoning compliance and is not

grandfathered in,

the property is located in a Flood Hazard area and proof of adequate

ood insurance is not provided,

a substantial amount of repairs are required for the property to meet

FHA MPRs,

the property is located in a Flood Hazard area and proof of adequate

ood insurance is not provided,

a substantial amount of repairs are required for the property to meet

FHA MPRs,

the property may contain excess land (that amount of land that exceeds

what is considered to be a readily marketable parcel),

adverse site conditions need to be mitigated, etc...





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New construction requirements are not met. Some examples are:

a fully completed Builders Certication Form (92544) was not provided to

the appraiser,

no evidence of a Final Certicate of Occupancy or an approved 10 year

warranty coverage or three inspections (footing, frame-in and nal) from a

HUD Roster Inspector provided,

replacement cost approach to value not completed.

Additional FHA appraisal guidelines to evaluate:

Did the appraiser provide a three year sales history for the subject property and a

one-year history for each of the comparable sales? If any of the comparable sales

appear to be property ipping transactions - is an adequate explanation provided

by the appraiser to support the use of these sales?

Is a Remaining Economic Life estimate provided by the appraiser? This is an FHA

appraisal requirement. If one is provided, does this estimate support the term of the

mortgage being requested?

Are pictures of the front & rear of the subject property, a street scene and

pictures of the front of each of the comparable sales provided by the appraiser?

MLS pictures cannot be substituted for the picture of the front of each comparable

sale. Also, a picture should be provided of any item that has a contributory value

(e.g. a detached garage, outbuilding, etc.).

Is the appraisal report signed and dated by the appraiser? Is this appraiser an

active member of the FHA Appraiser Roster? Was this Appraisers license stillcurrent as of the effective date of the appraisal?

Finally, there are a number of tools available to lenders that are designed to augment

their review of appraisal reports such as: Automated Valuation Models (AVMs),

Comparable Sale Validation Models and Risk Assessment Scorecards.

Another effective option available to lenders is the use of Third Party Vendors that

have an experienced appraisal review staff who can process substantive reviews

and provide valuable feedback to the lenders underwriting staff.

Also, there are several website resources you might nd useful. These include:

Free internet sites which provide estimated values of properties as well as

comparable sale & listing information.





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HUD/FHAs website (www.fha.gov) as well as Fannie Maes website

(www.fanniemae.com) both contain a wealth of information on appraisal

topics and policies - including FAQs.

HUDs 4150.2 Handbook and Fannie Maes Selling Guide are also available

off of their respective websites and HUDs Mortgagee Letters and Fannie Maes

Lender Letters can be downloaded as well.

Of course, on-going appraisal related training for underwriting staff is highly

recommended in order for underwriters to keep up-to-date on HUD and the

GSEs appraisal policies and procedures.

Learn more about loan quality management atwww.loanlogics.com.

About the Author Gerry Glavey, SVP/Chief Credit Ofcer,LoanLogics

Mr. Glavey was the former Director of the Processing & Underwriting Division

in the Philadelphia HOC for an 11 year period (2000 thru 2011) and has a total

of 37 years experience with HUD/FHA.

About LoanLogics

LoanLogics was founded to improve the transparency and accuracy of the

mortgage process and improve the quality of loans. With the industrys rst

Enterprise Loan Quality and Performance Analytics Platform we serve the needs

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Our advanced solutions help clients validate compliance, improve protability,

and manage risk during the manufacture, sale and servicing of loan assets.

Our technology is supported by compliance and risk expertise that aligns with

our customers need to address their own highly regulated environments.

This material is provided as a general information service by LoanLogics, Inc. and its applicable

subsidiaries and afliates (LoanLogics), and is not intended to provide nancial, regulatory or legal

advice on any specic matter. The information contained herein reects the views of LoanLogics and

sources reasonably believed by LoanLogics to be reliable as of the date of this publication. LoanLogics

does not make any representation or warranty regarding the accuracy of the information contained in this

material, and there is no guarantee that any projection, forecast or opinion in this material will be realized.

Any links provided from outside sources are subject to expiration or change. 2014 LoanLogics, Inc.

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FNL Responsibilities for Lenders WP 2014