The appraiser's perspective: Fannie rulesCharlie Elliott Jr., MAI, SRAFannie Mae, Freddie Mac, appraisal forms
In order to conduct our everyday business, we come in contact
with many pre-designed computer forms. Now, while I don't know the
exact number of loan forms out there, I know there are a lot - so
many, in fact, that there is constant confusion as to which form
should be used for which project. Appraisers can somewhat narrow
down the form-selection decisions. For example, a manufactured home
must be on a manufactured home form, a single-family home should be
on a single-family home form, and a condominium on a multi-family
home form. However, that's about the extent to which appraisers can
make a decision about which form to use. Lenders are in the
driver's seat from here on in.
Different categories of loans and the risks associated therewith
can make a difference in the type of appraisal form that must be
used. As an example, consider which form should be used for a
single-family house where the loan risk is considered low. We can
deliver a complete appraisal with interior and exterior inspection,
a limited appraisal with exterior and/or interior inspections, or
we can simply do an exterior inspection. There are separate forms
for each of these services, and they are all produced by Fannie Mae. Freddie Mac would say that it
determines which forms must be used for its loans, but our
experience has been that Freddie just adopts the Fannie Mae forms
as its own. FHA and VA would say the same, but here again,
they have adopted the Fannie Mae forms as their own, usually with
addendums.
Now that we've become familiar with these forms, Fannie Mae has
informed us that they will be changing 11 of them. Fannie announced
its intentions and in November 2004, offered test samples of each
affected form. The new forms were tested by various appraisers and
lenders, and in March 2005, final versions of the revised forms
were released. The new forms were required for use effective Nov.
1, 2005. It is not unusual for such a rollout to be delayed, and
some insiders say that we should expect the final deadline to be
changed to sometime in early 2006. To illustrate the magnitude of
the changes, listed below is a summary of the affected forms:
- Uniform Residential Appraisal Report (Form 1004)
- Exterior-Only Inspection Residential Appraisal Report (Form
2005)
- Manufactured Home Appraisal Report (Form 1004C)
- Individual Condominium Unit Appraisal Report (Form 1073)
- Exterior-Only Inspection Individual Condominium Unit Appraisal
Report (Form 1075)
- Individual Cooperative Interest Appraisal Report (Form
2090)
- Exterior-Only Inspection Individual Cooperative Interest
Appraisal Report (Form 2095)
- Small Residential Income Property Appraisal Report (Form
1025)
- Appraisal Update and/or Completion Report (Form 1004D)
- One-Unit Residential Appraisal Field Review Report (Form
2000)
- Two- to Four-Unit Residential Appraisal Field Review Report (Form
2000A)
Fannie Mae says the changes are offered in part to further
improve the property appraisal process that led to Desktop
Underwriter. In revising the forms, Fannie says that it
consolidated a number of them in order to simplify its document
requirements for lenders and appraisers.
From my perspective as an appraiser, these changes are a mixed
bag. The new forms do offer some streamlining. For example, the
only form option for a single-family home with a complete
inspection is the 1004 Form, which is a complete appraisal.
Likewise, the only reporting option for the exterior-only
inspection of a single-family home is a 2055 Form, which is a
limited appraisal. In the past, these forms were more complicated
and confusing about inspections. Also on the plus side, there is no
longer a cost approach required on appraisals for Fannie Mae. This
is accomplished only at the option of the appraiser on an
addendum.
In my opinion, however, the forms are also more restrictive.
Appraisers are not allowed to include assumptions within the
appraisal, other than those included in the standard "Assumptions
and Limited Conditions," except for "to be built" properties. This
is not necessarily a positive since many properties do not lend
themselves to the one-size-fits-all form. There are appraisers who
have expressed the opinion that Fannie is getting into the business
of dictating appraisal standards through the use of the new forms,
which is the sole responsibility of the Appraisal Standards Board
of the Appraisal Foundation.
Also, some feel that Fannie dominates the appraisal form design
process, not only for appraisals used for its loans, but for most
loans as well. Technically, this is not true in that a lender is
not required to use a Fannie Mae appraisal form for say, an
in-house loan. As a practical matter however, Fannie does exercise
a tremendous amount of control over the appraisal forms used for
its own loans, and other loans as well. One of the problems is that
it is not always known whether a loan will end up with Fannie Mae
when the appraisal is prepared. Since that is a possibility, for
all practical purposes it must be on the Fannie form or the
property may have to be re-appraised on a Fannie Mae form if the
loan is sold to Fannie Mae. So, in the end, given the large
percentage of loans that go to Fannie Mae, almost everyone will
order all of their appraisals on its forms, regardless of what the
disposition of the loan will eventually be.
All in all, I find the new forms acceptable, even though the
process of changing will come at considerable time and expense to
appraisers and lenders alike. The new forms will be a boon to the
software producers since they get to create a new product, which
all appraisers and some lenders must buy. Whether we like it or
not, we will be using Fannie Mae's new appraisal forms next year,
so we should get used to the idea and make the best of it.
Charlie Elliott Jr., MAI, SRA, is president of Elliott &
Company Appraisers. He can be reached at (800) 854-5889,
[email protected] or
through the company's Web site at www.appraisalsanywhere.com.
