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A message from NAMB Convention Committee Chair George Hanzimanolis, CRMS: NAMB Soars 2006 in Philadelphia--A trip for the entire family!

Jan 03, 2006

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
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