1004mc Soon Not To Be Required By Fannie Mae

[hastalavista]

I just left a presentation given by the collateral policy makers at Fannie Mae & Freddie Mac.

Fannie stated that they will stop requiring the 1004MC effective with their new selling guide release (which is targeted for next week). They were quick to add that while they will not require it, the lender may still require it. The consensus was it was likely it would take some time for the lenders to make the change.

I asked Freddie if they were going to follow suit? They said they were considering making that change when the new appraisal report process was finalized (the "new" forms) but added they may adopt the same change sooner.

A lot of great information in these presentation.


Here's what I think:
It will take some time for the 1004mc change to percolate through the system; so don't expect any fast changes by the lenders (this is only my hunch). I also think that the lenders will still want to see some analysis; so the proposition might be an option to continue the 1004MC or provide something else (but I doubt we are going back to just the check-box without the included data to support it).
There are plenty of off-the-shelf products (like Redstone) which can do the trend analysis better than the 1004mc, so anticipate those products to be augmented a bit for a more robust market analysis process.

 

[Randolph Kinney]

I believe standardized forms necessitates a market and trend analysis form so that training underwriters and appraisers will have the same sheet of music.

 

[Mr Rex]

Methinks Fannie might have come to the realization that they really don’t want to know what they thought was imperative. I think it may have something to do with the macro economic picture at hand.

 

[bnmappraisal]

Thanks for sharing Denis. That's very interesting information

I agree with your take - I don't see lenders dropping the requirement for the 1004MC too quickly, sort of how many still want comments regarding net/gross adjustments over 15%/25% or 2 active/pending listings

 

[hastalavista]

I believe standardized forms necessitates a market and trend analysis form so that training underwriters and appraisers will have the same sheet of music.

I agree that when the form is standardized, both writer and user need to be trained on how to write/interpret it.

I (like you) had put together a much more detailed market analysis for my residential appraisal reports prior to the 1004mc introduction. My clients were able to read and understand that. So I suspect that when the lenders opt-out of the 1004mc, they'll expect to see a suitable replacement. Doesn't need to be standardized; just needs to summarize the information sufficiently adequate to support the market trend characterizations.

 

[NC Appraising]

I still comment on 15% net and 25% adjustments.....got tired of guessing. Just like the predominate...

So yeah, it may take awhile.

Anything else of interest?

 

[Randolph Kinney]

Doesn't need to be standardized; just needs to summarize the information sufficiently adequate to support the market trend characterizations.

Summary doesn't work well as for reproducing the same results. Eventually, the market will decline and those that say the market is rising or stable may need to be examined more closely less the lender has to buy back the loan when it defaults.

 

[hastalavista]

Methinks Fannie might have come to the realization that they really don’t want to know what they thought was imperative. I think it may have something to do with the macro economic picture at hand.

My takeaway was that the intent was to get appraisal reports to adequately analyze the market and support its trend conclusion. Their review of a lot of appraisals (like, a million) determined that the vast majority of appraisals indicated "stable" even when the markets had increased or declined by more than 5% (and, I mean "vast majority"... like 80%+).

That isn't to say that the appraisers were fudging the numbers; their conclusion was, while the 1004mc's intent was good (ensure appraisal reports actually analyzed the data and made trend identifications based on those results), it wasn't achieving the results; what the reports were saying was in conflict with what was actually happening. Better to get rid of it than continue requiring it under those conditions.

 

[hastalavista]

IAnything else of interest?

That was the biggest announcement. A lot of things I found interesting but if I posted them here, they'd get shot down as being GSE propaganda, or some would want to start arguing with me that what they said/I heard isn't what they do, blah, blah, blah.
The 1004MC is a factual data point ("we are going to get rid of it"). I'll go over my notes and if I find any other factual data points I think might be of interest, I'll post them too.

 

[Eli]

. I smell something.