2055 Exterior - Source For Interior Condition

[CANative]

lol... I didn't check the 2015 selling guide. Apparently they spell it out now. It used to take a leap frog type of approach through the selling guide to get to that.

 

[CANative]

What the form says:

The appraiser must be able to obtain adequate information about the physical characteristics (including, but not limited to,
condition, room count, gross living area, etc.) of the subject property from the exterior-only inspection and reliable public
and/or private sources to perform this appraisal.

Not what the form says:

The appraiser must be able to obtain adequate information about the physical characteristics (including, but not limited to,
condition, room count, gross living area, etc.) of the subject property from the exterior-only inspection and reliable public
and/or private sources to perform this appraisal or use an Extraordinary Assumption if unable to obtain this information.

 

[KeyWhiz]

What the form says:



Not what the form says:

It also doesn't specifically say we CAN'T use them either.

You want to put 2 + X together to equal 4. That's cool. I'd rather have more information about what "X" actually is first.

 

[23Degrees]

KeyWhiz:

I respect your line of thinking and the clarity with which you are approaching this but a few points:

- Of course the specific assumptions noted on a template form meant for millions of reports per year will not be "extraordinary". "Extraordinary assumptions" are by definition specific to any one assignment so one could not expect them to list assumptions of this type on the form. But by definition "extraordinary assumptions" are in fact "assumptions" as noted in the first two words of the definition of that term in USPAP.

- The form inarguably has a specific mechanism for the introduction of "extraordinary assumptions" that is triggered by the checking of CB4. Once CB4 has been checked the appraiser has the ability to add EA's. By adding in EA's outside of this mechanism you have in fact added to the list of assumptions present on the form and therefore violated the SOW as defined by the form language.

- Violating the SOW as defined on the form results in actually having stepped into some USPAP problems despite USPAP not having this limit on the addition of assumptions specifically.

In truth I would like it very much if you were right on this as being able to add EA's to an "as is" Fannie report without fear of serious problems in the event of a buyback or other negative event would be quite nice. If anyone can show unambiguously and with documentation that one can put an extraordinary assumption in an "as is" 2055 or other Fannie form with similar language without violating the preprinted SOW and therefore without fear of consequences in the event of a buyback or other negative event, I will be extremely grateful to them.

 

[RSW]

I agree with CANative & Terrell.
This is taken from an article in Appraisal Scoop.com in January 04, 2012 which supports CANatives position:
Taking Stock of the 2055 "Exterior Only" Appraisal Form
Guest Author: Ken Shure, Certified Residential Appraiser in the Los Angeles, California area. Contact: kbshure@Yahoo.com
The 2055 form issued by Fannie Mae is a common vehicle for the reporting of an appraisal. The form includes a pre-printed scope of work indicated as the minimum needed to properly complete the assignment. This scope of work sets the minimum required inspection of the subject as a viewing of the exterior from the street. This minimum inspection requirement has provided some appraisers that complete reports utilizing the 2055 with a false sense of security as to their liability and overall responsibilities, particularly since the edits to this form that occurred in 2005.
Readers will note that the 2055 is designed to report appraisals of one unit properties or one unit properties with accessory units while the 1075 form is designed to report appraisals of a unit in a condominium project or a condominium unit in a planned unit development. While the focus is on the 2055 form the following discussion pertains to both forms, each of which are labeled as "Exterior Only Inspection" reports and have the intended use of evaluating a property for a mortgage finance transaction.
The scope of work section of the form includes the following paragraph:
The appraiser must be able to obtain adequate information about the physical characteristics (including, but not limited to, condition, room count, gross living area, etc.) of the subject property from the exterior-only inspection and reliable public and/or private sources to perform this appraisal. The appraiser should use the same type of data sources that he or she uses for comparable sales such as, but not limited to, multiple listing services, tax and assessment records, prior inspections, appraisal files, information provided by the property owner, etc.
Based on this paragraph the appraiser is expected to obtain proper levels of information that allow for a credible comparison of the subject to the comparable sales and per certification #10 due so without relying on unverified information provided by parties with a financial interest in the subject such as the property owner.
The data available to the appraiser for establishing the physical characteristics of comparable sales typically includes information as to the condition and quality of the interiors of these properties. The appraiser that is unable to verify the interior condition of the subject property while remaining true to certification #10 is therefore often in the position of having far better documentation for the interior condition of the comparables than for that of the subject. If interior condition and/or quality are factors with an effect on value for the particular assignment of interest, the information available regarding the interior of the comparable sales mandates an exercise of comparison for this parameter between the subject and these properties in order to provide a credible result.
Per USPAP, a properly incorporated extraordinary assumption with regard to the condition and quality of the interior of the subject property would be a compliant manner in which to proceed when one has highly relevant information regarding the interior of the comparable sales. However, the language within the 2055 form does not provide for making an extraordinary assumption while the "as is" box (CB1) is checked within the reconciliation section. This presents some level of difficulty for the appraiser attempting to properly make use of an extraordinary assumption regarding the interior condition and/or quality of the subject property when using this form.
While appraisers utilizing the 2055 form are certainly satisfying the specified minimum level of work by only completing an exterior inspection from the street, this does not remove them from any subsequent due diligence regarding the interior of the subject property.
Many appraisers have concluded that they have the ability to incorporate an extraordinary assumption into the report regarding the interior condition and submit the report with CB1 checked. Per the form language, that cannot be altered in cases where the report is to be utilized in transactions heading to Fannie Mae or Freddie Mac, additional assumptions cannot be made beyond those already accounted for within the form's format. An extraordinary assumption can only be incorporated via the proper mechanism located within the reconciliation section.
The proper route for doing so on the 2055 and certain other Fannie Mae forms such as the 1004 and 1025 involves checking the fourth box in the reconciliation section (CB4) and requiring a subsequent inspection for confirmation. By checking CB1 and incorporating an extraordinary assumption into the narrative of the report one could be accused of producing a misleading report. This is due to the fact that the presence of an extraordinary assumption within the narrative is in direct contradiction to what is present in the reconciliation section when CB1 is checked rather than CB4. Contradictions such as this are not to be considered beneficial elements within an appraisal report and could be used as a means to discredit the appraiser that allows them to be present in their work product. This issue is discussed further in a prior article: You Can Write an Appraisal on a Napkin..... But you probably just didn't

 

[KeyWhiz]

KeyWhiz:

I respect your line of thinking and the clarity with which you are approaching this but a few points:

Thank you for the respect.

- Of course the specific assumptions noted on a template form meant for millions of reports per year will not be "extraordinary". "Extraordinary assumptions" are by definition specific to any one assignment so one could not expect them to list assumptions of this type on the form. But by definition "extraordinary assumptions" are in fact "assumptions" as noted in the first two words of the definition of that term in USPAP.

Of course. But we're talking about the verbiage of the supplemental pages. While one way to read it is as you state above, it makes just as much logical (and probably legal) sense to understand that nothing in the restrictions prevents the appraiser from adding conditions and assumptions specific to the subject for the purposes of the report. That if the Scope of Work (which CAN, of course, be modified) is to perform an exterior appraisal, then obviously certain extraordinary assumptions will HAVE to be used. Even if you have an active listing MLS sheet with interior photos, we're still making the EA that such information is true.

Otherwise, we're saying that all the 2055 can ever be is a preliminary report pending a later interior inspection. If so, this would be a pretty major issue that seems impossible to believe Fannie would never bother to address and/or just presume all appraisers should "figure this out".

- The form inarguably has a specific mechanism for the introduction of "extraordinary assumptions" that is triggered by the checking of CB4. Once CB4 has been checked the appraiser has the ability to add EA's. By adding in EA's outside of this mechanism you have in fact added to the list of assumptions present on the form and therefore violated the SOW as defined by the form language.

CB4 addresses 'required inspections'. Since the appraiser has no ability or authority to require inspections, then clearly this box is intended for making the appraisals subject to inspections required by those who do have such authority.

In truth I would like it very much if you were right on this as being able to add EA's to an "as is" Fannie report without fear of serious problems in the event of a buyback or other negative event would be quite nice. If anyone can show unambiguously and with documentation that one can put an extraordinary assumption in an "as is" 2055 or other Fannie form with similar language without violating the preprinted SOW and therefore without fear of consequences in the event of a buyback or other negative event, I will be extremely grateful to them.

I'll see what I can find out. If nothing else, I should be able to contact one of my reviewers from my old Fannie REO days.

 

[KeyWhiz]

I agree with CANative & Terrell.
This is taken from an article in Appraisal Scoop.com in January 04, 2012 which supports CANatives position:

Yes. CAN already linked to this. It's a well written article but really still only seems to be Mr. Shure's opinion and his own reading of the verbiage. He posts nothing to indicate that Fannie said anything about this topic specifically and provides no support for his position other than his own reasoning and logic.

With all due respect to Mr. Shure, I think my reading and logic is just as sound.

Would it matter if I posted this? Ken Guilfoyle at McKissock seems to think it's OK to use EA's on a 2055. Or at least he did in 2008.

http://www.mckissock.com/license-sc...wnloads/materials/MISC/Sample Statements.docx

 

[Terrel L. Shields]

I would be curious to see how many loans were clawed back by Fannie Mae from lenders who utilized the 2055 as an appraisal report to support the loan and if any of fannie mae's appraisers noted the issue being discussed as a reason the appraisal was "not credible" and did not comply with fannie mae's rules.

 

[DWiley]

Even if you have an active listing MLS sheet with interior photos, we're still making the EA that such information is true. .

Since every assignment includes the assumption that the data sources used are correct, that would be an ordinary assumption - the kind that you make regarding the comps in every assignment.

 

[KeyWhiz]

I would be curious to see how many loans were clawed back by Fannie Mae from lenders who utilized the 2055 as an appraisal report to support the loan and if any of fannie mae's appraisers noted the issue being discussed as a reason the appraisal was "not credible" and did not comply with fannie mae's rules.

Why would Fannie be accepting any of these loans in the first place, then? But yes. I'd certainly like to know how many appraisals have been dinged because of an EA regarding interior quality/condition.

Seriously? Are we supposed to believe the Fannie doesn't accept such reports as credible but yet has never stepped forth to address the issue directly for TEN YEARS? It would take them ten minutes to send out an announcement page telling appraisers to not do this.