Fannie/Freddie guidelines - adjustments etc

[Randolph Kinney]

Hal,

Below are the references you are looking for from Fannie Mae:


Part B, Origination Through Closing
Subpart 4, Underwriting Property
Chapter 1, Appraisal Guidelines, General Appraisal Requirements

Examples of Unacceptable Appraisal Practices

• failure to use comparable sales that are the most locationally and physically similar to the subject property;
• use of adjustments to comparable sales that do not reflect market reaction to the differences between the subject property and the comparable sales;
• not supporting adjustments in the sales comparison approach;
• failure to make adjustments when they are clearly indicated;

B4-1.4-17, Appraisal Report Review: Adjustments to Comparable Sales

Net and Gross Percentage Adjustments

The following guidelines for net and gross percentage adjustments may be used as a general indicator of whether a property should be used as a comparable sale.

• The dollar amount of the net adjustments for each comparable sale should not exceed 15% of the sales price of the comparable. When the adjustments exceed 15%, then the appraiser must comment on the reasons for not using a more similar comparable.
• The dollar amount of the gross adjustments for each comparable sale should not exceed 25% of the sales price of the comparable. When the adjustments exceed 25%, then the appraiser must comment on the reasons for not using a more similar comparable.
• Individual adjustments that are higher than normal should be explained by the appraiser and carefully reviewed by the lender. If comparables have higher-than-normal adjustments, then the adjustments must be justified in the appraisal report.

 

[Joyce Potts]

Hello Joyce;
I have been appraising for 15 yrs, I am certified General, and an AQB USPAP Instructor. The subject of the review is 1 mile from my house. It is a cookie cutter ranch style home in an area of other ranch style homes. I have pulled comps that I would have used if I had been the original appraiser. The extream net and gross adjustments are unwarranted. The range of adjusted sales prices is in excess of 30% = very poor support for any opinion of value. And I don't see in my request for information any where that I was indicating that my work was not to be subject to USPAP.

but Thanks for responding

Hal

You might also want to consult Interagency guidelines and Mavis Beacon. I know, I know that was mean and I mystype al da tyme. Estream, extream or extreme?

Again, how do you know the adjustments are excessive until you look at the complexity of the assignment and availability of comps? There are properties out there, even residential, that simply will never fit into standard appraisal guidelines. That does not automatically make it a poor appraisal. Wait until all the facts are in. Sounds to me like you're Fannie Mae guideline profiling and profiling is wrong.

 

[Terrel L. Shields]

When I was on the FHA list, I had a copy of the 4150.2 appraisal guide printed out handy. I also had the old spiral bound Fannie mae guides, then downloaded them. They were read. I am with Joyce and BRC...a reviewer should not have to be told where such guidelines are. I haven't done a secondary market report in nigh 10 yr. but I still download the appraisal guides occasionally and see how the other half are supposed to do it. It is easy to search a pdf document by CTRL +F ... A USPAP instructor should know that or you've not been doing any reviewing or Fannie work lately. I'm just saying.....

The appraisal review guidelines begin on page 524 in the 10/31/2010 version.... I believe the section is on page 546 you are asking about

The following guidelines for net and gross percentage adjustments may be used as a general
indicator of whether a property should be used as a comparable sale.
The amount of the gross adjustment is determined by adding the absolute value of all individual
adjustments without regard to positive or negative adjustments.
The amount of the net adjustment is determined by adding all of the individual adjustments with
consideration given to the positive or negative values.​

Guideline Conditional Considerations​

The dollar amount of the net adjustments for
each comparable sale should not exceed 15%
of the sales price of the comparable.
When the adjustments exceed 15%, then the
appraiser must comment on the reasons for not
using a more similar comparable.
The dollar amount of the gross adjustments for
each comparable sale should not exceed 25%
of the sales price of the comparable.
When the adjustments exceed 25%, then the
appraiser must comment on the reasons for not
using a more similar comparable.
Individual adjustments that are higher than
normal should be explained by the appraiser
and carefully reviewed by the lender.
If comparables have higher-than-normal
adjustments, then the adjustments must be
justified in the appraisal report.​

 

[Joyce Potts]

I would rather see an honest, ethical attempt at appraising a property that was complex because either the subject was atypical or the comps were absent than a *****d value that on its surface looked very appraisal guideline compliant but the value was absurd. And that's exactly the kind of appraisals that that the lending industry DEMANDED of appraisers to fund their food chains. As I've told underwriters in the past, it's usually what is NOT disclosed in the appraisal that will come back to bite you. You don't know, what you don't know. (I know I stole that from someone here.)

 

[sputnam]

The ultimate purpose of a Standard 3 review is to form and report an opinion of the appropriateness of the methods used in the appraisal, the accuracy of the data, and the credibility of the value opinion. 'Busted' guidelines should be noted in the review report, but may or may not have much impact on the credibility of the value conclusion. Obviously, violations of USPAP must be pointed out. Did the appraiser utilize the most relevant comparables? Are the adjustments reasonable and supported? Is the data used in other approaches complete and accurate? Is the information reported consistently? Is the report misleading? Is the opinion of value reasonable as of the effective date of the appraisal?

As we all know, sometimes it's impossible to complete an appraisal without exceeding some guidelines. They are guidelines, not requirements. They are really underwriting guidelines that apply to appraisals. The appraiser's primary job is to do and report the best appraisal possible. It's not the appraiser's job to make sure that the lender is able to make a loan. That apples to the value, but it also applies to times when there just isn't a sale to bracket that one adjustment that the underwriter is concerned about.

 

[3 Putt]

When you find the 10% net guideline as well as the 10% single line please share those as I cannot find them.

This not Fannie or Freddie. I think it is an old FHA guideline that has been written into assignment conditions by various lenders.

 

[Peter LeQuire]

I would rather see an honest, ethical attempt at appraising a property that was complex because either the subject was atypical or the comps were absent than a *****d value that on its surface looked very appraisal guideline compliant but the value was absurd. And that's exactly the kind of appraisals that that the lending industry DEMANDED of appraisers to fund their food chains. As I've told underwriters in the past, it's usually what is NOT disclosed in the appraisal that will come back to bite you. You don't know, what you don't know. (I know I stole that from someone here.)

The mortgage market is still being filled with loans documented, in part, with appraisals that "looked very appraisal guideline compliant." Many of these appraisals are massaged: fanciful "neighborhood" boundaries to be able to capture "comparables" that are in that "neighborhood"; absurd adjustments whose amounts wind up "within guidelines though they are based on unit value adjustments that have no rational basis; discussion/"reconciliation" (?) comments that are no more than a series of run-on sentences about this or that adjustment being "within guidelines". These "sanitized" reports continue to fill the mortgage industry's appetite for "product" - it's sad.

 

[Randolph Kinney]

It should be no surprise with the advent of the UAD form that appraising is forced into standardized choices and limits on adjustments.

What that means is that any residential property that is remote or is at the extreme range of the area property characteristics will not "fit" the standardized choices and adjustments. The appraisal will be rejected by the Uniform Collateral Data Portal® because the appraisal data does not conform to the UAD.

But, the good news is that UAD with the UCDP eliminates a real appraiser review appraisal on many appraisals and all the data can go directly into the data base.

If the data on an UAD appraisal is found to be inconsistant with other UAD appraisals in the neighborhood, that appraisal will be kicked out for review.

 

[Joyce Potts]

The mortgage market is still being filled with loans documented, in part, with appraisals that "looked very appraisal guideline compliant." Many of these appraisals are massaged: fanciful "neighborhood" boundaries to be able to capture "comparables" that are in that "neighborhood"; absurd adjustments whose amounts wind up "within guidelines though they are based on unit value adjustments that have no rational basis; discussion/"reconciliation" (?) comments that are no more than a series of run-on sentences about this or that adjustment being "within guidelines". These "sanitized" reports continue to fill the mortgage industry's appetite for "product" - it's sad.

Bravo! .

In the immortal words of Elmer Fudd, "EXACTWEE"!

 

[ctapraser]

I am glad you are asking for help with the review.

The worst thing that can happen in the appraisal profession is for reviewers to accept review assignments and not know the guidelines they are to be using to measure the quality of another appraisers' work.

When you find the 10% net guideline as well as the 10% single line please share those as I cannot find them.

With all due respect, if you need someone to tell you where to find the guidelines you are to use in your developing and reporting of an appraisal review, most likely, you should not be reviewing.

I am not trying to be harsh but, your questions are far to elementary for a reviewer to be asking and some of the things you state you know are incorrect.

As harsh as this post is, (even though he said he was trying not to be harsh:icon_mrgreen. I must agree, while there are no dumb questions....this is one question I do NOT want an appraiser reviewing my work asking!