Fannie Guru? 30% land to value rule...

[pkbarnhart]

I just got a call to comment on a property where the land value is greater than 30% of the property value. I remember an old Fannie guideline talking about this but can't find any reference in the newest guides. Anyone know where I might find a reference to the same or is this an outdated guideline? Thanks

 

[Joe Birrell (NY)]

Here is old reference: Section 402.02 (Degree of Development and Growth Rate). Since I data based it in my reports years ago, I have to admit I have no clue on current reference.

 

[Ben Vukicevich SRA]

PK,

Don't worry too much about this one.

Just baffle them up front.

In the Cost Approach Comments section just place, "Land to value ratio/percentage is typical for the neighborhood/development."

It is, isn't it????

Sure it is. They go away when they read that.

Hey, some underwriters can understand ratios/percentages. The others, well, they're just totally impressed by my statement.

Now, they never think to ask how that percentage is calculated-based on the Cost Approach value or the Sales Comparison Analysis value.

Ben

 

[FrankA]

I can't quote you chapter and verse on where to find it, but it is outdated. As long as the land to value ratio is typical of the area and supported with like type comps, it's ok. You probably are dealing with an underwriter who can't or won't think and use some judgement.

If the land to improvement ratio is way out of line, you may want to include some vacant sites like the subject to support your land value estimate, of course for an additional fee, if none are available, state so, so that they at least know you are aware of their concern and tried to provide additional relavent data.

If you get into a bind with them, you can always ask them that if their interpretation is true, how do waterfont properties ever get financed, are they all portfolio loans at and S&L, don't think so.

When the ratio is high, the lender may be concerned about the property having a use other that residential, address that fact.

And finally, they are guidelines, not rules that must be followed to the letter to make the property "fit". As long as you adress that fact that the guideline was not followed, you should be fine.

 

[Ben Vukicevich SRA]

PK,

Don't worry too much about this one.

Just baffle them up front.

In the Cost Approach Comments section just place, "Land to value ratio/percentage is typical for the neighborhood/development."

It is, isn't it????

Sure it is. They go away when they read that.

Hey, some underwriters can understand ratios/percentages. The others, well, they're just totally impressed by my statement.

Now, they never think to ask how that percentage is calculated-based on the Cost Approach value or the Sales Comparison Analysis value.

Ben

 

[LavellB]

I remember reading about the 30% rule in one of the Harrison books. Just in case you have one; "How to make a Single Family Appraisal on the Uniform Residential URAR Appraisal Report, 1998 revision". It is on page 7-2 , Determining the Residential Nature of a Property.

I'm too lazy to copy the whole paragraph, so here is a small part of it...
Fannie Mae was using it for properties in rural areas. The last line goes like this... To ensure that our standards are properly applied, we are eliminating all reference to the 30% site value guideline effective immediately.

The real issue is that your underwriter may be using more restrictive guidelines. Another item in this old rule was that it could be ignored if ...unless the property is a typical residential property for the market area.

Good luck.

 

[Restrain]

Underwriters still hang their hats and reviews on the 30% LTV ratio. However, there are several areas that I work where the LTV can be 70% or higher. I simply cite why and try to support it with land sales. As long as you support it and explain it, the UW's happy.

 

[Brad Pack]

Personally, I could care less what FNMA or some underwriter wants. The facts are what the facts are. I don't try to fit a property into a particular loan program. If the facts disqualify a property, it's time for the LO to find an alternative loan program. Am I wrong?

 

[Jo Ann Meyer Stratton]

You are right Brad. Describe the property, select the properties for comparison that are the most similar or at least have the same market appeal--and then explain, explain, explain. From that point it becomes the loan officer's problem to find the most appropriate loan program for the property and an underwriter's problem to determine if he/she wants to give away their company's money or not. After I have completed my appraisal, it is not longer my appraisal problem, it becomes the client's problem, and they have to solve or reject, what ever they decide.

 

[Anonymous]

Years ago I worked for an appraisal service that did work for C and D paper lenders. For some reason I was given two assignments in Cape May, N.J., Both properties were near the water, a bayfront and an Ocean View. Both properties were improved with old small shack type houses, tear downs. When I wrote my reports I used land sales in addition to house sales since the improvements didn't add to the value of the properties. The in-house review appraiser told me that my work was no good. She actually said to me, "We appraises houses, we don't appraise land". Believe it or not that company is still in business and making money.