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BREAKING: FHFA Directive on Interior Appraisals
By Isaac Peck, Editor
This morning (March 23), the Federal Housing Finance Agency (FHFA) directed Fannie Mae and Freddie Mac, both Government Sponsored Entities (GSES), to provide “alternative flexibilities to satisfy appraisal requirements and employment verification requirements” through May 17, 2020. FHFA has broad authority over both Fannie and Freddie, who are still in “conservatorship,” with FHFA being responsible for the overall management of both entities.
The directive grants the GSEs broad discretion in how to administer “alternative flexibilities,” stating only that the GSEs should “leverage appraisal alternatives to reduce the need for appraisers to inspect the interior of a home for eligible mortgages.” The FHFA’s announcement also provides flexibility around employment verification, stating that in the event lenders cannot obtain verbal verification of the borrower’s employment, the GSEs “will allow lenders to obtain verification via an email from the employer, a recent year-to-date paystub from the borrower, or a bank statement showing a recent payroll deposit.”
FHFA writes that these actions are necessary to allow the GSEs to “fulfill their mission of providing market liquidity during the coronavirus national emergency,” adding that the FHFA and the GSEs are “monitoring the coronavirus national emergency’s effect on the housing market and will continue to update our policies when necessary.” (Click here to read the full Directive from FHFA.)
Fannie Issues Guidance
In concert with the FHFA’s announcement, Fannie immediately issued Lender Letter (LL-2020-04) which provides guidance on what it is calling “Temporary appraisal requirement flexibilities.” Fannie writes that effective immediately, it will accept “either a desktop appraisal or an exterior-only inspection appraisal in lieu of the interior and exterior inspection appraisal” when a traditional “interior inspection” is not feasible because of COVID-19 concerns. Fannie goes on to warn that “If a traditional appraisal is not obtained and there is insufficient information about the property for an appraiser to be able to complete an appraisal assignment with a desktop or exterior-only inspection appraisal, the loan will not be eligible for delivery to us.”
or all cash out refinances, it appears that Fannie will still be requiring traditional appraisals. For limited cash out refinances, Fannie will allow Exterior-only appraisals in lieu of traditional appraisals if the loan is with Fannie currently. For purchase transactions where the LTV is 85% or less, Fannie will allow both Desktop appraisals and Exterior-only appraisals, as long as there is sufficient information for an appraiser to credibly arrive at an opinion of value.
Fannie writes that to accommodate these temporary flexibilities, Fannie and Freddie have jointly developed the following documents that include modified language to be used with desktop appraisal reports and exterior-only appraisal reports:
▪ Modified Set of Instructions, Scope of Work, Statement of Assumptions and Limiting Conditions and Certification for Desktop Appraisals
Fannie adds that “Appraisal reports submitted to us using the flexibilities provided in this Lender Letter must include these documents with the modified language for scope of work, statement of assumptions and limiting conditions, and certifications.” Fannie’s Lender Letter indicates that the Appraisal Waiver process is very much the same, with lenders submitting files and being offered waivers through Fannie’s Desktop Underwriter (DU).
Working RE asked Fannie Mae to clarify whether it will be expanding the use of Appraisal Waivers in response to Coronavirus, and a Fannie representative directed us to the Lender Letter, bolding this section for emphasis: “We are continuing to monitor the impact of COVID-19 and will evaluate additional appraisal waiver flexibilities if the situation warrants such action.”
TThe coordinated approach indicated by FHFA and Fannie’s simultaneous announcements is consistent with what Working RE has heard from numerous sources, that the GSEs and FHFA have been working together to address this urgent situation and to jointly craft guidelines that help appraisers and the public stay safe in light of COVID-19, while also protecting the safety and soundness of our financial system in these uncertain times.
To read Fannie’s full Lender Letter, click here.
This is a developing story, please check WorkingRE.com for the latest appraisal news and information.
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About the Author
Isaac Peck is the Editor of Working RE magazine and the Vice President of Marketing and Operations at OREP.org, a leading provider of E&O insurance for appraisers, inspectors and other real estate professionals in 50 states. He received his master’s degree in accounting at San Diego State University. He can be contacted at firstname.lastname@example.org or (888) 347-5273.
Richard Hagar, SRA, is an educator, author and owner of a busy appraisal office in the state of Washington. Hagar now offers his legendary adjustments course for CE credit in over 40 states through OREPEducation.org. The new 7-hour online CE course Identifying and Correcting Persistent Appraisal Failures shows appraisers how to avoid CU’s red flags, minimize callbacks, save time, and earn more! Learn how to improve the quality of your reports and build defensible reports! OREP insureds save on this approved coursework. Sign up today at www.OREPEducation.org.
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