Blue Oak Blog

Well, something new has come up again, and I don’t think we’re near the end of the changes in appraisal world. First, the HVCC comment period ended last April. They were going to re-work it based on the comments and have it out for another round of comments in August. The re-worked version still has not been released. The last update I could find said it will be out in October. Yes, I know.

Last Friday, FannieMae issued Announcement 08-30. A new form is required on all mortgages (for FannieMae) as of April 1, 2008. The new form is a 1004MC, for Market Conditions. There are also provisions for some new requirements. It doesn’t look like much change form the way we do business today, but a lot more detail, a lot more work and the new form forces us to gather data differently.

The 1004MC is a market condition report that addresses the following issues:

• Inventory Section. The absorption rate needs to be provided. The total pool of comps divided by the time frame searched (60 comps/6 months=10 per month), then the total active comps divided by the # per month (120 active comps/10 per month=20 months to absorb the inventory). This needs to be done for current – 3 months, 4-6 months, and 7-12 months. Check boxes for the trends.

There are two issues we need to keep in mind here. First, The 1004 calls for neighborhood trends for all single family homes. The 1004MC is based on comparable properties. Next, when we look at absorption, closed sales are only part of the picture. There are listings of homes that are two high and by people that change their minds. When deciding which way a trend is going, we need to be mindful of the expired and cancelled listings and document how they effect our decision, if applicable.

• Median Sale & List price, DOM, List/Sale Ratio Section. We need to provide the Median, yes, median, not average, Comparable Sales Price, for 7-10 months, 3-6 months, and current to 3 months. This also needs to be done with the Median Comparable Sales DOM, the Median Comparable List Price, the Median Comparable Listing DOM, and the Median List/Sales Price Ratio. There are check boxes for the trends.

This is not just for additional work. This data needs to analyzed and used to support potential required market adjustments.

• Seller/Developer/Builder assistance prevalent. Just a yes or no check box.

• Sales Concessions. This section requires a detailed explanation of seller concession trends for the past 12 months. Concessions include closing costs, points, mortgage terms, buy downs, options, condo fees, etc.

• REOs. Are they a factor? If so, explain; provide trends in listings and sales.

• Provide Sources. Enough said

• Summary. You need to summarize the information and use it to support the Neighborhood Section of the 1004.

Once again, the Neighborhood Section data is supposed to be based on single family homes and this form is based on comparable homes. I don’t know the intended fix for this perceived discrepancy.

There is a condo section also, which is shorter.

The new requirements that take effect on January 1 are:

• Supervisory Appraisers must inspect the property and view the comparables from the street.

• Sales contract must be supplied to the appraiser by the lender.

• If comparables are used outside the subject’s neighborhood, the explanation must be sufficient for the client to understand why.

• “As Is” appraisals are permitted so long as repairs needed do not affect “the livability, soundness, or structural integrity”. Other repair items are to be considered in value, but the report can go out “As Is”. Items that do affect “the livability, soundness, or structural integrity” must be stated with the report done per completion and a re-inspection after the issues have been resolved.

• They want to clarify that previous listings within the past year include each occurrence with prices, dates, and source.

• Appraisals must include the entire site. Lender cannot have a 20 acre site appraised as if there was only 5 acres.

• They also want to clarify that if adjustments are made based on effective age, the appraiser must provide an explanation and the condition of the property.

• If you are provided information about a comparable by a party with a financial interest in the transaction, the data needs to be verified by someone without an interest in the transaction. In the case of only builder information available, it is acceptable to use the builders HUD-1.

• The neighborhood boundaries are identified by analysis based on the actions of typical buyers. Not where comparables area found. If comparables are used outside the neighborhood, explain the need to go to competing areas.

• Time adjustments can be positive or negative, but must be based on market conditions.

• The lender may rely on the appraiser’s estimate of cost new for insurance estimates.