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FHA: Big changes coming this summer!

FHA: Changes that affect you!

FHA: Changes that affect you!

Federal Housing Administration loans have become more affordable in 2015, thanks to a drop in the annual mortgage insurance premium that the FHA charges. Add lower credit requirements and down payments to the mix, and the fact these loans are assumable, and FHA mortgages are an attractive option to an ever broadening assortment of borrowers. As you are all probably aware by now, over the past few months Fannie Mae has taken a shot at improving appraisal quality through a poorly executed roll out of Collateral Underwriter. While the basic philosophy was sound, the implementation (notably, the lack of underwriter training) has left a bad taste in many an industry participant’s mouth.

Now, apparently, it is the Federal Housing Administration’s (FHA) turn! In March, 2015 FHA published several new and revised ‘Appraiser and Property Requirements’ in the Single Family Housing Policy Handbook (SF Handbook; HUD Handbook 4000.1).  This tome is 559 pages and frankly I have not had time to sort out all of the new vs. old General Appraiser Requirements. They did not bother to highlight the changes. Perhaps FHA thought a ‘soft’ introduction would be more palatable. I have noted a few items that could, from an appraiser’s perspective, affect or significantly delay your FHA transactions:

  • When performing an appraisal,the Appraiser must  review and analyze the following:
    • any legal documents contained in the loan file, (???????????)
    • and report the results of that analysis in the appraisal report.
  • Report the date(s) of prior sale(s) or transfer(s) of each comparable that occurred within three years of the effective date of the appraisal. (FHA Specific Requirement – Fannie Mae requires only one year).
  • The Appraiser must obtain a fully executed form HUD-92541, Builder’s Certification of Plans, Specifications, and Site, signed and dated no more than 30 Days prior to the date the appraisal was ordered, before performing the appraisal on Proposed Construction, Properties Under Construction or Properties Existing Less than One Year. The Appraiser must review the form and analyze and report any discrepancies between the information provided by the builder and the Appraiser’s observations.
  • The Appraiser must treat room additions and garage conversions as part  of  the  GLA of the dwelling, provided that the addition or conversion space:
    • is accessible from the interior of the main dwelling in a functional manner;
    • has a permanent and sufficient heat source; and
    • was built in keeping with the design, appeal, and quality of construction of the main dwelling.
  • However, FHA requires the Property to comply with all applicable zoning ordinances.
  • Partially Below-Grade Habitable Space refers to living area constructed partially below grade, but has the full utility of GLA. (apparently this can now be included in the living space!)
  • Energy Efficient Building Components, Solar Systems, etc.: requiring that contributory value of building components that enhance efficiency or energy savings must be analyzed and reported. FHA requires that the appraiser utilize all appropriate methods of valuation and does not restrict this to only a matched pairs analysis.
  • The Appraiser must comment on any non-residential use within the Property and state the percentage of the total floor area that is utilized as non-residential. The Appraiser must report whether the non-residential usage is legal and in compliance with current zoning requirements.

I recognize that not all of these items are technically ‘new’ requirements; however, they are worth noting. This Handbook is due to go into effect June 15, 2015. Stay tuned for more as developments unfold!
Turner’s Appraisal Services helps people make informed property valuation decisions by providing easy to understand yet comprehensive real estate appraisal reports. I am IRS Qualified and a California State Certified Real Estate Appraiser with local expertise in the Los Angeles neighborhoods. To discuss Los Angeles Area property values please feel free to call me anytime.

Turner’s Appraisal Services
Los Angeles Best Home Appraiser
Los Angeles, CA
Phone: (818) 384-6869

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CU: Slaying the Dragon!

Slaying the CU Dragon!

Slaying the CU Dragon!

 

This past week has been fairly interesting on the CU front. It looks like Fannie Mae got our message! They issued a Collateral Underwriter FAQ (frequently asked questions) dated February 2015. In it are several noteworthy items.

Fannie Mae has updated the description and purpose of CU to make it clear that is only a support tool, not a primary appraisal review tool:CU4
Fannie Mae now acknowledges that lenders need training and are proactively reaching out:
CU5
They have provided clear usage guidelines:

CU6

Fannie Mae makes it clear that the lenders are responsible for human due diligence:
CU7

So what does this mean for Realtors or Homeowners?

This is definitely good news! There has already been a dramatic decrease in the amount of deal-killing busy work generated by automated CU flags/messages that were being automatically passed along to the appraiser. I have seen the results of this FAQ first hand, with at least ten lender appraisals delivered since the FAQ was published and not one CU message to respond to!  This means that appraisers are again free to do their job properly, without undue influence. Will there still be questions based on CU generated flag? Sure! But they should be few and far between and serve as a constructive basis for a discussion about unusual or atypical properties (aka: outliers). It may also serve to weed out a few ‘bad apples’ in the appraiser ranks.

A big THANK YOU to the following for getting the word out and helping to Slay the CU Dragon!

Turner’s Appraisal Services helps people make informed property valuation decisions by providing easy to understand yet comprehensive real estate appraisal reports. I am IRS Qualified and a California State Certified Real Estate Appraiser with local expertise in the Los Angeles neighborhoods. To discuss Los Angeles Area property values please feel free to call me anytime.

Turner’s Appraisal Services
Los Angeles Best Home Appraiser
Los Angeles, CA
Phone: (818) 384-6869

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CU: Fannie issues an Apology!

cu

We are Fannie Mae and we are here to help….

Well, sort of… This past week Fannie Mae issued a nine page ‘clarification’ letter. This is probably as close as Fannie comes to admitting they mishandled their rollout of CU to the lender community.  They backtrack from an initial stance that CU was ‘nothing to worry about’ and are now admitting that it is a ‘significant body of change’:

significant change

You can find the letter here: https://www.fanniemae.com/content/announcement/ll1502.pdf

They confess that they now realize the industry has been in an uproar since CU was introduced:

much discussion

There are two items that stand out to me; the first is that Fannie is reminding lenders that CU is voluntary:

Voluntary

The second is that lenders are now strictly prohibited from passing along CU findings. A human review process is required:

Human review

So what does this mean if  I am a concerned Realtor or homeowner?

In my opinion this combination of statements by Fannie will effectively shut down CU while the lenders rethink their strategy. As noted in my prior post (http://turnersappraisals.com/cu-we-are-fannie-mae-and-we-are-here-to-help/) many lenders were caught off guard and had no process in place. They were simply passing along the CU flags, creating unnecessary delays and possibly killing deals. Now they must staff up or provide training and put a process in place. This will take time and money. Since CU is voluntary they will most likely curtail wholesale misuse. This has already happened at one AMC/Lender I work with. They sent me an automated clarification ‘copy-and-paste’ CU request then immediately canceled the request and approved the appraisal. Here’s hoping the majority follow suit.

 

 

 

 

 

CU: We are Fannie Mae and we are here to help.

We are here to help

 

cu

We are Fannie Mae and we are here to help….

Collateral Underwriter is Fannie Mae’s proprietary ‘risk management’ software tool they released to lenders and their business partners (AMCs) on January 26, 2015. They claim it is NOT an AVM (Automated Valuation Model) because it does not produce a prescribed value.

Fannie Mae claims this will ‘help’ by providing additional transparency and certainty to lenders by giving them access to the same appraisal data and analytics that they use in their own internal quality control framework.

However, there is a good chance this new process will delay, and in some cases kill, real estate purchase and refinance transactions.

CU is already here! And what I suspected would happen has happened. In case you were thinking there would be a grace or ramp-up period – there are revisions requests from the very first day CU went live (01/26/2015). The lender’s underwriter submitted the appraisal report to CU which produced automated flags that were passed along (literally copy-and-paste) to the AMC clerk who passed them along to the appraiser with a demand for an immediate response:

****UNDERWRITER REVISIONS****

Message – Comparable 3 (Collateral Underwriter)

The condition rating for comparable #3 is materially different than what has been reported by other appraisers. Please provide supporting commentary for your data on this condition.

Message – Comparable 3 (Collateral Underwriter)

The quality rating for comparable #3 is materially different than what has been reported by other appraisers. Please provide supporting commentary for your data on this condition.

Message – Comparable 2 (Collateral Underwriter)

The quality rating for comparable #2 is materially different than what has been reported by other appraisers. Please provide supporting commentary for your data on this condition.

How would you respond? Keep in mind that this is the ONLY data from CU that the appraiser has access to. They have no idea if it is valid and do not know if their rating was flagged as high or low.

It appears that the lender’s staff (underwriter) has opted to bypass Fannie Mae’s publicly published guidelines of routing automated feedback to the appropriate qualified staff appraiser for triage before passing them along to the lender’s designated appraisal management company.

Here are the guidelines from Fannie Mae’s implementation seminar:
Collateral Underwriter Considerations

Collateral Underwriter Considerations

The AMC has also opted to pass along this automated feedback without a review process by a qualified staff appraiser:
AMC passes along CU automated feedback

AMC has also opted to pass along this automated feedback without a review process.

Had either party followed Fannie Mae’s publicly published process the qualified review appraiser would have had the opportunity to read the comments in the existing report which addresses the issues raised by the CU automated feedback. Yes, you read that right. CU cannot read the existing comments in the report which often time adequately addresses this automated feedback, yet lenders and underwriters are choosing NOT to actually read the appraisal report.

There are similar copy and paste CU revision requests posted on several appraiser forums. Here is another sample:

Reason for Revision Message – Appraisal (Collateral Underwriter) The appraiser-provided comparables are materially different than the model-selected comparables.  2. Please comment on the yellow highlighted sales or consider if warranted. The list of sales has been made available for your review:

CU generated comparables

CU generated comparables

So you’re a Realtor or a homeowner and might be thinking “well OK, so what has this got to do with me?”
  • Higher costs: One appraiser this past week that noted it took him 7 hours to research and respond to all of the comparables generated by the automated CU model. He can’t work for free so he plans to raise fees. Consumers will certainly start to feel that in the pocketbook.
  • Delays in closings: As you can see from the examples above there is a high volume of false positives generated by the automated CU model. It takes time for the appraiser to respond. Since there is currently no pay for this additional work it is not a priority.
  • Dead deals: As appraisers get hammered by more and more of these automated CU requests they will tend to get more conservative in their ratings and opinions of market value. It is only natural to want to avoid the flags and automated revision requests.
Stay tuned! More developments are coming in the next few weeks as the industry sorts out this debacle.
Or, if you are a Realtor in Southern California please pass this information to your managing Broker or Office Manager. I am available for speaking engagements.

Collateral Underwriter is almost here!

cuCollateral Underwriter is Fannie Mae’s proprietary ‘risk management’ software tool they are releasing to lenders and their business partners (AMCs) on January 26, 2015. They claim it is NOT an AVM (Automated Valuation Model) because it does not produce a proscribed value.

However, there is a good chance this new process will delay, and in some cases kill, real estate purchase transactions.

I have quite a bit of insight to share on this topic and how it will affect Realtors. I still have a few slots open for speaking engagements over the next few weeks. Please ask your managing broker or office manager to contact me.

For those of you looking for more information I have put together a list of links that will give you an overview as well as opinions from nationally recognized resources.

Fannie Mae:

https://www.fanniemae.com/content/faq/collateral-underwriter-faqs.pdf

https://www.fanniemae.com/singlefamily/collateral-underwriter

NAR:

http://www.realtor.org/articles/fannie-mae-s-new-appraisal-risk-assessment-tool-collateral-underwriter-cu

National Real Estate Post:

http://thenationalrealestatepost.com/appraisal-time-bomb-coming-in-january-2015/

Washington Post:

http://www.washingtonpost.com/realestate/fannie-maes-bid-to-boost-appraisals-accuracy-draws-fire/2015/01/08/ec206426-9506-11e4-8005-1924ede3e54a_story.html

Turner’s Appraisals Posts:

http://turnersappraisals.com/realtors-will-cu-affect-your-income-in-2015/

http://turnersappraisals.com/fannie-mae-to-pick-lowest-risk-comparables-for-appraisers/

http://turnersappraisals.com/fannie-mae-to-treat-appraisal-management-company-as-whipping-boy/

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