THE VIRGINIA APPRAISER

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1 THE VIRGINIA APPRAISER Volume 18 Department of Professional and Occupational Regulation Spring 2009 Message From the Chair Diane Quigley Greetings to all appraisers and trainees in the Commonwealth! The Board s study of the use of electronic portals by appraisers to send assignments electronically resulted in the Board sending a letter on March 1, 2009, to all its licensees providing guidance on this subject. You can review the text of this letter on page 3. On Pages 4-6, you can review the Board s disciplinary actions at its August 2008, November 2008, February 2009 and May 2009 meetings. You can also review the Board s Complaint/Disciplinary Action information for on the bottom of page 18. Unfortunately, the number of disciplinary actions against our licensees has risen over the past couple of years. The Housing and Economic Recovery Act of 2008 (HERA) requires that, effective October 1, 2009, only state certified appraisers will be able to conduct appraisals for FHAinsured mortgages and remain on the FHA Appraiser Roster. Virginia licensed appraisers who are currently on the FHA Appraiser Roster must upgrade their license to certified appraiser by October 1, 2009, to continue to conduct FHA appraisals. HUD s Mortgagee Letter explains this new policy and is reproduced on pages 7-8. You can find out more about this at: h/appr/eligibility.cfm The Home Valuation Code of Conduct (the HVCC) goes into effect on May 1, 2009, and will have a marked effect on Virginia appraisers. Effective May 1, 2009, Freddie Mac and Fannie Mae will no longer purchase mortgages from sellers that do not adopt the HVCC with respect to single-family mortgages that are delivered to Freddie Mac and Fannie Mae. Most federally insured and guaranteed loans are exempt from the HVCC. The HVCC is the result of a settlement between New York State Attorney General Andrew Cuomo, the Federal Housing Finance Agency (FHFA ), Freddie Mac and Fannie Mae. (Chair Message Continued on Page 18 Last Page). Real Estate Appraiser Board The Perimeter Center 9960 Mayland Drive, # 400 Richmond, VA Timothy M. Kaine Governor Patrick O. Gottschalk Secretary Commerce & Trade INSIDE THIS ISSUE: Board Members and Staff 2 Board Letter re: Electronic Reports 3 Recent Board Disciplinary Actions 4-6 FHA Roster Appraisers Eligibility 7-8 Home Valuation Code of Conduct 9-12 New Fannie Mae Form 1004MC Complaint Information 18 Message from the Chair (Continued) Board Meeting Dates All Board meetings are held on the Second Floor of the Perimeter Center at the above address. August 18, 2009 November 10, 2009 PAGE 1

2 Real Estate Appraiser Board Members & Staff Board Members Diane Quigley Centreville, VA Chair Term ends April 2, 2009 Harry O. Lewis Richmond, VA Vice Chair Term ends April 2, 2010 DPOR Staff Jay DeBoer, Director Mark Courtney, Deputy Director Licensing & Regulation Division Nick Christner, Deputy Director Compliance & Investigations Division Steven Arthur, Deputy Director Administration & Finance Division Betsy T. Critzer Earlysville, VA Licensee Member Term ends April 2, 2012 H. Glenn James Norfolk, VA Licensee Member Term ends April 2, 2012 Sandra Johnson Chesapeake, VA Mortgage Lending Industry Term ends April 2, 2010 Douglas Mullins, Jr. Wise, VA Citizen Member Term ends April 2, 2010 Ryan A. Myers Sterling, VA Citizen Member Term ends April 2, 2012 Richard A. Pruitt McLean, VA Licensee Member Term ends April 2, 2009 Perry E. Turner, Jr. Manakin-Sabot, VA Licensee Member Term ends April 2, 2009 Real Estate Appraiser Board Staff Christine Martine Executive Director Kevin Hoeft Board Administrator Maryanne Woo Office Manager Regina Greene & Elaine Winn Licensing Specialists Emily Trent Administrative Assistant Board Contact Information Licensing Section Executive Director Fax Number REAppraisers@dpor.virginia.gov Web - DPOR Main Number PAGE 2

3 Board Letter Concerning Electronic Appraisal Reports The Board and its ad hoc Electronic Portal Committee (Committee) finished its work concerning the Petition for Rulemaking submitted to the Board at its February 26, 2008, meeting. The petition expressed concern that some electronically transmitted appraisal reports are being altered to the extent that these alterations may represent a violation of one or more Board Regulations and/or USPAP rules. (For background information on this subject, please see Page 3 of the Summer 2008 volume of The Virginia Appraiser at: At its August 19, 2008, meeting the Board voted to deny the petition since legal counsel advised that the Board does not have the authority to require providers of electronic portals to cease doing business in Virginia until such time as they provide the Board with sufficient evidence and documentation that ensures the integrity and unadulterated transmission of appraisal reports from the appraiser to the client and/or end user of the appraisal report. The Committee then met on November 17, 2008, and discussed issues associated with using electronic portals to transmit electronic appraisal reports. Presentations were made by Michael Watson of the Virginia Information Technologies Agency (VITA), Stephen Nation of Biometric Management Systems, Inc. and Dave Biggers, Chairman of a la mode, inc. After discussion, the Committee approved the following motion: It has come to the attention of the Board that the current electronic delivery processes may not meet the level of integrity of unadulterated reports (known as a true copy ) demanded by the Uniform Standards of Appraisal Practice (USPAP) and/or the Virginia Real Estate Appraiser Board. Then, at its November 18, 2008, meeting, the Board approved draft language for a letter providing guidance for appraisers when submitting appraisal assignments electronically. After review by legal counsel and following discussion, at its February 24, 2009, meeting, the Board approved the following final language for the letter which was mailed to all appraiser licensees in March 2009: Dear Virginia Licensed/Certified Appraiser: The Virginia Real Estate Appraiser Board (the Board) addressed the issue of appraisers submitting appraisal assignments electronically and provides you with the following guidance from its February 24, 2009, Board meeting: Board Regulations and USPAP require appraiser licensees to perform and deliver appraisal assignments in a secure manner to the client, and they must not communicate assignment results (or knowingly permit another person to communicate assignment results) in a misleading or fraudulent manner. There are actions that a licensee may take to ensure compliance with these regulations when submitting assignments electronically. First, there are a number of secure digital signature software products and other encryption techniques that can be used to ensure compliance with Board Regulations. Second, licensees must keep a true copy of all assignments they submit electronically in accordance with the record keeping requirements of USPAP. Please feel free to contact the Board at or reappraisers@dpor.virginia.gov if you have any questions. Sincerely, Virginia Real Estate Appraiser Board PAGE 3

4 Board Disciplinary Actions If a complaint is filed against an appraiser licensed by the Virginia Real Estate Appraiser Board (the Board), the complaint is reviewed by the Compliance and Investigations Division (CID) of DPOR to determine if a violation of the Board s laws or regulations may have occurred. If there is probable cause of a violation, an investigation is initiated. If the investigation reveals that one or more violations may have occurred, the licensee receives notice to appear at an informal fact-finding conference (IFF) to address these alleged violations. In some cases the licensee may be offered a pre-iff Consent Order. A Consent Order is an agreement between the licensee and the Board consisting of specific violations and sanctions. Pre-IFF Consent Orders eliminate the time and expense associated with conducting an IFF. If an IFF is held, a recommendation from the IFF hearing officer consisting of violations and proposed sanctions is submitted to the Board for consideration at its next regularly scheduled meeting. The Board can take the following disciplinary actions against a licensee: assess a monetary penalty; suspend or revoke a license; place an individual on probation, require additional education, or deny renewal. A licensee can continue to practice as an appraiser throughout the disciplinary process until the Board either revokes or suspends his license. THE FOLLOWING DISCIPLINARY ACTIONS RENDERED BY THE BOARD AT ITS AUGUST 2008, NOVEMBER 2008, FEBRUARY 2009 and MAY 2009 MEETINGS CAN BE VIEWED AT:. Click on License Lookup. Then click on Search Disciplinary Actions Occurring since April 1, Then enter the Case Number in the blank Search box. Then click on the Search button. Then click on the highlighted File Number. The Order and Report of Findings for that case will appear. Case No. Licensee Violation/Sanction Fred A. Smith 18 VAC K.1 - Unworthiness South Hill, VA Fined $ Tracy A. Farrell 18 VAC K.2 - Unworthiness Williamsburg, VA 18 VAC K.3 - Unworthiness $150 Board Costs, License Revocation Ian D. Callison 18 VAC D - Development of Appraisal (2 counts) Clifton, VA 18 VAC E - Appraisal Report Requirements Fined $500, $150 Board Costs, 30-hour upper level residential course Subrata Samaddar 18 VAC D - Development of Appraisal (2 counts) Springfield, VA 18 VAC E - Appraisal Report Requirements Fined $500, $150 Board Costs, 30-hour upper level residential course Brenda J. Shaw 18 VAC D - Development of Appraisal (5 counts) Camp Springs, MD Fined $2500, $150 Board Costs, 30-hour upper level residential course Kim K. Crowe 18 VAC D - Development of Appraisal Broad Run, VA Fined $500, $150 Board Costs, 15-hour upper level residential course Ivan C. Thomas 18 VAC D - Development of Appraisal Bowie, MD $150 Board Costs, 15-hour upper level residential course Charlotte A. Frick 18 VAC K.1 - Unworthiness Spotsylvania, VA Fined $300, $150 Board Costs Charlotte A. Frick 18 VAC K.1 - Unworthiness (5 Counts) Spotsylvania, VA Fined $1500, $150 Board Costs, 15-hour USPAP course Otway E. Hatcher 18 VAC K.1 - Unworthiness Richmond, VA Fined $1500, License Probation until finish 7-hour USPAP course John D. Murphy, IV 18 VAC E - Appraisal Report Requirements McLean, VA Fined $2500, 15-hour USPAP course, License Suspension for 60 days, License Probation for 2 years without supervising trainees during this time PAGE 4

5 Board Disciplinary Actions (cont.) Case No. Licensee Violation/Sanction John D. Murphy, IV 18 VAC D - Development of Appraisal McLean, VA Fined $350, $150 Board Costs Sam P. Settimo, Jr. 18 VAC C.2 - Use of Signature & Electronic Trans. of Report Glen Allen, VA Fined $2500, $150 Board Costs, License Suspension for 60 days, 7-hour USPAP course Richard A. Mormando 18 VAC D - Development of Appraisal (4 Counts) Chesterfield, VA Fined $2400, $150 Board Costs, 30-hour upper level residential course Daniel L. Bowers 18 VAC D - Development of Appraisal Stuarts Draft, VA 18 VAC E - Appraisal Report Requirements Fined $1000, $150 Board Costs, 15-hour upper level residential course Robert A. Garrett 18 VAC E - Appraisal Report Requirements (4 Counts) Virginia Beach, VA Fined $2800, 30-hour upper level residential course, License Probation for 2 years without supervising trainees during this time Muhammad A. Khan 18 VAC D - Development of Appraisal Rockville, MD 18 VAC E - Appraisal Report Requirements Fined $1850, $150 Board Costs, 30-hour upper level residential course William L. Pope, III 18 VAC D - Development of Appraisal (3 Counts) Yorktown, VA 18 VAC E - Appraisal Report Requirements Fined $2000, $150 Board Costs, 30-hour upper level residential course Adeyemi A. Odunlami 18 VAC D - Development of Appraisal (2 Counts) Riverdale, MD Fined $3000, $150 Board Costs, 30-hour upper level residential course, 15-hour USPAP course Mark B. Kessler 18 VAC E - Appraisal Report Requirements Washington, D.C. 18 VAC K.1 - Unworthiness Fined $1000, $150 Board Costs, 30-hour upper level residential course, 15-hour USPAP course Sherry S. Kelly Ivey 18 VAC D - Development of Appraisal (2 Counts) Yorktown, VA 18 VAC E - Appraisal Report Requirements Fined $900, $150 Board Costs, 30-hour upper level residential course Brenda T. Nguyen 18 VAC D - Development of Appraisal Arlington, VA 18 VAC K.1 - Unworthiness Fined $1000, $150 Board Costs, License Suspension for 60 days, 2 years without supervising trainees, 30-hour upper level residential course, 15-hour USPAP course Theresa J. Elder 18 VAC D - Development of Appraisal Norfolk, VA 18 VAC E - Appraisal Report Requirements 18 VAC K.1 - Unworthiness Fined $900, $150 Board Costs Martin C. Cho 18 VAC K.1 - Unworthiness Alexandria, VA Fined $600, License Probation until completes 15-hour USPAP course Sherry S. Kelly Ivey 18 VAC D - Development of Appraisal (3 Counts) Yorktown, VA 18 VAC E - Appraisal Report Requirements (2 Counts) Fined $1750, License Probation until submits 4 USPAP-compliant appraisal reports Sherry S. Kelly Ivey 18 VAC D - Development of Appraisal (4 Counts) Yorktown, VA 18 VAC E - Appraisal Report Requirements (3 Counts) Fined $1225, License Probation until submits 4 USPAP-compliant appraisal reports PAGE 5

6 Board Disciplinary Actions (cont.) Case No. Licensee Violation/Sanction Vicky A. Trang 18 VAC D - Development of Appraisal (16 Counts) Springfield, VA 18 VAC E - Appraisal Report Requirements Fined $5600, $150 Board Costs, License Suspension for 1 year, 60-hour upper level residential course Stephen M. Smith 18 VAC K.1 - Unworthiness Fredericksburg, VA Fined $1500, $150 Board Costs Long X. Ngo 18 VAC D - Development of Appraisal Gaithersburg, MD Fined $500, $150 Board Costs, 15-hour upper level residential course Robert A. Garrett 18 VAC Board Discretion to Deny Renewal or Reinstatement Virginia Beach, VA Denied Renewal of Appraiser Instructor Certification James M. Mattson 18 VAC E - Appraisal Report Requirements Richmond, VA Fined $2000, $150 Board Costs, 30-hour upper level residential course Thu A. Nguyen 18 VAC D - Development of Appraisal (2 Counts) Fairfax, VA 18 VAC E - Appraisal Report Requirements (2 Counts) Fined $2000, $150 Board Costs, 30-hour upper level residential course, 15-hour USPAP course John H. Major 18 VAC D - Development of Appraisal Waynesboro, VA Fined $500, $150 Board Costs, 7-hour USPAP course Vicki N. Minor 18 VAC D - Development of Appraisal (4 Counts) Richmond, VA 18 VAC E - Appraisal Report Requirements Fined $2500, License Suspension for 6 months, 30-hour upper level residential course Vicki N. Minor 18 VAC D - Development of Appraisal (4 Counts) Richmond, VA 18 VAC E - Appraisal Report Requirements Fined $2500, License Suspension for 2 years, 30-hour upper level residential course Stephen M. Smith 18 VAC D - Development of Appraisal (3 Counts) Fredericksburg, VA 18 VAC E - Appraisal Report Requirements (3 Counts) 18 VAC K.1 - Unworthiness 18 VAC B.1.a - Failure to Report a Change of Address Fined $3000, 30-hour upper level residential course Daniel Doss 18 VAC E - Appraisal Report Requirements Bent Mountain, VA Fined $1000, 15-hour USPAP course James S. Morris, Jr. 18 VAC D - Development of Appraisal Oak Hill, VA Fined $150, $150 Board Costs, 15-hour USPAP course John A. Ruff 18 VAC B.1.a - Failure to Report a Change of Address Bedford, VA Fined $150, $150 Board Costs Jamison D. Reichard 18 VAC D - Development of Appraisal (3 Counts) Virginia Beach, VA 18 VAC E - Appraisal Report Requirements Fined $2000, $150 Board Costs, 15-hour upper level residential course Jan S. Abbott 18 VAC D - Development of Appraisal (3 Counts) Weems, VA 18 VAC E - Appraisal Report Requirements 18 VAC K.1 - Unworthiness Fined $2500, $150 Board Costs, 15-hour USPAP course Sandra S. Luffsey 18 VAC E - Appraisal Report Requirements Colonial Heights, VA Fined $1000, $150 Board Costs, 15-hour upper level residential course PAGE 6

7 Revised Eligibility for FHA Roster Appraisers December 17, 2008 MORTGAGEE LETTER TO: SUBJECT: ALL APPROVED MORTGAGEES ALL FHA ROSTER APPRAISERS Revised Eligibility Requirements for FHA Roster Appraisers Section 1404 of the Housing and Economic Recovery Act of 2008 (HERA) (Public Law , approved July 30, 2008) amended Section 202 of the National Housing Act to revise qualification standards for Federal Housing Administration (FHA) approved appraisers. This mortgagee letter sets forth the revised eligibility requirements for appraisers to qualify for placement and retention on the FHA Appraiser Roster and provides the timeline for implementation of those requirements. Section 202(f) of the National Housing Act mandates that all appraisers chosen or approved to conduct appraisals of properties that will be security for FHA-insured mortgages must: (1) be its ability to support affordable mortgage financing in those areas, which would contravene the goals of the HOPE for Homeowners Program and hinder use of other FHA single family programs at a time when use of those programs has increased significantly. Therefore, in order to implement this change in appraiser eligibility requirements in a certified by the State in which the property to be appraised is located; or by a nationally recognized professional appraisal organization, and (2) have demonstrated verifiable education in the appraisal requirements established by FHA. (Note that the term state as used throughout this Mortgagee Letter includes U.S. Territories.) IMPLEMENTATION DATES Although Section 202(f) of the National Housing Act was made effective upon enactment, FHA has determined that the loss of available FHA Roster appraisers in certain locations will impede manner that is not disruptive to the FHA mortgage lending process, the requirement will be phased in as follows: Effective October 1, 2008, FHA stopped accepting applications to the FHA Appraiser Roster from licensed but uncertified appraisers. All applicants for the FHA Appraiser Roster must be state certified (certified residential or certified general) appraisers who meet the minimum certification criteria issued by the Appraiser Qualifications Board (AQB) of the Appraisal Foundation. The requirements that applicants not be listed on the General Service Administration (GSA) Excluded Parties List System (EPLS), HUD s Limited Denial of Participation List (LDP), or HUD s Credit Alert Interactive Voice Response System (CAIVRS) remain unchanged. No Later than October 1, 2009, all FHA Appraiser Roster appraisers in all states and territories must be state certified in order to be eligible to conduct appraisals for FHA-insured mortgages and remain on the FHA Appraiser Roster. FHA MORTGAGEE INSTRUCTIONS: Commencing October 1, 2009, all FHA-approved lenders must use state certified appraisers for FHA-insured mortgages. The appraiser assignment field within the Case Number Assignment screen in FHA Connection must be input with an appraiser who is listed as either certified residential or certified general on the FHA Roster for the state in which the property is located. If, on or after October 1, 2009, an FHA-approved lender enters an appraisal assignment into FHA Connection for a property from a FHA Roster Appraiser who is licensed but not certified in accordance with this Mortgagee Letter, the appraisal will be unacceptable for FHA-insured financing and a second appraisal, performed by a state certified appraiser, must be completed at the lender s expense. PAGE 7

8 When appraisal assignments (case # assignments) are given to licensed appraisers prior to October 1, 2009, but the appraisal is not completed until after that date, the appraisal will be acceptable. However, the lender must assure that the appraisal assignment date is entered accurately into FHA Connection which must be a date prior to October 1, In these cases, the appraisal assignment must be submitted to the lender no later than October 30, Appraisals that were completed by licensed appraisers prior to the deadline, which are transferred to a new lender, may be used as long as the original assignment date occurred prior to October 1, ADDITIONAL INFORMATION - CERTIFICATION AND EDUCATION OF APPRAISERS Currently, FHA allows both licensed and certified appraisers to conduct appraisals for FHA-insured mortgages as long as they qualify under the minimum criteria issued by the Appraiser Qualifications Board (AQB) of the Appraisal Foundation as authorized under the provisions of Title XI of the Financial Institutions, Reform, Recovery and Enforcement Act of 1989 (FIRREA). (See the FHA Appraiser Roster regulations at 24 CFR ) Under FIRREA, the AQB establishes the minimum education, experience and examination requirements for real property appraisers to obtain a state certification. In addition, the AQB performs a number of ancillary duties related to real property and personal property appraiser qualifications. To meet the new eligibility requirement, FHA appraisers must be certified by the state in which the property to be appraised is located, or by a nationally recognized professional organization. Under new section 202(f) of the National Housing Act, licensed appraisers would no longer be authorized to conduct appraisals of properties securing an FHA-insured mortgage. Through FIRREA, Congress authorized the Appraisal Foundation to establish minimum qualification requirements for state certification of appraisers as well as promote minimum uniform appraisal standards. The Appraisal Foundation serves as the parent organization to AQB and the Appraisal Standards Board (ASB) to accomplish this mission. The AQB promulgates and maintains appraiser qualification criteria and the ASB promulgates and maintains the Uniform Standards of Professional Appraisal Practice (USPAP). The FHA Appraiser Roster regulations acknowledge this national role by requiring that appraisers applying for placement on the roster meet the minimum AQB education, examination, and training criteria. Given these unique responsibilities, FHA has determined that the Appraisal Foundation is a nationally recognized professional appraisal organization within the meaning of new section 202(f) of the National Housing Act. Moreover, FHA has determined that appraisers meeting the AQB criteria, as required by the FHA Appraiser Roster regulations, have demonstrated verifiable education in the appraisal requirements established by FHA under the new law. FHA recognizes that there may be other national professional organizations that satisfy the requirements of section 202(f), and that there may be additional means of demonstrating verifiable education in FHA appraisal requirements. HUD will publish a notice in the Federal Register inviting the public to comment on nationally recognized professional appraisal organizations that FHA should consider as meeting the new statutory requirements. Appraiser Qualification Criteria Appraisers seeking to become state certified should review the 2008 Real Property Appraiser Qualification Criteria at: Procedures to Obtain Placement on the FHA Appraiser Roster Applicants who meet all eligibility criteria may apply on-line at: If you have any questions concerning this Mortgagee Letter, please call CALLFHA ( ). Persons with hearing or speech impairments may access this number via TDD/TTY by calling TDD-2HUD ( ). Sincerely, Brian D. Montgomery Assistant Secretary for Housing- Federal Housing Commissioner PAGE 8

9 Home Valuation Code of Conduct I. Appraiser Independence Safeguards A. An appraiser must be, at a minimum, licensed or certified by the state in which the property to be appraised is located. B. No employee, director, officer, or agent of the lender, or any other third party acting as joint venture partner, independent contractor, appraisal company, appraisal management company, or partner on behalf of the lender, shall influence or attempt to influence the development, reporting, result, or re view of an appraisal through coercion, extortion, collusion, compensation, inducement, intimidation, bribery, or in any other manner including but not limited to: (1) withholding or threatening to withhold timely payment or partial payment for an appraisal report; (2) withholding or threatening to withhold future business for an appraiser, or demoting or terminating or threatening to demote or terminate an appraiser; (3) expressly or impliedly promising future business, promotions, or increased compensation for an appraiser; (4) conditioning the ordering of an appraisal report or the payment of an appraisal fee or salary or bonus on the opinion, conclusion, or valuation to be reached, or on a preliminary value estimate requested from an appraiser; (5) requesting that an appraiser provide an estimated, predetermined, or desired valuation in an appraisal report prior to the completion of the appraisal report, or requesting that an appraiser provide estimated values or comparable sales at any time prior to the appraiser s completion of an appraisal report; (6) providing to an appraiser an anticipated, estimated, encouraged, or desired value for a subject property or a proposed or target amount to be loaned to the borrower, except that a copy of the sales contract for purchase transactions may be provided; (7) providing to an appraiser, appraisal company, appraisal management company, or any entity or person related to the appraiser, appraisal company, or appraisal management company, stock or other financial or non-financial benefits; (8) allowing the removal of an appraiser from a list of qualified appraisers, or the addition of an appraiser to an exclusionary list of disapproved appraisers, used by any entity, without prompt written notice to such appraiser, which notice shall include written evidence of the appraiser s illegal conduct, a violation of the Uniform Standards of Professional Appraisal Practice (USPAP) or state licensing standards, substandard performance, improper or unprofessional behavior or other substantive reason for removal (except that this prohibition will not preclude the management of appraiser lists for bona fide administrative reasons based on written, management-approved policies); (9) ordering, obtaining, using, or paying for a second or subsequent appraisal or automated valuation model (AVM) in connection with a mortgage financing transaction unless: (i) there is a reasonable basis to believe that the initial appraisal was flawed or tainted and such basis is clearly and appropriately noted in the loan file, or (ii) unless such appraisal or automated valuation model is done pursuant to written, pre-established bona fide pre- or post-funding appraisal review or quality control process or underwriting guidelines, and so long as the lender adheres to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value; or (10) any other act or practice that impairs or attempts to impair an appraiser s independence, objectivity, or impartiality or violates law or regulation, including, but not limited to, the Truth in Lending Act (TILA) and Regulation Z, or the USPAP. C. Nothing in this section shall be construed as prohibiting the lender (or any third party acting on behalf of the lender) from requesting that an appraiser (i) provide additional information or explanation about the basis for a valuation, or (ii) correct objective factual errors in an appraisal report. PAGE 9

10 II. Borrower Receipt of Appraisal The lender shall ensure that the borrower is provided a copy of any appraisal report concerning the borrower s subject property promptly upon completion at no additional cost to the borrower, and in any event no less than three days prior to the closing of the loan. The borrower may waive this three-day requirement. The lender may require the borrower to reimburse the lender for the cost of the appraisal. III. Appraiser Engagement A. The lender or any third party specifically authorized by the lender (including, but not limited to, appraisal companies, appraisal management companies, and correspondent lenders) shall be responsible for selecting, retaining, and providing for payment of all compensation to the appraiser. The lender will not accept any appraisal report completed by an appraiser selected, retained, or compensated in any manner by any other third party (including mortgage brokers and real estate agents). The lender may accept an appraisal prepared by an appraiser for a different lender, including where a mortgage broker has facilitated the mortgage application (but not ordered the appraisal), provided the lender: (1) obtains written assurances that such other lender follows this Code of Conduct in connection with the loan being originated; and (2) determines that such appraisal conforms to its requirements for appraisals and is otherwise acceptable. B. All members of the lender s loan production staff, as well as any person (i) who is compensated on a commission basis upon the successful completion of a loan or (ii) who reports, ultimately, to any officer of the lender not independent of the loan production staff and process, shall be forbidden from (1) selecting, retaining, recommending, or influencing the selection of any appraiser for a particular appraisal assignment or for inclusion on a list or panel of appraisers approved to perform appraisals for the lender or forbidden from performing such work; and (2) having any substantive communications with an appraiser or appraisal management company relating to or having an impact on valuation, including ordering or managing an appraisal assignment. If absolute lines of independence cannot be achieved as a result of the lender s small size and limited staff, the lender must be able to clearly demonstrate that it has prudent safeguards to isolate its collateral evaluation process from influence or interference from its loan production process. C. Any employee of the lender (or if the lender retains an appraisal company or appraisal management company, any employee of that company) tasked with selecting appraisers for an approved panel or substantive appraisal review must be (1) appropriately trained and qualified in the area of real estate appraisals, and (2) in the case of an employee of the lender, wholly independent of the loan production staff and process. IV. Prevention of Improper Influences on Appraisers A. In underwriting a loan, the lender shall not utilize any appraisal report: (1) prepared by an appraiser employed by: (a) the lender; (b) an affiliate of the lender; (c) an entity that is owned, in whole or in part, by the lender; or (d) an entity that owns, in whole or in part, the lender. (2) prepared by an appraiser (a) employed, (b) engaged as an independent contractor, or (c) otherwise retained by any appraisal company or any appraisal management company affiliated with, or that owns or is owned, in whole or in part by, the lender or an affiliate of the lender. PAGE 10

11 B. Section IV.A. shall apply unless: (1) the appraiser or, if an affiliate, the company for which the appraiser works, reports to a function of the lender independent of sales or loan production; (2) employees in the sales or loan production functions of the lender have no involvement in the operations of the appraisal functions and play no role in selecting, retaining, recommending, or influencing the selection of any appraiser for any particular appraisal assignment or for inclusion on a list or panel of appraisers approved to perform appraisals for the lender or forbidden from performing such work; (3) employees in the sales or loan production functions of the lender are not allowed to have any substantive communications with an appraiser, appraisal company, or appraisal management company relating to or having an impact on valuation or to be provided information about which appraiser has been given a particular appraisal assignment before completion of that assignment; (4) the lender, or its agents, and any appraisal company or appraisal management company providing the appraisal to the lender do not provide the appraiser any estimated or target value of the property or the loan amount applied for (except that a copy of the sales contract for purchase transactions may be provided); (5) the appraiser's compensation does not depend in any way on the value arrived at in any appraisal or upon the closing of the loan for which the appraisal was completed; (6) the lender and any appraisal company or any appraisal management company providing the appraisal to the lender has adopted written policies and procedures implementing this Code of Conduct, including, but not limited to, adequate training and disciplinary rules on appraiser independence (including the principles detailed in Part I of this Code of Conduct) and has mechanisms in place to report and discipline anyone who violates these policies and procedures; (7) the lender s appraisal functions are either annually audited by an external auditor or are subject to federal or state regulatory examination, and, unless prohibited by law, the lender promptly provides to Fannie Mae or Freddie Mac the results of any adverse, negative, or irregular findings of such audits and examinations indicating non-compliance with any provision of this Code of Conduct, whether or not the examination was conducted for the purpose of determining compliance with this Code of Conduct; and (8) the lender and any entity described in section IV.A. providing the appraisal to the lender recognize that, once the Independent Valuation Protection Institute is established, the Institute will receive complaints for review and referral regarding non-compliance with the Code of Conduct. Referrals and reports shall be made to Fannie Mae and/or Freddie Mac regarding such complaints and the Institute will provide information on the results of complaint reviews to Fannie Mae and/or Freddie Mac and make them available to the other parties to the Home Value Protection Program and Cooperation Agreement. C. In underwriting a loan, the lender shall not use an appraisal report prepared by an entity that is affiliated with, or that owns or is owned, in whole or in part by, another entity that is engaged by the lender to provide other settlement services, as that term is defined in the Real Estate Settlement Procedures Act, 12 U.S.C et seq., for the same transaction, unless the entity that provides the appraisal: (1) has adopted written policies and procedures implementing this Code of Conduct, including, but not limited to, adequate training and disciplinary rules on appraiser independence (including the principles detailed in this Code of Conduct) and has mechanisms in place to report and discipline anyone who violates these policies and procedures; (2) recognizes that, once the Independent Valuation Protection Institute is established, the Institute will receive complaints for review and referral regarding non-compliance with the Code of Conduct. Referrals and reports shall be made to Fannie Mae and/or Freddie Mac regarding such complaints and the Institute will provide information on the results of its review of such complaints to Fannie Mae and/or Freddie Mac and make them available to the other parties to the Home Value Protection Program and Cooperation Agreement. D. Notwithstanding the requirements herein, the lender also may use in-house staff appraisers to (i) order appraisals, (ii) conduct appraisal reviews or other quality control, whether pre-funding or postfunding, (iii) develop, deploy, or use internal automated valuation models, or (iv) prepare appraisals PAGE 11

12 in connection with transactions other than mortgage origination transactions (e.g. loan workouts), if it complies with the terms of this Code of Conduct. E. The provisions of this section do not apply to institutions (including non-banking institutions) that meet the definition of a small bank as set forth in 12 U.S.C. 2908, and which Freddie Mae or Fannie Mae determines would suffer hardship due to the provisions, and which otherwise adhere to this Code of Conduct. V. The Independent Valuation Protection Institute An Independent Valuation Protection Institute (Institute) shall be created as approved by the parties. Subject to section IX, when the Institute is established, the lender will provide information to appraisers and borrowers regarding the availability of the Institute's services, which are expected to include: (1) a telephone hotline and address to receive any complaints of Code of Conduct non-compliance, including complaints from appraisers, individuals, or other entities concerning the improper influencing or attempted improper influencing of appraisers or the appraisal process, which the Institute will review and report as provided in IV.B(8) and IV.C(2) of this Code of Conduct; and (2) the publication and promotion of best practices for independent valuation. The lender shall not retaliate, in any manner or method, against the person or entity that makes a complaint to the Institute. VI. Appraisal Quality Control Testing The lender agrees that it shall quality control test, by use of retroactive or additional appraisal reports or other appropriate method, a randomly selected 10 percent (or other bona fide statistically significant percentage) of the appraisals or valuations that are used by the lender, including the results of automated valuation models, broker s price opinions, or desktop evaluations. The lender shall provide to Fannie Mae or Freddie Mac a report of any adverse, negative, or irregular findings of such quality control testing, and any findings indicating non-compliance with any provision of this Code of Conduct, with respect to loans sold to Fannie Mae and Freddie Mac respectively, and the Enterprise may enforce all applicable rights and remedies, including requiring the lender to repurchase mortgages or the Enterprise s participation interest in mortgages. VII. Referrals of Appraisal Misconduct Reports Any lender that has a reasonable basis to believe an appraiser or appraisal management company is violating applicable laws, or is otherwise engaging in unethical conduct, shall promptly refer the matter to the applicable State appraiser certifying and licensing agency or other relevant regulatory bodies. VIII. Representations and Warranties A lender shall certify, warrant, and represent that the appraisal report was obtained in a manner in compliance with this Code of Conduct. If the Enterprise determines, on its own or from a referral made by the Institute, that a lender is in breach of a material aspect of this Code of Conduct or in violation of a provision of the Code by a complaint referred from the Institute, the Enterprise will enforce all applicable rights and remedies, including suspension or termination of the lender s eligibility to sell loans to the Enterprise, if the lender fails to remediate. IX. Scope of Code Nothing in this Code of Conduct shall be construed to establish new requirements or obligations that: (1) require a lender to obtain a property valuation, or to use any particular method for property valuation (such as an appraisal or automated valuation model) in connection with any mortgage loan or mortgage financing transaction; (2) affect the acceptable scope of work for an appraiser in connection with a particular assignment; or (3) require the lender or any third party acting on behalf of the lender to take any action prohibited by federal or state law or regulation. PAGE 12

13 Market Conditions Addendum (Form 1004MC) to the Appraisal Report Fannie Mae Announcement November 14, 2008 Selling Guides Amendments Appraisal-Related Policy Changes and Clarifications Introduction Due to current conditions in the real estate market, it is paramount that appraisers are provided with sufficient guidance to properly appraise and document the appraisal report. Fannie Mae recognizes the Uniform Standards of Professional Appraisal Practice as the minimum appraisal standards for the appraisal profession. In addition, Fannie Mae has established its own separate appraisal requirements to supplement the Uniform Standards. This Announcement addresses several new or updated appraisal-related requirements and clarifies several other existing policies to help underwriters make sound underwriting decisions when reviewing the appraisal report. The following topics are discussed: New or Updated Policies Implementation of the Market Conditions Addendum to the Appraisal Report (Form 1004MC) Use of supervisory appraisers Requirement to provide the sales contract to the appraiser Requirement regarding the appraiser s selection of comparable sales Clarification of Existing Policies Repair escrows for existing construction Research and reporting of the current and prior listings of the subject property Appraising the entire site of a property Time adjustments on the appraisal report Verification of a sales transaction Neighborhood boundaries and the selection of comparable sales Effective age of the subject property Utilizing the cost approach to value for insurance purposes Implementation of the Market Conditions Addendum to the Appraisal Report (Form 1004MC) Selling Guide, Part XI, Section : Trend of Property Values, Demand/Supply, and Marketing Time; and Section 203: Appraisal and Property Inspection Report Forms Fannie Mae purchases or securitizes mortgages in all markets and under all market conditions. The current appraisal report forms require the appraiser to report on the primary indicators of market condition for properties in the subject neighborhood by noting the trend of property values (increasing, stable, or declining), the supply of properties in the subject neighborhood (shortage, in-balance, or over-supply), and the marketing time for properties (under three months, three to six months, or over six months) as of the effective date of the appraisal. Fannie Mae also expects the appraiser to provide their conclusions for the reasons a market is experiencing declining market values, an over-supply of properties, or marketing times over six months. To further enhance the transparency of the conclusions made by the appraiser related to market trends and conditions, the Form 1004MC will be required for all mortgage loans delivered to Fannie Mae with appraisals of one- to four-unit properties with an effective date on or after April 1, A sample of the form is attached to this Announcement. In addition, the form is posted on efanniemae.com. PAGE 13

14 Guidelines for Using Form 1004MC The Form 1004MC is intended to provide the lender with a clear and accurate understanding of the market trends and conditions prevalent in the subject neighborhood. The form provides the appraiser with a structured format to report the data and to more easily identify current market trends and conditions. The appraiser s conclusions are to be reported in the Neighborhood section of the appraisal report. Fannie Mae recognizes that all of the requested data elements for analysis are not equally available in all markets. In some markets it may not be possible to retrieve the total number of comparable active listings from earlier periods. If this is the case, the appraiser must explain the attempt to obtain such information. Also, there may be markets in which the data is available in terms of an average as opposed to a median. In this case, the appraiser needs to note that his or her analysis has been based on an average representation of the data. Regardless of whether all requested information is available, the appraiser must provide support for his or her conclusions regarding market trends and conditions. Inventory Analysis Section The Inventory Analysis section assists the appraiser in analyzing important supply and demand factors in order to reach a conclusion regarding housing trends and market conditions. When completing this section, the appraiser must include the comparable data that reflects the total pool of comparable properties from which a buyer may select a property in order to analyze the sales activity and the local housing supply. One of the tools used to monitor these trends is the absorption rate. The absorption rate is the rate at which properties for sale have been or can be sold (marketed) within a given area. To determine the absorption rate, the appraiser divides the total number of settled sales by the time frame being analyzed. The months of housing supply is based on the total listings for the applicable period divided by the absorption rate. Example Step 1: Calculate the absorption rate. If there were 60 sales during a 6 month period (e.g., Prior 7 12 Months column), the absorption rate is 10 sales per month (60/6). Step 2: Calculate the months of housing supply. If there are 240 active listings, there is a 24-month supply of homes on the market (240 active sales/10 sales per month). This may support the appraiser s conclusion that there is an over-supply of homes on the market. Anomalies in the data such as seasonal markets, new construction, or other factors must be addressed in the form. Median Sale & List Price, DOM, List/Sale Ratio Section The appraiser must analyze additional trends, including the changes in median prices and days on the market (DOM) for both sales and listings as well as a change in list-to-sales price ratios. Example If the median comparable sale prices are $300,000, $295,000, and $305,000 for their respective time periods, the overall trend for the prior 12 months is relatively stable. Overall Trend Section The Overall Trend section is designed to reflect potential positive trends, neutral trends, or negative trends in inventory, median sale and list price, days on market, list-to- sale price ratio, and seller concessions. Example An increase in the absorption rate is generally viewed as a positive trend, whereas a decrease in the absorption rate may be viewed as a negative trend. Furthermore, a decrease in the number of days on the market, either sales or listings, more than likely represents an overall positive trend. Seller Concessions Form 1004MC also provides a section for comments on the prevalence of seller concessions and the trend in seller concessions for the past 12 months. The change in seller concessions within the market provides the lender with additional insight into current market conditions. The appraiser should consider and report on seller-paid (or third-party) costs. Examples of these items include, but are not limited to mortgage payments, points and fees, and in condominium or cooperative projects, items such as homeowners association fees and guaranteed rental programs. Seller concessions must be carefully analyzed by the appraiser since excessive concessions often lead to inflated property values. PAGE 14

15 There are a number of markets across the country where, due to current conditions, there has been an increase in the prevalence of seller concessions. The following excerpt from the Selling Guide, Part XI, Section (C) provides guidance for these circumstances: The need to make negative dollar adjustments for sales and financing concessions and the amount of the adjustments to the comparable sales are not based on how typical the concessions might be for a segment of the market area large sales concessions can be relatively typical in a particular segment of the market and still result in sale prices that reflect more than the value of the real estate. Adjustments based on dollar-for-dollar deductions that are equal to the cost of the concessions to the seller (as a strict cash equivalency approach would dictate) are not appropriate. We recognize that the effect of the sales concessions on sales prices can vary with the amount of the concessions and differences in various markets. The adjustments must reflect the difference between what the comparables actually sold for with the sales concessions and what they would have sold for without the concessions so that the dollar amount of the adjustments will approximate the reaction of the market to the concessions. For further information regarding seller concessions in the appraisal, refer to the Selling Guide, Part XI, Section 205 and Section (C) (for additional guidance not referenced above). Foreclosure Sales and Summary/Analysis of Data The presence and extent of foreclosure/reo sales is worthy of comment when analyzing market data and must be reported on the form. The form also allows for the appraiser to summarize the data and provide other data analysis or additional information, such as analysis of pending sales, which over time can show a market trend. Use of Supervisory Appraisers Selling Guide, Part XI, Section : Use of Supervisory or Review Appraisers Fannie Mae defines the appraiser as the individual who personally inspected the property being appraised, inspected the exterior of the comparables, performed the analysis, and prepared and signed the appraisal report as the appraiser. Fannie Mae allows an unlicensed or uncertified appraiser who works as an employee or subcontractor of a licensed or certified appraiser to perform a significant amount of the appraisal (or the entire appraisal if he or she is qualified to do so) as long as the appraisal report is signed by a licensed or certified supervisory or review appraiser and is acceptable under state law. This policy is updated to now require that if a supervisory appraiser signs the appraisal report as the appraiser, the supervisory appraiser must have performed the inspection of the subject property. Requirement to Provide the Sales Contract to the Appraiser Selling Guide, Part XI, Chapter 2: Appraisal (or Property Inspection) Documentation Fannie Mae requires the lender to ensure that it provides the appraiser with all appropriate financing data and sales concessions for the subject property that will be, or have been, granted by anyone associated with the transaction. Typically this information is contained in the sales contract; however, Fannie Mae currently does not require that the lender provide the appraiser with the sales contract. Fannie Mae is adding the requirement that lenders must provide the appraiser with the sales contract and all addenda, therefore ensuring that the appraiser has been given the opportunity to consider the financing and sales concessions in the transaction and their effect on value. If the sales contract is amended during the process, the lender must provide the updated contract to the appraiser. Requirement Regarding the Appraiser s Selection of Comparable Sales Selling Guide, Part XI, Section : Selection of Comparable Sales The Selling Guide states that when a property is located in an area in which there is a shortage of truly comparable sales either because of the nature of the property improvements or the relatively low number of sales transactions in the neighborhood the appraiser may need to use as comparable sales properties that are not truly comparable to the subject property or properties that are located in competing neighborhoods. If the appraiser utilizes comparable sales outside of the subject s neighborhood when closer comparable sales appear to be available, Fannie Mae is adding a requirement that the appraiser provide an explanation PAGE 15