Residential Appraising What Lenders Want

Introductions Ken DeFeo 25 years appraising have worked for lenders for 20 years Lets get to know a little about the audience How many appraisers do we have? How many collateral evaluators do we have? Explain the day s events

Mandatory Reporting

Customary and Reasonable Fee s The appraiser can ask for more but it has to be justified August 1, 2015 Know before you owe will this impact how lenders pay? If the GFE changes there has to be a legitimate reason, if not the bank has to eat the cost What do your peers charge for similar assignments

CFPB Consumer Financial Protection Bureau

CFPB TILA RESPA Intergraded Disclosures (TRID) Why did TRID come about Primary reason, to simplify fees on the disclosure and stop bad practices within our industry to protect the borrower. TRID how does this affect you and your business Adjustments of the appraisal fee late in the process cannot be charged back to the borrower. The rule, if you were aware upfront it cannot be re-adjusted, if something comes up that was not known then it is possible to adjust after the fact. Lenders don t want to eat additional fee s so you can help by doing some due diligence upfront to help you and your client/lender.

GSE requirements on the Bank Defects on appraisals can cost the bank/lender time and money Defects can cost money and reputation QC process Fannie, Freddie and the bank QC your work it is reviewed by more people then you might think FNMA & FHLMC Exclusionary List Panel Selection / Separation of duties Who do you communicate with and why The appraisal cannot be placed/ordered by sales or operations direction should be provided by the independent ordering source and not anyone from production. FNMA & FHLMC AIR - who do the GSE s control, what the bank can and cannot do. There is required QC that is mandatory that is reported back to the agencies. They now can view your reports due to UCDP. Appraisers cannot be referred to the panel based on someone from Sales, Operations or a director. The assignment of appraisals cannot be done by those compensated by the funding of the loan

Collateral Underwriter (CU) What does CU mean to you, lets talk with those that use it for their organizations Panel Discussion Participants

Collateral Underwriter (CU) Is it a tool or decision maker? Is this good for the industry or does it harm the industry? Should you as the appraiser be concerned? What will get you a letter from FNMA?

Collateral Underwriter (CU) These are warning flags to a lender, they should be understand and effectively used. Asking the appraiser to know what another appraiser is using as a rating is not the purpose of the tool.

Collateral Underwriter (CU)

Profession or a Job Communication with the borrower Attire (What is expected from the Bank/Lender) What to say while on site What not to say on site or off site Good first impression starts with an introduction call How you look when on-site - being cordial but professional. Being influenced when on site call the hot line to report issues the practice of excepting borrower/agent comps being influenced or not? Look at every assignment as an interview to the next. If being interviewed for a job you talk and discuss relevant issues and you do not normally interject personal, faith or political issues.

Profession or a Job Investing In Yourself and Your Business Member of Multiple Listing in your areas of service. Continuing Education and being up to date with current laws, codes, and regulations. Are you taking the best courses available? Live or Online? Subscribe to all sales data for the area. Do you have Google Earth and know how to use it? Are you familiar with the local planning/zoning offices? Do you have the most recent software available? Have you visited model homes for new developments in your areas of service? Do you go the extra mile or just cross the finish line? Why should we use your company vs. your competition? What is more important to you Quality, Quantity, or Turn times? Do you ever stop learning?

Best Practices Unpermitted Areas/additions Our guidance has always been for you to reach out and verify. If public record and your measurements are different and there is a noticeable add-on then please confirm with the city or county (or whoever has jurisdiction) to see if permits were pulled and or finaled, please report on what you find. If there are no permits then make the report subject to lender verification of permits, if there are permits then report on that. If you know there is an add-on and public record shows it as recorded then there is no need to research unless you feel you should. A comment around workmanlike manner or stating it conforms in quality of construction to the original structure and is of similar materials is needed to assist the Underwriter on assessing the collateral. Converted Garages If a garage has been converted to living space please note the specifics of what it is being used for. If being used as sleeping quarters then is there proper egress? If being used as a separate living space is there any health and safety issues due to the installation of gas appliances? You re our eyes and ears on site, we need photos and an understanding of what it is being used for.

Best Practices Any adverse issues Please make comments that address anything which is deemed adverse about the subject property (eg: Age restricted properties (55 and older), Non-conforming use, Work in progress to the home etc. Always discuss the Value & Marketability issues (addressed by sale(s) XXX due to the same restriction, use etc ). We find our Underwriters are looking for these types of statements. As appraisers we feel this is addressed by the mere fact of our comparable selection and adjustments but an Underwriter is looking for the comment. Smoke Detectors, CO detectors, water heater straps California only (or in areas where you know it s law) Starting now, we need you to comment on the existence of smoke and CO detectors and provide photos of them. If the water heater is not properly strapped or up to code just comment to that fact. If the detectors are none existent and or the water is not properly strapped please make the report As Is and comment on the deficiencies, Union Bank will handle from there.

Best Practices Adjustments - Always provide a reason why more similar comparables are not available on any of the following excesses- 10% line item, 15% net, 25% gross adjustments; greater than a mile distances; use of dated sales (more than six months); wide adjusted sale price range or gross living area range between the comparables. Any divergence from common guidelines established by FNMA warrant additional commentary in the report. Photos Please avoid providing photos that show occupants of the home. Also try to avoid family portraits / photos if possible. Lenders required photos are of all main living areas, kitchens, baths, some bedrooms, out buildings, amenities or as directed above. Any comments regarding deferred maintenance or damage will also require a photo to show the extent of the problem Comments verses Explaining 3 principles of reporting, explain, explain and explain

Scorecarding Things lenders look at: Do you return the original assignment promptly Do we have to ask you to correct items Do we have to ask you to reconsider your opinions and or conclusions Is there a serve lack of commentary requiring clarification Do you respond to correction requests timely How timely are you with Appeals/Value concerns How do you respond to Appeals /Value concerns How often do you ask for more fee How often do you decline assignments and what type of assignments How often do you ask for more time to complete the assignment Though an engagement letter always has a due date you can always submit it earlier. Just because we are not working on the weekends or holidays that doesn t mean you can t send the appraisal back during those hours. Lenders are looking for those that are will to work with them. They want people that are responsive and cooperative. That doesn t mean do what we ask, it means work with us to resolve concerns in a timely manner.

Worst Practices - Most Common issues Standard language / Can statements Many pages of filler addenda s not specific to this assignment Marking see addenda on the form and then there is nothing in the addenda or its buried and you can t find it. UAD Page 1 stating no updates within 15 years yet the home is new just comment this becomes a customer service issue Reconciliation Equal weight to all pretty rare you have 3 sales that are so similar to the subject that this is accurate Comments addressing negative factors Legal nonconforming, which other sales are the same? Always need to point to something within the appraisal 1004mc verses page 1 if not similar explain it the 1004mc needs to be about competing properties.

Worst Practices - Most Common issues Time adjustments understand how to calculate and over what period of time. Bracketing; adjusted/unadjusted, Living area, lot size etc. comment when you can t Analyze not comment You need to provide insight not just note it if not enough data to form an opinion then state it Public Record Comments when data is inconsistent with what is found on-site, you may need to research to form a creditable opinion

Worst Practices - Most Common issues From FNMA

Worst Practices - Most Common issues From FNMA The Appraiser s Role in the Appraisal Process Unacceptable Appraisal Practices 1.1. Development of and/or reporting an opinion of market value that is not supportable by market data or that is misleading. 2.2. Development of a valuation conclusion that is based either partially or completely on the sex, race, color, religion, handicap, national origin, or familial status of either the prospective owners or occupants of the subject property or the present owners or occupants of the properties in the vicinity of the subject property; or that is based on any other factor that local, state, or federal law designates as being discriminatory, and thus, prohibited. 3.3. Misrepresentation of the physical characteristic

Worst Practices - Most Common issues From FNMA Unacceptable Appraisal Practices 4. Failure to comment on negative factors with respect to the subject neighborhood, subject property, or proximity of the subject property to adverse influences. 5. Failure to adequately analyze and report any current contract of sale, option, offering, or listing of the subject property and the prior sales of the subject property and the comparable sales; 6. Selection and use of inappropriate comparable sales or the failure to use comparable sales that are the most similar in location and physical characteristics to the subject property. 7. Creation of comparable sales by combining vacant land sales with the contract purchase price of a home that has been built or will be built on the land.

Worst Practices - Most Common issues From FNMA Unacceptable Appraisal Practices 8. Use of comparable sales in the valuation process even though the appraiser has not personally inspected the exterior of the comparable properties by, at least, driving by them. 9. Use of adjustments to the comparable sales that do not reflect the market s reaction to the differences between the subject property and the comparable sales, not supporting the adjustments in the sales comparison approach, or the failure to make adjustments when they are clearly indicated. 10. Development of and/or reporting an appraisal in a manner that is inconsistent with the requirements of the Uniform Standards of Professional Appraisal Practice that were in place as of the effective date of the appraisal.

Worst Practices - Most Common issues From FNMA Unacceptable Appraisal Practices 11. Use of data particularly comparable sales data that was provided by parties who have a financial interest in the sale or financing of the subject property without the appraiser s verification of the information from a disinterested source. (For example, it would be inappropriate for an appraiser to use comparable sales provided by the real estate broker who is handling the sale of the subject property, unless the appraiser verifies the accuracy of the data provided with another source and makes an independent investigation to determine that the comparable sales provided were the best ones available.) 12. Development of and/or reporting an appraisal in a manner or direction that favors either the cause of the client or any related party, the amount of the opinion of value, the attainment of a specific result, or the occurrence of a subsequent event in order to receive compensation and/or employment for performing the appraisal and/or in anticipation of receiving future assignments.

Worst Practices - Most Common issues Not analyzing relevant information discovered during research. Inappropriate selection of comparable sales. Multitude of errors and omissions. Conflicting information regarding neighborhood characteristics, market information. Failure to disclose extraordinary assumption or hypothetical condition. Failure to provide property characteristics. Failure to provide property income and rental information. Lack of geographic competency. Inability to perform the assignment due to complexity It s OK to say no to the assignment. Failure to cooperate or respond to the state agency during the course of the investigation. Allowing an appraiser to use signature.

Worst Practices - Most Common issues Acting as the appraiser and signing an appraisal report for another appraiser without inspecting the property, verifying information, etc.. Supervising an appraiser and not reviewing the reports or personally inspecting the property when signing that they did inspect Continuing to appraiser after expiration or revocation of their license. Appraisal Fraud Awareness Fannie Mae believes the likelihood of fraud or misrepresentation increases when lenders are not able to confirm the owner of the subject property based on publicly available information. Confirming and documenting the current owner of the property based on publicly available information as part of the loan origination process helps to ensure a meaningful analysis of the sale or transfer history of the subject property.

Supplemental information Examples of acceptable documentation confirming the current owner include, but are not limited to, the following: Appraiser s analysis and conclusions in the appraisal report, Copy of a recorded deed or mortgage, Recent property tax bill or tax assessment notice, Title report, Title commitment or binder, or Property sale history report.

Case Studies Case # 1 Making sense of the 1004MC

1004 MC

CASE #2 We are Residential appraisers

RED Flags DOM Location

Property Use??

Should this concern you???

Headaches for you and the lender

Support your adjustments

The only one that supports it the highest sale, is there something else??red Flag???