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It has been said that progress is impossible without change. If that is true, the appraisal industry should be cruising at optimal speed on the road of progress. Fannie Mae has made several modifications to appraisal report requirements over the past three months, and appraisers have been struggling to adjust as they attempt to maintain a universal code of standards. While many of the new regulations are not HUD-mandated, they will likely have an impact on HECM appraisal documents as might they change how appraisers approach specific situations in the future.
Just before the new year, Fannie Mae made two significant modifications to report requirements. The first is the elimination of the 15 percent net and 25 percent gross adjustment thresholds related to comparable sales provided in the Sales Comparison Approach on the appraisal report. This change comes after analytical efficiencies were realized as a result of the Uniform Appraisal Dataset (UAD) standardization and Uniform Collateral.
The Uniform Collateral Data Portal (UCDP) process allows for an in-depth analysis of trends associated with these thresholds. It was found that more than 94 percent of the comparable sales utilized on appraisal reports fell below these thresholds, raising concerns that applied adjustments were inaccurate, and that some adjustments may be artificially low and not necessarily a true reflection of market reaction. The premise is that the removal of these thresholds will allow appraisers the freedom to focus on and apply truly appropriate market-based adjustments. HUD has not announced any modification to its guidelines requiring the same 15 percent net and 25 percent gross adjustment thresholds; they are still applicable on HUD-related appraisal reports—for now.
Fannie Mae’s second modification at the end of last year is related to solar panels. New guidelines now restrict an appraiser’s ability to give solar panels value consideration when the equipment is not owned by the borrower. In the event that the equipment is covered by a solar lease or power purchase agreement, value consideration restrictions apply. While HUD has not released its own restrictions regarding solar panels, it is highly likely that appraisers will apply similar consideration on HUD-related reports.
Finally, Fannie Mae’s most significant appraisal-related modification was made in February with the rollout of its Collateral Underwriter (CU) tool. CU provides automated appraisal-risk assessment to support the proactive management of appraisal quality. It leverages extensive amounts of property data, market sale data, and key appraisal report components collected through efficiencies associated with UAD standardization and UCDP appraisal report collection. It provides various flags, messages and an overall appraisal risk score as part of current UCDP reporting processes.
CU also generates alternative comparable data from its database and assesses individual line adjustments applied on the appraisal report against adjustments that were applied by peer appraisers in that specific market. While CU is not specifically associated with HUD-related reports, it will most likely modify the writing style of most appraisers as they attempt to be more substantive in their commentary about comparable sales, quality and condition ratings, and carefully weigh the adjustments applied to comparables. As such, I would expect to see a more robust writing style in future HUD-related appraisal reports.
