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Fannie Mae Sellers Appraisal Risk Management Policy Reminders and Resources.

This Lender Letter is full of great information for appraisers and lenders to help them better understand how Fannie’s Collateral Underwriter (CU) program functions when reviewing and scoring our appraisals. CU scores our appraisal with a 1 to 5 rating with 1 being the least risky.  A file rating higher than 2.5 triggers several issues for a lender.  Here is just a sampling of what this Lender Letter covers.

The five most common appraisal significant defects with a CU risk score of 2.6 or higher are:

  • Inappropriate Comparable Sale(s) Selection Due to Location
  • Inappropriate Comparable Sale Adjustment(s)
  • Use of Physically Dissimilar Comparable Sale(s) – Gross Living Area
  • Use of Dissimilar Comparable Sale(s) – Site Characteristics
  • Failure to Adjust Comparables

A score under 2.6 still doesn’t mean the lender has nothing to worry about regarding the content and conclusions within the appraisal.  

The five most common appraisal findings with CU risk scores of 2.5 or lower that lenders remain responsible for (not covered by value rep and warrant relief) are:

  • Subject Physical Features Reported Inaccurately – Condition / Quality of Construction
  • Subject View or Location Reported Inaccurately
  • Failure to Report or Analyze the Subject Sales History
  • Wrong Form for the Property or Transaction Type
  • Subject Physical Features Reported Inaccurately – gross living area

Inaccurate reporting of subject property characteristics including the condition or quality of the subject can invalidate the lender’s relief from representations and warranties on property value.

How many appraisers continue to receive requests from AMC's to insert language that your appraisal complies with the AIR (Appraisal Independence Requirement)?  They shouldn’t be asking you to make that determination because it is the lenders responsibility to make sure that they do not interfere with our independence.  Here is Fannie’s direction on AIR:

The purpose of Appraiser Independence Requirements (AIR) is to ensure that lenders do not interfere in the professional judgement of the appraiser. Appraisers are not responsible for AIR compliance – in fact, lenders are the responsible party for AIR compliance. AIR should protect the appraiser from pressure from the lender.

This is still a BIG industry problem. During 2020, 25% of the lenders reviewed were cited for non-compliance.

The Letter goes on to specifically define what a lender or an AMC shouldn’t do to avoid non-compliance with AIR.  We would urge all appraisers and lenders to read this Lender Letter to help further educate them on how CU functions and how to comply with all AIR requirements of the GSE’s.