23rd October 2013

GSEs Still Finding Problems with Home Appraisals

posted in Appraiser News |

Re-posted from Appraisal Institute

Three years after the creation of a database seeking to standardize the home appraisal process, Fannie Mae and Freddie Mac continue to see major issues in numerous appraisals submitted by mortgage lenders, American Banker reported Sept. 12.

Fannie Mae conducted a sampling of appraisals and determined that 17.6 percent contained contradictory information, typically pertaining to the condition or quality of the property, Robert Murphy, the GSE’s director of collateral and single-family risk policy, told a Phoenix conference of risk managers. He added that those two factors are the most important in determining a property’s value.

Elevated appraisals contributed to the housing market collapse because lenders frequently pressured appraisers to place artificially high values on properties, which helped increase home prices.

Murphy’s comments followed similar remarks from an official at the Office of the Comptroller of the Currency, who that same day told conference attendees that banks have been lax in their oversight of appraisers, American Banker reported.

The Federal Housing Administration, which oversees the GSEs, estimated that approximately 35 percent of repurchases that require lenders to buy back a loan are tied to faulty appraisals.

Murphy told conference attendees that Fannie will give guidance to lenders next month regarding ways to decrease appraisal conflicts.

“We want accurate data and accurate property values,” Murphy said, American Banker reported.”For years, no one was looking at appraisals. But now we can see things. We want to make sure a property meets adequate appraisal requirements and that the appraisal accurately reflects market value.”

In 2010, the GSEs established the Uniform Mortgage Data Program to provide standard requirements for appraisal and loan data. Mortgage lenders have to provide information via an online portal so the GSEs can identify issues and reject them prior to origination.

Fannie and Freddie have been telling lenders about the appraisal problems that need to be fixed, according to Murphy.

“Just because a lender uses an appraisal management company, doesn’t relieve them of responsibility as a lender selling to us,” Murphy said, according to American Banker. “At the end of the day, the lender is responsible.”

Murphy added that Fannie has been regularly reporting these issues to state appraisal boards that license and oversee appraisers.

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