New residential appraisal forms are making it easier to detect mortgage fraud.
The 11 revised appraisal report forms Fannie Mae announced in March became a requirement on appraisals requested Nov. 1 and thereafter for loans delivered to Fannie.
So far, the new forms have been “getting very positive feedback,” Mark Simpson, Fannie director of property standards, told MortgageDaily.com.
Key modifications that benefit lenders are the “reformatting, consolidation, and the appraiser’s accountability for quality of the report,” the director said. The appraisal requirements are not new, as the forms still require that appraisers comply with Fannie’s requirements and Uniform Standard Professional Appraisal Practices, but Fannie redesigned the forms to make it more “explicit” or “more clearly communicate to the appraiser what our expectations are.”
According to Bruce Morris, vice president of quality control for Saxon Mortgage Services Inc., overvaluing properties is “still the largest single problem we have in the mortgage industry,” when it comes to fraud. He believes “that every loan in every portfolio in this country is overvalued by a minimum of 15 percent” and that this scenario will worsen as rates rise.
The new forms have direct questions requiring the appraiser to report analysis and conclusions on key areas in a “clear and succinct yes/no format.” The answers should address whether the subject property is currently offered for sale or was in the 12 months prior to the appraisal; if the appraiser analyzed the contract for sale of the property for a purchase money transaction; whether the property has any adverse physical deficiencies or conditions such as needed repairs and whether they affect things such as the livability or structural integrity of the property; if the property conforms to the neighborhood; and whether the “appraiser researched, analyzed and reported on the sale (or transfer) history for the subject property and comparable sales.” according to Fannie’s March announcement.
“The [Uniform Standard Professional Appraisal Practices] currently requires to analyze sale history but by more exclusively addressing it reinforces what the appraiser is expected to do,” Simpson said.
“There has been a lot of people positioning this as to stop fraud,” he added. “It’ll clearly communicate when an appraiser has committed fraud. When it comes to reviewing appraisers and the quality assurance that lenders do, it will make it easier on that perspective.”
Related questions are asked repeatedly throughout the current forms. Because of concern in property flipping, by requiring the appraiser to report sales history and other relevant information on a consistent format enforces appraiser to analyze price trends, Simpson said.
The stricter forms also replace the need to use a certain form depending on how the loan is underwritten. “Now we have one form for one appraisal and property type regardless of whether a loan is processed manually or in Desktop Underwriter,” the director added.
The revised forms, which “most lenders are reacting very positively to,” make “it more user-friendly for lenders to review information and underwrite property,” which should translate to savings for them, Simpson said.
Freddie Mac, another government sponsored housing enterprise, will make the new appraisal reporting requirements mandatory on Jan. 1, 2006.
At that time, Federal Housing Administration lenders will also be required to use four of the new forms. The Department of Housing and Urban Administration recently announced it would streamline appraisal procedures by adopting the new property reporting requirements of Fannie and Freddie, as these satisfy any concerns regarding the physical property conditions of a home, and serve to estimate property market value.
