What will Fannie and Freddie Allow (1) - Vermont … and Freddie Allow Vermont Symposium October 29,...

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What Will Fannie Mae and Freddie

AllowVermont Symposium

October 29, 2015

Time: 1:45 AM until 3:45 pm

2015 Copyright Adomatis Appraisal Service 1

Sandra K. Adomatis, SRA, LEED Green Associate

• Author• Real Estate Appraiser – SRA

Designation with Appraisal Institute

• REALTOR• Appraisal Institute Instructor• LEED Green Associate – U.S.

Green Building Council• National Speaker on High

Performance Houses

[email protected] Copyright Adomatis Appraisal Service 2

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Learning Objectives

When you finish this session you will be able to

Identify competency requirements

List Dodd-Frank appraiser-real estate agent communication rules

Describe the process of challenging an appraisal

Define methods for supporting adjustments and appraisal challenges


How is Competency Attained

• Quality• 14+ Hours for EE/HP*Education

• Appraisal• ConstructionExperience

• Work with competent appraiser

Co-Appraiser

*E.E.= Energy Efficient or HP = High Performance Properties2015 Copyright Adomatis Appraisal Service

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Appraiser Misconceptions

USPAP says I can accept the assignment and gain competency prior to completing the report.

Really?


Competency Requirements

Fannie Mae

Freddie Mac

FHA VA

Prior to Accepting Assignment

YES YES YES NO

Prior to Completion of Assignment

NO NO NO YES

These rules are for federally related mortgage transactions.2015 Copyright Adomatis Appraisal Service 6

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Appraisal Institute Green Registry

Find an appraiser w/education completed

http://www.appraisalinstitute.org/education/your-career/professional-development-programs/

2015 Copyright Adomatis Appraisal Service7



How does an appraiser get on the residential green appraiser registry?

• Take the first three courses listed on the prior slide

• Pass the exam for each course


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Can I take the courses on line?

The first two courses are currently on line. The solar and commercial courses are not on line yet.




You have to be a designated member of the Appraisal Institute to be on the green registry. True or False

FALSE

2015 Copyright Adomatis Appraisal Service

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Dodd-Frank Says Appraiser Cannot Talk to

You

A Myth!


`(c) Exceptions- The requirements of subsection (b) shall not be construed as prohibiting a mortgage lender, mortgage broker, mortgage banker, real estate broker, appraisal management company, employee of an appraisal management company, consumer, or any other person with an interest in a real estate transaction from asking an appraiser to undertake 1 or more of the following:

`(1) Consider additional, appropriate property information, including the consideration of additional comparable properties to make or support an appraisal.`(2) Provide further detail, substantiation, or explanation for the appraiser's value conclusion.`(3) Correct errors in the appraisal report.

Dodd-Frank Section 129E. Appraiser Independence Requirements say..


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What is AIR?

Appraiser Independence Requirements


What does AIR say?

• No one shall influence or attempt to influence the development, reporting, result, or review of an appraisal

• Requires lender to provide borrower a copy of the appraisal report three days prior to closing or sign waiver


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All Appraisers on Our Rotation List are Competent

• If the lender discovers they do not have a competent appraiser on their list, what next? Can they select an appraiser off their list?

Yes, but you cannot name the appraiser!


Can clients consider appraisal designations in the

appraiser hiring process?

Yes. H.R. 4173 specifically states:

“Membership in a nationally recognized professional appraisal organization may be a criteria considered, though lack of membership therein shall not be the sole bar against consideration for an assignment under these criteria.”


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Does Dodd-Frank or any pre-existing appraisal

requirement require lenders or AMCs utilize rotational panels in making appraisal

assignments?


“No, Dodd-Frank nor any other pre-existing appraisal requirements require the use of a rotational list of approved appraisers by lenders and AMCs. Appraisers should not be selected for an assignment just because they are “next on the list.” Further, lenders are under no obligation to expand the number of appraisers on their appraiser panels as a result of these requirements.”


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“Instead, lenders and AMCs should select the appraiser on their panel that is most qualified and competent with the local market in which the property is located, must be competent to appraise the subject property, and must have access to the data sources necessary to develop credible appraisal.”


How Does Fannie Mae Define an Energy Efficient Property

Page 6032015 Copyright Adomatis Appraisal Service

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The value may be behind the walls… You need documents..


Lenders’ Vision of Energy Efficiency

“The property is located in Long Beach for which there is minimal climate change, therefore the value for energy efficiency is less probable than a home in the desert.”Source: Actual statement from a lender regarding validity of an energy efficient adjustment.


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HUD Handbook 4000.1

Page 4612015 Copyright Adomatis Appraisal Service

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(d)Adjusting Comparable Properties

(i) Standard

Calculation of the Contributory Value includes methods based on the:

• direct sales comparison approach;• cost approach; and• Income approach.

Appraisal Requirements

Value must be supported –

Appraisers do not add value –market determines

Support is more than a statement

Appraisal must meet secondary mortgage market guidelines


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Appraisal Requirements

Value must be supported –

Cost alone cannot be the basis for value – secondary mortgage market guideline

Databases must be accurately populated with energy/green fields

Databases must be accessible


Can you challenge an appraisal?


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Appraisal Cannot Be Challenged-

True or False?

False


First, Avoid Having to

Challenge the Appraisal by

Sailing through the process….


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First Avoid Having to Challenge the Appraisal

by….

Communicate with the lender-alert need for competent appraiser

Provide completed copy of AI Residential Green and Energy Efficient Addendum to lender and make additional copy for appraiser



by….

Attach energy reports and/or green ratings to the Addendum


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by…. When appraiser calls to make appointment to

inspect, ask them questions to achieve a level of comfort regarding competency

Have they ever appraised a high performance house?

Have they taken AI Green Education?

How many hours education have they taken?

Are they familiar with the AI Residential Green & EE Addendum?



by…. If they have not appraised a high performance

house before and never taken education. What next?

Tell appraiser you will need to call them back with appointment information.

Call lender and voice your concerns- NOW

Provide any known arm’s-length sales that would meet secondary mortgage market guidelines to appraiser


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When is it appropriate to challenge appraisal?

After the borrower receives the appraisal and you have both reviewed the appraisal and…

Documented any errors of fact

Provided support for identifying the errors

The review should be done in writing & highlighting the places on the report that are not correct.

Submit the written review and documents to prove your case in writing to the LENDER.


When is it appropriate to challenge appraisal?

Do NOT call the appraiser after the appraisal is complete! The appraiser owes confidentiality to the client, THE LENDER.

It is the lender’s job to address the concerns with the appraiser and try to resolve them expediently.


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Lender’s Options for addressing a deficient

appraisal report.

• Contact the appraiser to address the deficiencies

• Obtain a desk review or a field review of the original appraisal report

• Obtain a new appraisal of the subject property

Ordering A New Appraisal

Lender must document sufficient reason to order a new appraisal.

Value indication by second appraisal must be the one the lender uses.

Borrower incurs second appraisal fee


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Unacceptable Appraisal Practices

Discrimination in an appraisal report

Fraud/misrepresentation about the subject

Fraud/misrepresentation about the comparables

Bias in an appraisal report

USPAP violation2015 Copyright Adomatis Appraisal Service 37

AI Residential Green & E.E. Addendum

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The direct link for the fillable PDF “AI Residential Green and Energy Efficient Addendum” is http://www.appraisalinstitute.org/assets/1/7/Interactive820.04-ResidentialGreenandEnergyEffecientAddendum.pdf

• Appraisers• Builders• Real

Estate Agents

• Energy Raters

• Sellers


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AI Res. Green & E.E. Addendum Benefits…

Notice to lender and/or AMC that appraiser with competency is required

Notice to Appraiser that the house has special features requiring competency and special documentation

Supplements the 1004 Appraisal Report Form that does not address these features



Provides Appraiser with an inspection sheet and key to identifying “comparable sales”

Assists real estate agents in identifying the special features of the house and becomes a brag sheet for the seller

Assists the buyer in their decision-making


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AI Res. Green & E.E. Addendum Attachments

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• Complete HERS Index Report

• Plans and specifications• Green Rating if applicable• Listing sheet



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• Lender is required to provide• Full executed contract• All Addendums to

Contract• Energy Reports or

drawings provided by borrower/builder


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• Lender is required to provide

• Full executed contract

• All Addendums to Contract

• Energy Reports or drawings

provided by borrower/builder



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Builders: Attach appropriate plans and specifications


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Review of the Valuation Toolbox

Cost Approach (Depreciated)

Income Approach

Sales Comparison Approach

Market Studies (Appraiser driven)


Paired-Data AnalysisSale 1 Sale 2

Sale Date 3/26/2015 2/4/2015

Sale Price $235,000 $252,000

Site Size 11,240 SF 9,000 SF

Room Count 7/3/2 + 2,500 6/3/2.5

Gross LivingArea/SF

1,580 +2,500 1,710

Age 2 4

Adjusted Sale Price

$240,000 $252,000

HERS Index 75 12,000 42

Adjusted Sales Price

$249,500 $252,000

Compares two similar properties to extract value of energy improvements. Sale 2 Sales Price $252,000 – Adjusted Sales Price of Sale 2 before making energy efficient adjustment $240,000 = $12,000 adjustment for EE.


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Paired-Data AnalysisAppraisedProperty

Sale 1 Sale 2

Sale Date 5/1/2015 3/26/2015 2/4/2015

Sale Price $250,000 $235,000 $252,000

Site Size 12,000 SF 11,240 SF 9,000 SF

Room Count

7/3/2.5 7/3/2 + 2,500 6/3/2.5

Gross LivingArea/SF

1,650 1,580 1,710

Age 3 2 4

Home Energy Score

50 75 12,000 42

Other 2-car garage

2-cargarage

2-car garage

Adjusted Sales Price

$249,500 $252,0002015 Copyright Adomatis Appraisal Service 47

Depreciated Cost

Cost New of Energy Improvement Items $17,500

Depreciation from all forms of loss

3 yrs old/23 yr life expectancy = 13%

13% x $17,500 - 2,275

“As Is” (Depreciated Value of Energy Imprv) $15,225

(23 year life expectancy based on Marshall & Swift Res. Handbook life of energy features. 2015 Copyright Adomatis Appraisal Service

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Income ApproachHP12 C

20 N – Number of years features will last (physical life) (23 yr

life less actual age of 3 years)

5 (%) I - Discount Rate – based on mortgage rate plus 1%

$850 PMT - Annual savings amount (based on Home Energy

Score)

Press PV - Should give present value or

$ 10,600 rd

(It will show as a minus-press CHS for change sign)

(Uses Annual Compound Interest rate of 5% based on

mortgage rate plus 1% for risk factor)2015 Copyright Adomatis Appraisal Service 49

Income Approach and Fannie Mae

Fannie Mae does not encourage the use of the present value of energy savings as support for energy efficiency.

HUD allows this method

USPAP allows all applicable methods


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Income Approach GRM

Fannie Mae’s Preferred Income Approach

Monthly RentAppraiser finds rents of Energy Efficient Houses $1,200Appraiser finds rents of similar non-EE Houses $1,100

Difference in rents (income) $ 100

Appraiser finds Gross Rent Multipliers of EE Houses Sale Price of EE House $110,000 / Monthly Rent $1,200 = 91.7

Indicated Value of Energy Efficient Items Using GRM

91.7 GRM x Rent attributed for EE $100 = $ 9,170 2015 Copyright Adomatis Appraisal Service 51

Income Approach GRM

• Fannie Mae prefers this method

• HUD allows this method


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Tests of ReasonablenessOverview of Methodology to Value Energy Efficient FeaturesPaired-Data Analysis $12,000

Depreciated Cost $15,225

Income Approach (GRM) $ 9,170

Income Approach (PV) $10,600

Reconciliation: All methods form a reasonable value range for the energy efficient features. The depreciated cost method deserves the least consideration because the estimate of depreciation has most room for error. The Paired-Data and Income Approach closely point to $12,000 and deserve the most consideration because the Paired-Data Analysis is directly from sales in this market. The Income Approach closely represents buyers thinking on savings from energy improvements.


What does USPAP say about methods used?


• Appraiser must employ proven methods to produce a credible report.

• USPAP does not identify every method required for every report.

• Appraiser is the analysis and should make the decision on what methods are appropriate to produce a credible report.

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Why Tests of Reasonableness


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• Provides more than one method

• Strengthens the credibility of the adjustment

• Shows diligence on part of appraiser

• Underwriters are less likely to question

adjustment when this much support is

provided.

What’s the problem with providing this much data?


• More time consuming

• Takes more data – often data we do not have

• Appraiser usually does not receive

compensation for the detail provided.

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Appraiser Driven Studies

More local appraiser driven studies are needed

Studies done by academia are not useful to support energy adjustments

Appraisers must understand the methodology

Appraisers are required by USPAP to deem the study credible prior to relying on the work of others By Lisa Desmarsis, SRA


Solving the Data Challenge

Coordinate with MLS Board and assure the green

fields are implemented and populated accurately

Auto populating the MLS where possible would

increase accuracy.

Complete the AI Residential Green and Energy

Efficient Addendum and make sure the borrower,

appraiser, lender, and real estate agent has a copy.


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Solving the Data Challenge

Attach full energy and green reports to Addendum

Encourage agents to put Addendum, energy and

green reports in MLS

Label electrical box with energy/envelop ratings to

assure a permanent transfer of the data behind the

walls.


Resources

AI Residential Green & Energy Efficient Addendum


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[email protected]

Follow me on Twitter:https://twitter.com/sadomatis

Any Question?

By: Sandra K. Adomatis, SRA, LEED Green Associate


Thank you for attending!

What will Fannie and Freddie Allow (1) - Vermont … and Freddie Allow Vermont Symposium October 29,...

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