The mortgage-broker and real-estate industries are pushing to have a measure that would kill new home-appraisal rules inserted into pending legislation to overhaul financial-sector regulation.
The Home Valuation Code of Conduct, adopted in May 2009 to ensure appraiser independence, bars mortgage brokers and bank loan officers from selecting appraisers. Mortgage brokers and realtors complain that the rules have produced low-ball appraisals that have blown up deals, while appraisers argue the change has harmed appraisal quality.
Mortgage lenders, on the other hand, are trying to fend off the measure. Several big lenders own or have a stake in companies that have seen a surge in business as a result of the new rules. "We're going to try all we can to keep it out," said John A. Courson, the Mortgage Bankers Association's president and chief executive officer. Inflated appraisals were widely blamed for helping to fuel the sharp run-up in home prices during the past decade. Before adoption of the new standards, appraisals were typically ordered directly by loan officers or mortgage brokers who worked regularly with the same appraisers. Lenders contend that the new standards have ensured that appraisers aren't pressured by loan officers to make the appraisal match the contract price, increasing chances of getting the mortgage loan approved.
The Code of Conduct was adopted last spring by Fannie Mae and Freddie Mac, the government controlled mortgage giants, in settling a New York state attorney general's probe of their appraisal standards.
Realtors and mortgage brokers succeeded in inserting language in the House-passed financial-regulation bill to end the new protocols. The measure would direct federal regulators to come up with an improved set of rules.
The language, however, didn't make it into the most recent draft being used as a basis for House and Senate negotiations. Lawmakers are expected to turn their attention to the appraisal rules and other mortgage provisions next week.
The new system has been a boon to vendors that specialize in farming out appraisal requests to a network of in-house and independent appraisers. Critics say these middlemen companies have pushed appraisers to do more work in less time, forcing a cram-down in fees across the whole industry that is hurting appraisal quality.
Appraisers have seen their fees slashed by 60%, according to Bill Garber, chief federal lobbyist for the Appraisal Institute, the industry's main trade group. Mr. Garber contends that a new mortgage broker licensing law and a myriad of state laws passed in the wake of the housing bust are sufficient to discourage collusion between brokers and appraisers.
"There's now a layer of oversight that didn't exist prior to the Home Valuation Code of Conduct that I think we can build from," he said.
National Association of Mortgage Brokers CEO Roy DeLoach contends that out-of-town appraisers hired by vendors are eating away at homeowner equity through home valuations that aren't credible: "It's basically hollowing out the equity in communities whether you intend to sell or not."
Mr. DeLoach said he believes the measure to scrap the Code of Conduct was left out of the latest draft of the legislation unintentionally.
Many of the largest U.S. mortgage lenders, including J.P. Morgan & Co. and Citigroup, own or have stakes in the middleman companies, known as appraisal-management companies.
Steve O'Connor, senior vice president of government affairs at the Mortgage Bankers Association, argued that it was sound policy to have a fire wall between the appraiser and the loan underwriter. His group supports federal oversight of appraisal-management companies, but is pushing to cap any fees charged to the companies to fund the regulator at $5,000 annually. Mortgage lenders are also fighting language in the financial-overhaul bill that would require disclosure to home buyers of the share of the appraisal cost going to the appraisal-management company.
Write to Jessica Holzer at jessica.holzer@dowjones.com
Two years after New York Attorney General Andrew Cuomo set out to reform home appraisals, that effort is still a work in progress that stirs strong passions among appraisers, lenders and real estate agents.
Government-backed mortgage investors Fannie Mae and Freddie Mac will set up a complaint procedure for people who believe home appraisals have been done improperly, the companies’ regulator, the Federal Housing Finance Agency, said Thursday.
The plan falls short of an agreement reached between the companies and Mr. Cuomo in March 2008. That agreement created a code of conduct for appraisers and required Fannie and Freddie to establish and fund what was to be called the Independent Valuation Protection Institute.
Under the agreement, Fannie and Freddie were to provide $24 million over five years to fund the institute. Aside from handling complaints and coordinating with state and federal regulators, the institute would have had the power to propose amendments to the code.
But the Federal Housing Finance Agency said in a letter to Mr. Cuomo this week that it couldn’t justify having Fannie and Freddie fund such an institute “in light of the billions of dollars in taxpayer funds” the companies have absorbed to cover heavy losses related to mortgage defaults. A spokesman for Mr. Cuomo said: “We understand the FHFA director’s position” on funding.
In early 2008, Mr. Cuomo threatened lawsuits against Fannie and Freddie for allegedly failing to make sure appraisers were protected from pressure to fudge their estimates in a way that would allow dubious loans to be made. He and many others argued that inflated appraisals helped pump up the housing bubble and facilitated fraudulent lending.
To avert litigation, Fannie and Freddie agreed with Mr. Cuomo on the code, which took effect in May 2009. Because Fannie and Freddie buy or guarantee the bulk of all home loans, the code has become the national standard for most home appraisals. The Federal Housing Administration, which insures loans, has adopted similar standards.
Many appraisers say the code has caused a drop in income for appraisers and hurt quality. As we’ve reported, some appraisers have tried to make up for declining fees by doing more assignments, some of them outside of the areas they know best.
But the FHFA said Thursday that the code has improved the quality of appraisals and reduced fraud.
The regulator said Fannie and Freddie will create a standardized complaint form and a way to submit complaints via the Internet within the next few weeks. Fannie and Freddie also are to refer cases of impropriety to state regulatory officials and identify “patterns and practices suggestive of fraud.”
The Appraisal Institute, a trade group for appraisers, said it was disappointed that “a fully funded” valuation institute won’t be created. The appraisal group said Fannie and Freddie should “do more than simply make referrals” to regulators. “We hope Fannie and Freddie will take aggressive action against loan sellers that violate the code and fail to obtain credible appraisals by competent appraisers,” the group said. It added that the code “can and should be improved.”
A spokesman for the National Association of Realtors said setting up a complaint process is “a good beginning” but that doing so without creating the institute falls short of the Realtors’ wishes.
The code bars loan officers, mortgage brokers or real-estate agents from any role in selecting appraisers. Bank employees who aren’t involved in loan production — and thus not dependent on commissions from completed loans — can order appraisals. But many lenders chose to comply with the code by outsourcing the selection of appraisers to appraisal management companies, or AMCs. AMCs take a sizable cut of the appraisal fee, sometimes 30% or more. Appraisers say AMCs pay them as little as $175 to $250 per assignment, compared with the $350 or more that many get when they work directly for a lender.
Mr. Cuomo effectively made an end run around Congress and federal regulators in establishing the code via an agreement with Fannie and Freddie. But Washington has since joined the debate. The Federal Reserve has adopted new rules, effective in October 2009, under the Truth in Lending Act that ban lenders and mortgage brokers from “coercing” appraisers to misstate a home’s value.
In December, the House of Representatives passed financial-regulatory legislation that could undo some of Mr. Cuomo’s work. The House bill would require a new regulator to create rules shielding appraisers from pressure to fudge their estimates. It also would allow mortgage brokers to order appraisals, subject to certain restrictions, and specify that lenders and their agents must “compensate appraisers at a rate this is customary and reasonable.” The Senate now is considering similar proposals as part of legislation to overhaul financial regulation.
Under the agreement between Mr. Cuomo, the FHFA, Fannie and Freddie that created the code, Fannie and Freddie no longer are bound by most of the terms after Nov. 1 of this year. That means Fannie and Freddie will be free to make changes in the appraisal requirements they impose on lenders, but they don’t seem likely to junk the whole code. “The code has been fairly successful,” an FHFA official said recently, but there may be ways to improve it and those will be examined in the months ahead.
So you've decided to go for it. Buying a home can be thrilling and nerve-racking at the same time, especially for a first-time homebuyer. It's difficult to know exactly what to expect. The learning curve can be steep, but most of the issues can be resolved by doing a little financial homework at the outset. Take these five steps to help make the process go more smoothly. Find the best mortgage rates Bankrate can help you find the lowest available mortgage rate. Check your creditThe credit score of the buyer may be the most important factor when it comes to qualifying for a loan these days. "In addition, the standards are higher in terms of what score you need and how it affects the cost of the loan," says Mike Winesburg, mortgage planner with McKinley Carter Wealth Services in Wheeling, W.Va. To get a sense of where your credit stands, go to AnnualCreditReport.com to get your free credit report from each of the three credit bureaus. For an extra fee you can find out what your numerical score is, but just checking the reports should give you an idea of what lenders will see. Scour the reports for mistakes, unpaid accounts or collection accounts. Just because you pay everything on time every month doesn't mean your credit is stellar, however. The amount of credit you're using relative to your available credit limit, or your credit utilization ratio, can sink a credit score. "Lenders determine all of the available credit that you have on all of your cards added up and how much your balances are. So if you have $10,000 credit available to you and you have $5,000 on there, you have a 50 percent credit utilization rate," says Winesburg. The lower the utilization rate, the higher your score will be. Ideally, first-time homebuyers would have a lot of credit available, with less than a third of it used. Repairing damaged credit takes time -- and money if you owe more than lenders would prefer to see relative to your income. Begin the process at least six months before shopping for a home. Evaluate assets and liabilitiesSo you don't owe too much money and your payments are up to date. But how do you spend your money? Do you have piles of money left over every month or are you on a shoestring budget? A first-time homebuyer should have a good idea of what is owed and what is coming in. "You should understand a little bit about monthly cash flow," says Winesburg. "If I were a first-time homebuyer and I wanted to do everything right, I would probably try to track my spending for a couple of months to see where my money was going," he says. Additionally, buyers should have an idea of how lenders will view their income, and that requires becoming familiar with the basics of mortgage lending.For instance, some professionals, such as the self-employed or straight-commission sales person, may have a more difficult time getting a loan these days than others. Gone are the days of the no-doc loan, thanks to the abuses of a couple years ago. A stated income loan was available to non-W-2 wage earners in previous years, but today's standards are much more stringent.According to Winesburg, the self-employed or independent contractor will need a solid two years' earnings history to show. In short, how you receive and report income as well as how you write off expenses can make a difference to lenders. Organize documents The documents homebuyers must produce to be considered for a home mortgage are those which authenticate their income and taxes. Typically, mortgage lenders will request two recent paystubs, the previous two years' W-2s, tax returns and the last two months of bank statements -- every page, even the blank ones. "Why it has to be every single last page, I don't know. But that is what they want to see. I think they look for nonsufficient funds or odd money in or out," says Floyd Walters, owner of BWA Mortgage in La Canada Flintridge, Calif. Buying a home can take a long time, but knowing what you need and where to find it can save time when you're ready. Qualify yourself Ideally, first-time homebuyers would know how much they can afford to spend before the mortgage lender tells them how much they qualify for. By calculating their debt-to-income ratio and factoring in a down payment, buyers should have a good idea of what they can afford to invest, both upfront and on a monthly basis, when it comes to their home. Though there's not a fixed debt-to-income ratio that lenders require, the old standard dictates that no more than 28 percent of your gross monthly income be devoted to housing costs, called the front-end ratio. Including all debts with housing costs is the back-end ratio, and lenders prefer it to be under 41 percent. "I really ask buyers to qualify themselves because although we can use that 28/41 ratio as a guideline, each of us knows our finances best. If we're used to paying $800 in rent but 28 percent of your income would be $2,000 then maybe 28 percent is too high," says Winesburg. "Find out what you can afford and then you can back into everything else. We know the money you have available to put down, we know the monthly payment and we can solve for the third variable -- and that is the home price," he says. Figure out your down payment Scraping up that initial down payment takes some effort. Though FHA loans require a less substantial down payment than conventional loans, it can still be a huge chunk of money for a young person or couple. Uncle Sam is here to help, however, with the first-time homebuyer tax credit, at least until the end of April. Some borrowers working with a state housing finance agency can use the tax credit for a down payment. However, not all state agencies are offering interest-free or low interest loans to be paid back with the tax credit funds. Other programs can assist buyers with qualifying incomes and situations. "I've helped arrange assistance loans for $10,000 which are interest and payment free, and forgivable after five years. Although considered a loan, they're more like grants. Other programs can provide up to $40,000 interest free," says Winesburg. "Each state is different, but most of this money comes from the HOME Investment Partnership Program, which is a federal block grant to create affordable housing," he says. Finally, speak with mortgage lenders when you're starting the process. Check with friends, co-workers and neighbors to find out which lenders they enjoyed working with and ask them questions about the process and what other steps first-time homebuyers should take.
So you've decided to go for it. Buying a home can be thrilling and nerve-racking at the same time, especially for a first-time homebuyer. It's difficult to know exactly what to expect. The learning curve can be steep, but most of the issues can be resolved by doing a little financial homework at the outset.
Take these five steps to help make the process go more smoothly.
"In addition, the standards are higher in terms of what score you need and how it affects the cost of the loan," says Mike Winesburg, mortgage planner with McKinley Carter Wealth Services in Wheeling, W.Va.
To get a sense of where your credit stands, go to AnnualCreditReport.com to get your free credit report from each of the three credit bureaus. For an extra fee you can find out what your numerical score is, but just checking the reports should give you an idea of what lenders will see. Scour the reports for mistakes, unpaid accounts or collection accounts.
Just because you pay everything on time every month doesn't mean your credit is stellar, however. The amount of credit you're using relative to your available credit limit, or your credit utilization ratio, can sink a credit score.
"Lenders determine all of the available credit that you have on all of your cards added up and how much your balances are. So if you have $10,000 credit available to you and you have $5,000 on there, you have a 50 percent credit utilization rate," says Winesburg.
The lower the utilization rate, the higher your score will be. Ideally, first-time homebuyers would have a lot of credit available, with less than a third of it used.
Repairing damaged credit takes time -- and money if you owe more than lenders would prefer to see relative to your income. Begin the process at least six months before shopping for a home.
A first-time homebuyer should have a good idea of what is owed and what is coming in.
"You should understand a little bit about monthly cash flow," says Winesburg.
"If I were a first-time homebuyer and I wanted to do everything right, I would probably try to track my spending for a couple of months to see where my money was going," he says.
Additionally, buyers should have an idea of how lenders will view their income, and that requires becoming familiar with the basics of mortgage lending.
A stated income loan was available to non-W-2 wage earners in previous years, but today's standards are much more stringent.
In short, how you receive and report income as well as how you write off expenses can make a difference to lenders.
The documents homebuyers must produce to be considered for a home mortgage are those which authenticate their income and taxes.
Typically, mortgage lenders will request two recent paystubs, the previous two years' W-2s, tax returns and the last two months of bank statements -- every page, even the blank ones.
"Why it has to be every single last page, I don't know. But that is what they want to see. I think they look for nonsufficient funds or odd money in or out," says Floyd Walters, owner of BWA Mortgage in La Canada Flintridge, Calif.
Buying a home can take a long time, but knowing what you need and where to find it can save time when you're ready.
Ideally, first-time homebuyers would know how much they can afford to spend before the mortgage lender tells them how much they qualify for.
By calculating their debt-to-income ratio and factoring in a down payment, buyers should have a good idea of what they can afford to invest, both upfront and on a monthly basis, when it comes to their home.
Though there's not a fixed debt-to-income ratio that lenders require, the old standard dictates that no more than 28 percent of your gross monthly income be devoted to housing costs, called the front-end ratio.
Including all debts with housing costs is the back-end ratio, and lenders prefer it to be under 41 percent.
"I really ask buyers to qualify themselves because although we can use that 28/41 ratio as a guideline, each of us knows our finances best. If we're used to paying $800 in rent but 28 percent of your income would be $2,000 then maybe 28 percent is too high," says Winesburg.
"Find out what you can afford and then you can back into everything else. We know the money you have available to put down, we know the monthly payment and we can solve for the third variable -- and that is the home price," he says.
Scraping up that initial down payment takes some effort. Though FHA loans require a less substantial down payment than conventional loans, it can still be a huge chunk of money for a young person or couple.
Uncle Sam is here to help, however, with the first-time homebuyer tax credit, at least until the end of April.
Some borrowers working with a state housing finance agency can use the tax credit for a down payment. However, not all state agencies are offering interest-free or low interest loans to be paid back with the tax credit funds.
Other programs can assist buyers with qualifying incomes and situations.
"I've helped arrange assistance loans for $10,000 which are interest and payment free, and forgivable after five years. Although considered a loan, they're more like grants. Other programs can provide up to $40,000 interest free," says Winesburg.
"Each state is different, but most of this money comes from the HOME Investment Partnership Program, which is a federal block grant to create affordable housing," he says.
Finally, speak with mortgage lenders when you're starting the process. Check with friends, co-workers and neighbors to find out which lenders they enjoyed working with and ask them questions about the process and what other steps first-time homebuyers should take.
What is it?
The Gramm-Leach-Bliley Act, passed in 1999 and fully effective in July, 2001, addressed overall financial industry reforms as well as emerging consumer privacy and security issues. Officially called the “Financial Modernization Act of 1999”, it affects the technology and information system policies used by anyone engaged in providing financial services either directly or indirectly to consumers.
Under GLB, both the security and the privacy of a consumer’s non-public personal information (“NPI”) are protected. Charged with implementing the act, the Federal Trade Commission addressed the security and privacy components separately by issuing two distinct rules, the “Safeguards Rule”, and the “Privacy Rule”.
Appraisers are subject to the rules. All appraisers are required to implement at least the following:
Compliance is not terribly difficult, but it does require understanding of the rules and the methods available. This Best Practices document will hopefully provide appraisers with information and ideas useful in implementing GLB compliance as part of their overall regulatory compliance strategy.
Note: For a la mode clients, we’ve provided specific details at the end of this document regarding how to be in GLB compliance and protect the NPI you send and receive using our tools. Clients of other software vendors should contact their own vendors directly.
What non-public personal information (“NPI”) am I receiving?
NPI includes loan terms, lender or mortgage broker name, sales concessions, co-borrower, unpublished phone numbers, other contact information, and of course more sensitive information as well. Even the fact that a particular consumer is engaged with a particular lender, at the time of the appraisal, is considered to be NPI if it has not been recorded in the public record yet or disclosed in some other way.
Whether or not some of the data might eventually be disclosed post-closing through recording of deeds and mortgages is irrelevant. At the time it is provided, it must be treated as NPI and accorded all of the security and privacy controls under the law.
Perhaps more importantly, the burden is on the appraiser to determine whether the data provided is public information or not. The institution – the appraiser – is required to have a “reasonable basis to believe” that the data is publicly available. In other words, research must have been done to determine its public availability first. One could not assume that a phone number or an e-mail address is publicly listed without verifying it.
To be safe, anything about a particular borrower or individual, which is not absolutely known to be public at the specific moment the appraiser receives the information, should be strictly treated as NPI, and subjected to the appraiser’s implementation of both the Safeguards and Privacy Rules.
Best Practices: It’s safest to simply assume that an appraiser receives NPI on every assignment, and therefore, the Safeguards Rule precautions must be taken on every assignment. The Privacy Rule also applies at all times, but the actions the appraiser must take vary depending on whether the appraiser was directly engaged by the individual.
It’s also important to note that the appraiser may not fall back on any state regulations which are less protective than the federal regulations. Only those state laws offering greater protection of the consumer’s NPI, in the eyes of the FTC, are considered to apply.
Does it really apply to me?
GLB applies to financial institutions of all sizes. While appraisers may not think of themselves as a “financial institution”, the Code of Federal Regulations [§ 4(k)(4)(F); 12 C.F.R. § 225.28] specifically defines appraisers as such: “A personal property or real estate appraiser is a financial institution because real and personal property appraisal is a financial activity listed in 12 CFR 225.28(b)(2)(i) and referenced in section 4(k)(4)(F) of the Bank Holding Company Act.”
Like all laws, opinions differ as to the level of applicability in particular circumstances (lawyers are, after all, paid to argue both sides). When evaluating whether or not a law applies, it’s valuable to look at the intent of the legislators and regulators implementing it. In the case of GLB, the rules were submitted for industry comment by the FTC prior to adoption. The commission noted specifically that lenders requested specific waivers for the hundreds of thousands of appraisers, attorneys, and accountants in the settlement services chain.
The commission rejected the request, replying that the security of NPI must be maintained at every link in the chain and that lenders could not abdicate the responsibility of the Safeguards Rule at any point. The FTC considered the case of appraisal transactions specifically, and clarified in the public record that the rules do indeed apply to appraisers. Throughout the FTC’s official business guides to the two rules, posted on its website, appraisers are specifically listed up front as being covered by each particular rule.
The FTC guidance is also very clear that size of the company is not an exception. A one-person appraisal shop is an “institution” under GLB and is bound by the law exactly to the same extent as any other institution. It’s important to note that the GLB rules apply to the institution, not the transaction, since the consumer’s NPI is held by the institution and unrelated to a transaction’s “federally related” status. A transaction also does not have to be successfully completed for the rules to apply. The consumer information merely has to be provided to any “financial institution” in the performance of financial services, such as appraising.
Just as FIRREA resulted in the creation of USPAP, the GLB act resulted in the creation of the Safeguards Rule and the Privacy Rule. Both are sets of rules created by federal agencies as a direct implementation of federal law, and both are non-optional in any appraisal firm’s overall regulatory compliance obligations.
The practical application of the two rules in any size appraisal shop can be summarized this way:
The Safeguards Rule always applies to appraisers. A consumer’s NPI must be securely handled at all times, regardless of where it originated, how it is held, or what type of transaction prompted it.The Privacy Rule only applies when the appraiser is directly engaged by an individual consumer.
Best Practices: GLB is just as applicable as USPAP to every appraiser. Appraisers handle NPI on virtually every appraisal, and should implement GLB compliance using simple, unbending rules. At the bare minimum, all transmissions with NPI, including the order and the final appraisal, must be via secure methods.
Realize that USPAP is talked about frequently among appraisers because it guides numerous individual valuation decisions, on a daily basis. But GLB similarly guides numerous individual data handling decisions, especially as related to e-mails to and from clients, on orders and final reports. It must become part of the appraiser’s daily regimen.
As an analogy, most appraisers have encountered privacy hurdles attached to medical information under HIPAA. Medical providers, from dentists to insurance companies, are now required to provide additional disclosures to patients, cannot provide information even to other family members, and must provide checks and balances even in person to ensure only authorized access is granted to information. It changed everything related to how privacy of medical information is implemented. It affected virtually every aspect of any medical provider’s daily interaction with the public, from phone calls to e-mails to paper storage.
GLB is effectively the financial counterpart to HIPAA, and its impact on even the most low-level tasks conducted in the completion of an appraisal should be considered no less sweeping.
What’s the risk if I ignore it?
This is an era of substantial litigation with respect to privacy and security of data, in all industries. There are also increasingly broad state and federal investigations of specific mortgage-related fraud activity, with appraisers being fairly or unfairly caught in the middle of thousands of cases. The FBI lists mortgage-related fraud as its single fastest growth area of concern.
Perhaps most worrisome of all, action against an appraiser for violating GLB rules can also come from individuals, and could be used as settlement leverage by plaintiffs filing lawsuits over valuation disputes. The environment becomes rich for these types of suits as markets slow down, foreclosures go up, and lawyers for both consumers and lenders get involved.
Best Practices: GLB-related liability is always present. Don’t increase legal exposure by ignoring it any more than ignoring USPAP. Compliance is much easier than it appears on the surface, much easier than USPAP, and much easier than responding to an investigation or lawsuit after the fact.
It’s by no means necessary to panic, but it would be unwise for appraisers to treat compliance with these rules lightly. There’s been little discussion to date in the appraisal community, but they do apply and they are clearly an issue.
As always, appraisers should consult their own legal advisors. This document is not intended to provide legal advice of any kind. It is merely our opinion of selected technological best practices for GLB compliance. Simply put, if we were in an appraiser’s shoes, this is what we would do.
Why is this just now coming up?
GLB has been in force since mid-2001, so it isn’t new. But with the combination of the mortgage boom and the post-9/11 focus on other areas of banking, GLB compliance took a back seat at most institutions, large and small. Recently however, with identity theft and mortgage fraud both capturing headlines, GLB is now squarely in the spotlight. As a provider of technology products directly to mortgage lenders and brokers, we were naturally asked by our customers in that market segment to carefully research GLB and ensure that our mortgage products were fully compliant.
In the process, we were surprised to find the clear references to appraisers and the lack of exceptions to the rules. Like most in the appraisal industry, we were not aware of the applicability to appraisers, nor the scope of the changes needed to comply.
Since we are now aware that most appraisers are not in compliance, and we are a service provider ourselves to appraisers who operate as financial institutions under the law, we feel we are obligated to notify appraisers of the relevant issues and to help them transition their businesses to practices consistent with the law.
GLB compliance is therefore now an integral part of our overall compliance support for appraisers, and part of our Best Practices series of documents.
How do the two rules affect me?
Safeguards Rule: Security and custody of consumer data
The Safeguards Rule requires that appraisers and all other financial institutions implement written security procedures to prevent NPI from falling into the wrong hands. The complexity and scope of the written protocols may be appropriate to the size of the institution, but core security of the NPI may not be abdicated. NPI must be secured using passwords and encryption during any sort of transmission, as well as during storage (and physically secured even when stored in paper form).
All institutions are required to respect the sensitivity of the NPI data in all phases of a transaction, and interact with service providers appropriately, according to their written information security plan. This written information security plan and the relevant protocols in it must be referenced in the privacy policy provided to the consumer (if the consumer directly engages the appraiser).
In the appraiser’s role in the transaction, NPI data is potentially received electronically under many scenarios:
Obviously, the appraiser must implement secure means of sending and receiving documents containing NPI. Utilizing regular e-mails with NPI data in the message body or attachments, and even with password protected PDFs, is not sufficient. (Appraisers of course normally send a final report PDF with a password preventing a client from editing the PDF, to prevent fraud. But that still does not prevent anyone else from reading the PDF with the NPI in it. Access to the data is undeterred by preventing the editing of the report.)
Best Practices: Adopt a “custodial” mindset on all NPI data received, thinking in terms of security as well as preservation. Develop a written information security plan and have it on file at all times, and review it regularly. The plan must specify steps used to secure any communications containing NPI. The easiest method is by using password-protected website delivery over SSL (Secure Sockets Layer).
Obviously, each appraisal firm will adopt different levels of implementation. But at its core, NPI data must be secured at all times.
There may be cases of course where the appraiser receives no NPI, and therefore, in hindsight, encryption would not have been necessary. It would be tempting for an appraiser to decide therefore that security overall is not needed until the presence of NPI is certain. However, the appraiser would not be aware of the scope of NPI until the data had already been received, which would already be a security breach if NPI was indeed present. The only safe route is to assume that NPI is present and secure all communications appropriately.
Note that encrypted e-mail may also be used, but is more difficult to implement, since encryption keys must be exchanged manually with multiple providers. It’s unlikely that the people dealing with an appraiser on a transaction will have encryption enabled in their e-mail at all. But all recipients and transmitters of NPI in the transaction are likely to be able to click a link to an SSL-enabled website in an automated e-mail, and to be able to set up password protected accounts on that site. There are many options available, both tailored to appraisers’ needs and generic “off the shelf” secure delivery sites.
Regardless of the scope and type of encryption methods and processes used, developing a written security plan describing them is not optional. The law specifically requires that it be written and regularly reviewed. The appraiser must have it on file, and the privacy statement must refer to its presence.
Privacy Rule: Policy statements and opt-out provisions
Under the Privacy Rule, individuals fall into two categories: “consumers”, and “customers”. Consumers are any individuals who engage the institution at least once. Customers are simply consumers who have an ongoing relationship with the company. Both must be given privacy statements regarding the use of their NPI, and opt-out notices at specific times and circumstances, by the institution they engaged.
That last phrase is essential. When a lender or other business client provides the appraiser with NPI on an individual as part of a transaction, the appraiser is not required to provide another privacy policy disclosure to the individual. The appraiser’s client must ensure that the suppliers it engages are in compliance with the privacy disclosures and opt-out notices it already provides to the individual.
Best Practices: Do not send privacy notices to consumers brought to you by a business client. The obligation is on the institution whom the consumer directly engages.
Appraisers who are indeed directly engaged by individuals must do the following:
Typically, an appraiser does not share the NPI with any non-affiliated third parties except where required to process the report. Appraisers don’t usually sell or otherwise distribute their databases for marketing purposes. Most appraisers should be able to invoke the exceptions to opt-out notification as provided in sections 313.13, 313.14, and 313.15 of the act.
Under section 313.14 in particular, appraisers would not be required to send an opt-out notification nor even provide notice that sharing of the NPI has been undertaken, when the party to whom the data is disclosed is a non-financial service provider used in processing the transaction. Likewise, in cases where the appraiser was not directly engaged by the consumer, the act of providing the data to the appraiser’s service providers would not be a violation of the original client’s privacy obligations to the consumer under section 313 of the law.
However, when directly engaged by the consumer and even when claiming exemption under any provision of section 313, the appraiser must provide the privacy policy statement up front in order to be granted the exception. Unless the consumer is aware of the policy overall, there can be no exceptions granted.
Also, note that the security provisions still apply. The appraiser must be sure that the service provider provides security controls, and that they are commensurate with the appraiser’s written security and safeguards policy.
Best Practices: Do not share NPI data with anyone other than service providers who meet your security standards, and you can generally use the opt-out exceptions in section 313. Treat all consumers and customer clients the same, by providing the “initial,” “revised,” and “annual” privacy policy disclosures to every individual who has engaged you. Annual disclosures should be sent within the calendar year (i.e., by December of the year).
Remember that unless the privacy policy disclosures are provided in all three conditions (initial, revised, and annual), the exceptions under section 313 cannot be invoked.
The privacy statement itself needs to address how the NPI will be handled and disclosed (if at all), how the consumer may opt out, and how the appraiser safeguards the data.
The latter is why the company’s individual safeguards policy must be in writing. The privacy statement does not need to include the full text of it, but it does need to state that the procedures are in place and are in writing.
Choosing an overall approach
The important thing when evaluating your options is to scale them to your needs, and remember that it’s not “all or nothing”. Improving security and compliance is a path, not a destination. It will never be “done” because the risks and methods constantly change. Don’t feel like you have to have it all done tomorrow. You don’t. You do need to start, and be educated, however. Security and privacy issues are not going away, ever.
If you’re a smaller firm, you can keep it simpler. If you’re larger, the risk and the expected standards for privacy communications, security, and employee training are probably higher.
Knock out the highest risk elements first. Generally, in the Safeguards Rule, you’re most likely to get valuable NPI in the original order and in the documents sent to you as follow-ups (contracts and such).
Any time you receive or handle a document with a credit card number, an electronic bank account number, a loan account number, or an SSN on it, you’re handling the most sensitive data in the consumer’s NPI, and the security and privacy standards go up accordingly. Since you don’t know when you’ll receive an order that already contains something sensitive, it’s usually a good idea to employ the strictest security all the time, up front, so that it’s not “too late” by the time you see it.
That being said, you can apply different standards of security based on your beliefs of the risk. If, for example, you don’t believe that digital faxes inside unencrypted e-mails pose a risk, approach that aspect last, or not at all. (But even eFax recognizes the non-compliance of unsecured faxes in e-mail and has a system designed specifically for GLB requirements: http://www.efaxcorporate.com/corp/twa/page/glb).
It’s your decision as to what level of compliance you think is “reasonable”, given your environment.
Don’t forget that some state privacy laws are stricter than GLB’s own Privacy Rule. The privacy statements and the opt-out provisions of GLB should be implemented no matter what when dealing with consumers.
Finally, remember that top-level privacy and security are good business, and appealing to your clients. If you decide to “lead the pack”, tell them. Market yourself as being in full GLB compliance. Turn your efforts into profit instead of just an expense.
Complying with the Safeguards Rule using our products
Complying with the Privacy Rule using our products
To comply with the Privacy Rule, you have to deliver and display privacy statements as well as provide opt-out mechanisms to any consumer who engages you directly. Providing the privacy statements and opt-out methods is not optional. There are exceptions to the opt-out conditions when sharing that data with third parties, but not to the provision of the privacy statements up front.
Remember, the opt-out clauses only have an impact when sharing data with certain types of third parties. Most appraisers will be unaffected since no sharing takes place. (But you still have to provide the opt-out mechanism and the privacy statement.)
Opt-out provisions may be stricter and more mandatory in some states (California, for example) than under GLB alone, so be sure you understand what other opt-out restrictions may be placed on you and try to incorporate those into your site as well. In any case, it’s good business to have a strong, client-friendly opt-out policy.
References
“Safeguards Rule” on the FTC’s web site:
http://www.ftc.gov/bcp/conline/pubs/buspubs/safeguards.htm http://www.ftc.gov/bcp/conline/pubs/buspubs/safeguards.pdf http://www.ftc.gov/privacy/privacyinitiatives/glbact.html
“Privacy Rule”, from the same FTC site:
http://www.ftc.gov/privacy/privacyinitiatives/financial_rule.html http://www.ftc.gov/bcp/conline/pubs/buspubs/glbshort.htm
Code of Federal Regulations, from the Government Printing Office:http://a257.g.akamaitech.net/7/257/2422/14mar20010800/edocket.access.gpo.gov/cfr_2003/16cfr313.3.htm
Developing an information security program:http://www.federalreserve.gov/boarddocs/SRLETTERS/2001/sr0115a1.pdf
Document from the Appraisal Foundation, 2001http://www.appraisalfoundation.org/s_appraisal/bin.asp?CID=5&DID=517&DOC=FILE.PDF
Document from the California OREA, Winter 2002http://www.orea.ca.gov/forms/CAv13n02.pdf
Bill:
Its great! Thank you so much for this report. This is exactly the kind of information and skilled perspective we need to get the best value for our mother's house. I cannot think of any questions I have right now but I might come up with one down the road. I want you to know I will recommend you to anybody I know in New Jersey or parts of New York who needs your services. Did you have any further concerns about which you wish to make me aware? I'll be happy to hear from you.
Sincerely,
Helen.
WASHINGTON, 5 de marzo -- Fannie Mae (FNM/NYSE) comenzó hoy dos nuevas iniciativas: Home Affordable Refinance (Refinanciamiento del pago de la vivienda) y Home Affordable Modification (Modificación del pago de la vivienda), que estarán disponibles para sus administradores de préstamos y prestatarios como parte del programa Making Home Affordable (Facilitando el pago de la vivienda) de la Administración Obama. Las dos iniciativas están ideadas para ampliar de manera significativa la cantidad de prestatarios que puedan refinanciar o modificar sus hipotecas para llegar a un pago mensual que sea asequible ahora y en el futuro.
"Making Home Affordable ofrece herramientas clave a los prestadores hipotecarios y propietarios de viviendas que están afrontando dificultades financieras y precios de viviendas en disminución", dijo Herb Allison, presidente y CEO. "Potencialmente, millones de propietarios de viviendas podrían reunir los requisitos y beneficiarse con estas iniciativas. La gente de Fannie Mae hará todo lo que pueda para hacer que el programa sea un éxito para los propietarios de viviendas de todos los Estados Unidos y para avanzar la recuperación inmobiliaria de la nación."
Home Affordable Refinance
Home Affordable Refinance incluye nuevas flexibilidades de refinanciamiento para los propietarios de viviendas cuyos préstamos son propiedad de Fannie Mae. Entre las principales características, se encuentran:
Los que los prestatarios necesitan saber:
Home Affordable Modification
A través de la Home Affordable Modification, Fannie Mae trabajará con administradores de préstamos de todo el país con el fin de ayudar a los angustiados prestatarios a modificar su actual préstamo y convertirlo en una hipoteca que sea más asequible y sostenible. Los administradores de préstamos que participan en este programa pueden reducir las tasas de interés, alargar los tiempos de pago o tomar otras medidas, tales como ser indulgentes en cuanto a la devolución del capital (principal forbearance), para reducir los pagos mensuales hasta el 31 por ciento del ingreso bruto (antes de impuestos) del prestatario.
Lo que los prestatarios necesitan saber:
Con el fin de asegurar que los prestatarios que actualmente corren riesgo de ejecución hipotecaria (foreclosure) tengan la oportunidad de solicitar una Home Affordable Modification, se ha instruido a los administradores de préstamos de Fannie Mae que no procedan a una ejecución hipotecaria hasta que el prestatario haya sido evaluado para el programa.
Cómo saber si un préstamo es propiedad de Fannie Mae
Los prestatarios pueden averiguar si sus préstamos son propiedad de Fannie Mae en una de dos maneras:
Fannie Mae también tiene la intención de poner a disposición una herramienta en línea más adelante en el mes, de manera que los prestatarios puedan buscar sus préstamos y determinar si son propiedad de la compañía.
Fannie Mae tiene como misión ampliar el alojamiento costeable y llevar el capital global a las comunidades locales, con el fin de atender el mercado inmobiliario de los EE. UU. Fannie Mae tiene un estatuto federal (federal charter) y opera en el mercado de segunda hipoteca de los Estados Unidos, con el fin de aumentar la liquidez del mercado hipotecario, ofreciendo fondos a banqueros hipotecarios y a otros prestamistas, de manera que puedan prestar dinero a los compradores de viviendas. Nuestra función es ayudar a quienes tienen sus viviendas en los Estados Unidos.
WASHINGTON DC -- Fannie Mae (FNM/NYSE) today began making two new initiatives -- Home Affordable Refinance and Home Affordable Modification -- available to its servicers and borrowers as part of the Obama Administration's Making Home Affordable program. The two initiatives are designed to significantly expand the numbers of borrowers who can refinance or modify their mortgages to a payment that is affordable now and into the future.
"Making Home Affordable provides crucial tools to mortgage lenders and homeowners coping with financial hardship and declining home prices," said Herb Allison, president and chief executive officer. "Potentially millions of homeowners could qualify for and benefit from these initiatives. The people of Fannie Mae will do all they can to make the program a success for homeowners across America and to advance the nation's housing recovery."
Home Affordable Refinance includes new refinancing flexibilities for homeowners whose loans are owned by Fannie Mae. Key features include:
What Borrowers Need to Know:
Through the Home Affordable Modification, Fannie Mae will work with loan servicers across the country to help distressed borrowers modify their current loan into a mortgage that is more affordable and sustainable. Loan servicers participating in the program may reduce interest rates, lengthen the payment time frame or take other steps, such as principal forbearance, to bring the monthly payments down to as low as 31 percent of the borrower's gross (pre-tax) income.
To ensure borrowers currently at risk of a foreclosure have the opportunity to apply for a Home Affordable Modification, Fannie Mae servicers have been directed not to proceed with a foreclosure until a borrower has been evaluated for the program.
Finding Out if a Loan is Owned by Fannie Mae
Borrowers can find out if their loan is owned by Fannie Mae in one of two ways:
Fannie Mae also intends to make an online tool available later this month so borrowers can look up their loan and determine if it is owned by the company.
Fannie Mae exists to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America's secondary mortgage market to enhance the liquidity of the mortgage market by providing funds to mortgage bankers and other lenders so that they may lend to home buyers.Our job is to help those who house America.
HUD provides program information to the public in a variety of ways. The most commonly requested information is discussed below.
Housing information for families and individuals
We have basic information on Homebuying and Rental Assistance on our web site. We also have information on resources for senior citizens and people with disabilities.
For help with housing needs, you can find the nearest HUD-approved counseling agency on the web or by calling 1 (800) 569-4287.
Grant applications
Grant applications and funding announcements are available online on the Grants Page. Further information on ordering by telephone is also available there.
Families or individuals seeking housing assistance can find basic information on Homebuying and Rental Assistance on our web site. We also have information on resources for senior citizens and people with disabilities.
Forms
Official HUD forms used in all programs and other commonly used forms are available online to print and download. Printed forms can be ordered online through the Direct Distribution System or by telephone at 1 (800) 767-7468.
Forms for housing discrimination complaints are available online.
For assistance using forms we provide information on program technical guidance below.
HUD handbooks, notices, mortgagee letters and regulations
HUD Handbooks, Notices and other documents are available to print or view at HUDCLIPS. For the FHA Home Mortgage programs, links to the most commonly used Handbooks and Mortgagee Letters are included in the FHA Mortgagee Starter Kit. Printed handbooks can be ordered online through the Direct Distribution System or by telephone at 1 (800) 767-7468. For assistance with questions on the content of handbooks we provide information on program technical guidance below.
Program technical guidance
For interpretations of program requirements or handbooks and instructions on the use of forms:
Housing Programs - See our Contact List for help.
Public Housing and Section 8 Choice Voucher Programs - Contact the Public Housing Field Office Staff.
Native American Programs - Contact the Office of Native American Programs for your area.
All other program questions - Contact the Local HUD Field Office.
Publications
To find a specific publication, you can search our entire web site.
You can also browse or search the HUDUSER Online Store Catalog.
Many pamphlets, brochures and other program publications can be ordered by telephone at 1 (800) 767-7468.
Materials on lead paint hazards, including the required lead paint pamphlet, are available from our Office of Healthy Homes and Lead Hazard Control. Printed materials can be ordered from the The National Lead Information Center by calling 1 (800) 424-5323.
Research reports, executive summaries, case studies, and guidebooks, and specialized data including the Fair Market Rents and Income Limits are available online at HUDUSER. Most items can be downloaded or ordered in printed copy as well.
Bibliographies
HUDUSER maintains the only bibliographic database exclusively dedicated to housing and community development issues with more than 8,000 full-abstract citations to research reports, articles, books, monographs, and data sources in housing policy, building technology, economic development, urban planning, and a host of other relevant fields.
Informacion en español
1 (800) 483-7342 o 1 (800) 767-7468 son los números para pedir publicaciones de HUD en Español.
Comments and Questions
FHA's Streamline 203(k) Mortgage The “Streamline (K)” Limited Repair Program permits homebuyers to finance an additional $35,000 into their mortgage to improve or upgrade their home before move-in. With this product, homebuyers can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or FHA appraiser. More...
FHA's 203(k) MortgageThe Section 203(k) program is HUD's primary program for the rehabilitation and repair of single family properties. As such, it is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities. To find out how to become a 203k consultant, read HUD mortgagee letter 00-25 and How to Become an Approved 203k Consultant.
Visit the FHA Resource Center for more 203(k) information.
regarding mortgage payment relief and protection from foreclosure provided by the Servicemembers Civil Relief Act (formerly known as The Soldiers' and Sailors' Civil Relief Act of 1940).
The provisions of the Act apply to active duty military personnel who had a mortgage obligation prior to enlistment or prior to being ordered to active duty. This includes members of the Army, Navy, Marine Corps, Air Force, Coast Guard; commissioned officers of the Public Health Service and the National Oceanic and Atmospheric Administration who are engaged in active service; reservists ordered to report for military service; persons ordered to report for induction under the Military Selective Service Act; and guardsmen called to active service for more than 30 consecutive days. In limited situations, dependents of servicemembers are also entitled to protections.
The Act limits the interest that may be charged on mortgages incurred by a service member (including debts incurred jointly with a spouse) before he or she entered into active military service. Mortgage lenders must, at your request, reduce the interest rate to no more than six percent per year during the period of active military service and recalculate your payments to reflect the lower rate. This provision applies to both conventional and government-insured mortgages.
No. To request this temporary interest rate reduction, you must submit a written request to your mortgage lender and include a copy of your military orders. The request may be submitted as soon as the orders are issued but must be provided to a mortgage lender no later than 180 days after the date of your release from active duty military service.
If a mortgage lender believes that military service has not affected your ability to repay your mortgage, they have the right to ask a court to grant relief from the interest rate reduction. This is not very common.
Your mortgage lender may allow you to stop paying the principal amount due on your loan during the period of active duty service. Lenders are not required to do this but they generally try to work with service members to keep them in their homes. You will still owe this amount but will not have to repay it until after your complete your active duty service.
Additionally, most lenders have other programs to assist borrowers who cannot make their mortgage payments. If you or your spouse find yourself in this position at any time before or after active duty service, contact your lender immediately and ask about loss mitigation options. Borrowers with FHA insured loans who are having difficulty making mortgage payments may also be eligible for special forbearance and other loss mitigation options. More information about help for homeowners who are unable to make payments on a mortgage is available on the HUD website at http://www.hud.gov/offices/hsg/sfh/econ/econ.cfm.
Mortgage lenders may not foreclose, or seize property for a failure to pay a mortgage debt, while a service member is on active duty or within 90 days after the period of military service unless they have the approval of a court. In a court proceeding, the lender would be required to show that the service member's ability to repay the debt was not affected by his or her military service.
When you or your representative contact your mortgage lender, you should provide the following information:
Notice that you have been called to active duty; A copy of the orders from the military notifying you of your activation; Your FHA case number; and Evidence that the debt precedes your activation date.
HUD has reminded FHA lenders of their obligation to follow the Act. If notified that a borrower is on active military duty, the lender must advise the borrower or representative of the adjusted amount due, provide adjusted coupons or billings, and ensure that the adjusted payments are not returned as insufficient payments.
The change in interest rate is not a subsidy. Interest in excess of 6 percent per year that would otherwise have been charged is forgiven. However, the reduction in the interest rate and monthly payment amount only applies during the period of active duty. Once the period of active military service ends, the interest rate will revert back to the original interest rate, and the payment will be recalculated accordingly.
Interest rate reductions are only for the period of active military service. Other benefits, such as postponement of monthly principal payments on the loan and restrictions on foreclosure may begin immediately upon assignment to active military service and end on the third month following the term of active duty assignment.
Read more information about the Servicemembers Civil Relief Act, sponsored by the Legal Assistance Policy Division, Office of The Judge Advocate General, U.S. Army.
Servicemembers who have questions about the SCRA or the protections that they may be entitled to may contact their unit judge advocate or installation legal assistance officer. Dependents of servicemembers can also contact or visit local military legal assistance offices where they reside. A military legal assistance office locator for each branch of the armed forces is available at http://legalassistance.law.af.mil/content/locator.php
Act Now to Prevent Foreclosure
New Program AnnouncedThe Federal Housing Finance Agency, the regulator of Fannie Mae and Freddie Mac, recently announced a new Streamlined Modification Program that is designed to help struggling borrowers avoid foreclosure by having Fannie Mae work with mortgage servicers to modify loans into more affordable terms.
You may qualify if all of the following are true:
To achieve a more affordable mortgage payment, your loan servicer may:
What You Can Do TodayIf you are about to fall behind, or have fallen behind on your mortgage payments, or if your loan has been referred to an attorney, the most important step you can take is to get help early from your mortgage lender, servicer, or housing counselor. Here are important steps to take immediately:
You have more options if you act quickly. Now is the time to ask for help!
Announcement 08-30 November 14, 2008
Amends these Guides: Selling
Appraisal-Related Policy Changes and Clarifications
Introduction
Due to current conditions in the real estate market, it is paramount that appraisers are provided with sufficient guidance to properly appraise and document the appraisal report. Fannie Mae recognizes the Uniform Standards of Professional Appraisal Practice as the minimum appraisal standards for the appraisal profession. In addition, Fannie Mae has established its own separate appraisal requirements to supplement the Uniform Standards. This Announcement addresses several new or updated appraisal-related requirements and clarifies several other existing policies to help underwriters make sound underwriting decisions when reviewing the appraisal report. The following topics are discussed:
New or Updated Policies
Implementation of the Market Conditions Addendum to the Appraisal Report (Form 1004MC)
Use of supervisory appraisers
Requirement to provide the sales contract to the appraiser
Requirement regarding the appraiser’s selection of comparable sales
Clarification of Existing Policies
Repair escrows for existing construction
Research and reporting of the current and prior listings of the subject property
Appraising the entire site of a property
Time adjustments on the appraisal report
Verification of a sales transaction
Neighborhood boundaries and the selection of comparable sales
Effective age of the subject property
Utilizing the cost approach to value for insurance purposes
Announcement 08-30 Page
Selling Guide,
Fannie Mae purchases or securitizes mortgages in all markets and under all market conditions. The current appraisal report forms require the appraiser to report on the primary indicators of market condition for properties in the subject neighborhood by noting the trend of property values (increasing, stable, or declining), the supply of properties in the subject neighborhood (shortage, in-balance, or over-supply), and the marketing time for properties (under three months, three to six months, or over six months) as of the effective date of the appraisal. Fannie Mae also expects the appraiser to provide their conclusions for the reasons a market is experiencing declining market values, an over-supply of properties, or marketing times over six months.
To further enhance the transparency of the conclusions made by the appraiser related to market trends and conditions, the Form 1004MC will be required for all mortgage loans delivered to Fannie Mae with appraisals of one- to four-unit properties with an effective date on or after April 1, 2009. A sample of the form is attached to this Announcement. In addition, the form is posted on eFannieMae.com.
Guidelines for Using Form 1004MC
The Form 1004MC is intended to provide the lender with a clear and accurate understanding of the market trends and conditions prevalent in the subject neighborhood. The form provides the appraiser with a structured format to report the data and to more easily identify current market trends and conditions. The appraiser’s conclusions are to be reported in the "Neighborhood" section of the appraisal report.
Fannie Mae recognizes that all of the requested data elements for analysis are not equally available in all markets. In some markets it may not be possible to retrieve the total number of comparable active listings from earlier periods. If this is the case, the appraiser must explain the attempt to obtain such information. Also, there may be markets in which the data is available in terms of an "average" as opposed to a "median." In this case, the appraiser needs to note that his or her analysis has been based on an "average" representation of the data. Regardless of whether all requested information is available, the appraiser must provide support for his or her conclusions regarding market trends and conditions.
Inventory Analysis Section
The "Inventory Analysis" section assists the appraiser in analyzing important supply and demand factors in order to reach a conclusion regarding housing trends and market conditions. When completing this section, the appraiser must include the comparable data
that reflects the total pool of comparable properties from which a buyer may select a property in order to analyze the sales activity and the local housing supply. One of the tools used to monitor these trends is the absorption rate. The absorption rate is the rate at which properties for sale have been or can be sold (marketed) within a given area. To determine the absorption rate, the appraiser divides the total number of settled sales by the time frame being analyzed. The months of housing supply is based on the total listings for the applicable period divided by the absorption rate.
Example
Step 1:
Step 2:
Median Sale & List Price, DOM, List/Sale Ratio Section
The appraiser must analyze additional trends, including the changes in median prices and days on the market (DOM) for both sales and listings as well as a change in list-to-sales price ratios.
If the median comparable sale prices are $300,000, $295,000, and $305,000 for their respective time periods, the overall trend for the prior 12 months is relatively "stable."
Overall Trend Section
The "Overall Trend" section is designed to reflect potential positive trends, neutral trends, or negative trends in inventory, median sale and list price, days on market, list-to- sale price ratio, and seller concessions.
An increase in the absorption rate is generally viewed as a positive trend, whereas a decrease in the absorption rate may be viewed as a negative trend. Furthermore, a decrease in the number of days on the market, either sales or listings, more than likely represents an overall positive trend.
Seller Concessions
Form 1004MC also provides a section for comments on the prevalence of seller concessions and the trend in seller concessions for the past 12 months. The change in seller concessions within the market provides the lender with additional insight into current market conditions. The appraiser should consider and report on seller-paid (or third-party) costs. Examples of these items include, but are not limited to mortgage
payments, points and fees, and in condominium or cooperative projects, items such as homeowners’ association fees and guaranteed rental programs. Seller concessions must be carefully analyzed by the appraiser since excessive concessions often lead to inflated property values.
There are a number of markets across the country where, due to current conditions, there has been an increase in the prevalence of seller concessions. The following excerpt from the
"The need to make negative dollar adjustments for sales and financing concessions and the amount of the adjustments to the comparable sales are not based on how typical the concessions might be for a segment of the market area—large sales concessions can be relatively typical in a particular segment of the market and still result in sale prices that reflect more than the value of the real estate. Adjustments based on dollar-for-dollar deductions that are equal to the cost of the concessions to the seller (as a strict cash equivalency approach would dictate) are not appropriate. We recognize that the effect of the sales concessions on sales prices can vary with the amount of the concessions and differences in various markets. The adjustments must reflect the difference between what the comparables actually sold for with the sales concessions and what they would have sold for without the concessions so that the dollar amount of the adjustments will approximate the reaction of the market to the concessions."
For further information regarding seller concessions in the appraisal, refer to the
Foreclosure Sales and Summary/Analysis of Data
The presence and extent of foreclosure/REO sales is worthy of comment when analyzing market data and must be reported on the form. The form also allows for the appraiser to summarize the data and provide other data analysis or additional information, such as analysis of pending sales, which over time can show a market trend.
Use of Supervisory Appraisers
Selling Guide
Fannie Mae defines the appraiser as the individual who personally inspected the property being appraised, inspected the exterior of the comparables, performed the analysis, and prepared and signed the appraisal report as the appraiser. Fannie Mae allows an unlicensed or uncertified appraiser who works as an employee or subcontractor of a licensed or certified appraiser to perform a significant amount of the appraisal (or the entire appraisal if he or she is qualified to do so)—as long as the appraisal report is signed by a licensed or certified supervisory or review appraiser and is acceptable under state law. This policy is updated to now require that if a supervisory appraiser signs the
appraisal report as the appraiser, the supervisory appraiser must have performed the inspection of the subject property.
Requirement to Provide the Sales Contract to the Appraiser
Fannie Mae requires the lender to ensure that it provides the appraiser with all appropriate financing data and sales concessions for the subject property that will be, or have been, granted by anyone associated with the transaction. Typically this information is contained in the sales contract; however, Fannie Mae currently does not require that the lender provide the appraiser with the sales contract. Fannie Mae is adding the requirement that lenders must provide the appraiser with the sales contract and all addenda, therefore ensuring that the appraiser has been given the opportunity to consider the financing and sales concessions in the transaction and their effect on value. If the sales contract is amended during the process, the lender must provide the updated contract to the appraiser.
Requirement Regarding the Appraiser’s Selection of Comparable Sales
The
If the appraiser utilizes comparable sales outside of the subject’s neighborhood when closer comparable sales appear to be available, Fannie Mae is adding a requirement that the appraiser provide an explanation as to why he or she used the specific comparable sales in the appraisal report. This will add transparency to the appraiser’s selection of comparable sales and may assist the lender in underwriting the appraisal.
Refer to the "Neighborhood Boundaries and the Selection of Comparable Sales" section of this Announcement for an additional clarification of this section of the
Repair Escrows for Existing Construction
The following clarifications apply to both of the above referenced sections of the
stating that completion or repair escrows are permitted under certain circumstances for existing properties.
If the appraiser reports the existence of minor conditions or deferred maintenance items that do not affect the livability, soundness, or structural integrity of the property, the appraiser may complete the appraisal "as is" and these items must be reflected in the appraiser’s opinion of value. The lender is not required to ensure that the borrower has had this work completed prior to delivery of the loan to Fannie Mae.
If there are minor conditions or deferred maintenance items to be remedied or completed after closing, the lender may escrow for these items at their own discretion and still deliver the loan to Fannie Mae prior to the release of the escrow as long as the lender can ensure that these items do not affect the livability, soundness, or structural integrity of the property. Minor conditions and deferred maintenance items include, but are not limited to, worn floor finishes or carpet, minor plumbing leaks, holes in window screens, or cracked window glass. Minor conditions and deferred maintenance are typically due to normal wear and tear from the aging process and the occupancy of the property.
When there are incomplete items or conditions that do affect the livability, soundness, or structural integrity, the property must be appraised subject to completion of the specific alterations or repairs. These items include, a partially completed addition or renovation, or physical deficiencies that could affect the soundness or structural integrity of the improvements including but not limited to cracks or settlement in the foundation, water seepage, active roof leaks, curled or cupped roof shingles, or inadequate electrical service or plumbing fixtures. In such cases, the lender must obtain a certificate of completion from the appraiser before it delivers the mortgage to Fannie Mae.
Research and Reporting of the Current and Prior Listings of the Subject Property
Fannie Mae’s appraisal report forms require the appraiser to research and comment on whether the subject property is currently for sale or if it has been listed for sale within 12 months prior to the effective date of the appraisal. To clarify, the appraiser must report on
Appraising the Entire Site of a Property
The property site should be of a size, shape, and topography that is generally conforming and acceptable in the market area. It also must have comparable utilities, street improvements, adequate vehicular access, and other amenities. Fannie Mae is clarifying
that the appraisal must include the actual size of the site and not a hypothetical portion of the site. For example, the appraiser may not appraise only 5 acres of an unsubdivided 40-acre parcel. The appraised value must reflect the entire 40-acre parcel.
Effective Age of the Subject Property
The effective age can be a good indication of the condition of the subject property. Fannie Mae is clarifying that when adjustments are made to the appraisal for the effective age, the appraiser must provide an explanation for the adjustments and the condition of the property.
Verification of a Sales Transaction
It is important for the appraiser to ensure that the data he or she is providing in the appraisal report is accurate. When the appraiser is provided with comparable sales data by a party that has a financial interest in either the sale or financing of the subject property, the above section of the
Neighborhood Boundaries and the Selection of Comparable Sales
The appraiser must perform a neighborhood analysis in order to identify the area that is subject to the same influences as the property being appraised (based on the actions of typical buyers in the market area). The results of a neighborhood analysis enable the appraiser not only to identify the factors that influence the value of properties in the market area, but also to define the area from which to select the market data needed to perform a sales comparison analysis. As a reminder, although it is preferable for the appraiser to provide comparables from the subject’s neighborhood, Fannie Mae does allow for the use of comparable sales that are located in competing neighborhoods, as these may simply be the best comparables available and the most appropriate for the appraiser’s analysis. If this situation arises, the appraiser must not expand the neighborhood boundaries just to encompass the comparables selected. The appraiser must indicate the comparables are from a competing neighborhood and address any differences that exist.
Time Adjustments on the Appraisal Report
The following is being added to Section 406.05D of the
If in the analysis and completion of the sales comparison approach the appraiser determines that time adjustments are required, the adjustments may be either positive or negative. The adjustments, however, must reflect the difference in market conditions between the date of sale of the comparable and the effective date of appraisal for the subject property.
Utilizing the Cost Approach to Value for Insurance Purposes
If a lender requires the cost approach to be completed in order to obtain a replacement cost estimate for the purpose of determining the level of hazard insurance coverage required for a one-unit property, the lender may rely on the appraiser’s estimate of the replacement cost of the improvements. This is reported as the "Total Estimate of Cost New" on the appraisal forms. This estimate does not include any form of depreciation or obsolescence for the property. It is not appropriate for the lender simply to subtract the reported site or land value from the appraised value of the property to make the determination because the result is an estimate of the depreciated value of the improvements, not an estimate of their replacement cost.
Effective Date
The new Form 1004MC is required on all appraisals with an effective date
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Lenders who have questions about Announcement 08-30 should contact their Customer Account Team for additional information.
Michael A. Quinn
Senior Vice President
BICI APPRAISALS CAN HELP WITH YOUR APPRAISAL NEEDS FOR THE NEW FHA HOPE PROGRAM FOR HOME OWNERS, CALL 973-949-4768.
FOR RELEASELemar Wooley Wednesday (202) 708-0685 October 1, 2008
BUSH ADMINISTRATION LAUNCHES “HOPE FOR HOMEOWNERS” PROGRAM TO HELP MORE STRUGGLING FAMILIES KEEP THEIR HOMESDetailed Program Eligibility Requirements Announced
WASHINGTON – The Bush Administration today unveiled additional mortgage assistance for homeowners at risk of foreclosure. The HOPE for Homeowners program will refinance mortgages for borrowers who are having difficulty making their payments, but can afford a new loan insured by HUD’s Federal Housing Administration (FHA).
“For families struggling to keep up with their mortgage payments, this program will be another resource to refinance into a loan they can afford,” said HUD Secretary Steve Preston. “FHA remains a safe and affordable alternative to the high-priced mortgage loans that threaten homeowners’ ability to retain their homes. We strongly encourage borrowers to work with their lenders to determine if HOPE for Homeowners is the right program for them.”
The HOPE for Homeowners program was authorized by the Economic and Housing Recovery Act of 2008. Since the President signed this vital legislation into law on July 30, 2008, the HOPE for Homeowners Board of Directors has worked diligently to develop and implement the program as directed by Congress. The Board was charged with establishing underwriting standards to ensure borrowers, after any write-down in principal, have a reasonable ability to repay their new FHA-insured mortgage.
The HOPE for Homeowners program begins today and ends September 30, 2011. The program is available only to owner occupants and will offer 30-year fixed rate mortgages – so the borrower’s last payment will be the same as the first payment. In many cases, to avoid what would be an even costlier foreclosure, banks will have to write down the existing mortgage to 90 percent of the new appraised value of the home.
Borrower Eligibility
Borrowers are encouraged to contact their lender to determine eligibility, but may be eligible if, among other factors:
• The home is their primary residence, and they have no ownership interest in any other residential property, such as second homes.
• Their existing mortgage was originated on or before January 1, 2008, and they have made at least six payments.
• They are not able to pay their existing mortgage without help.
• As of March 2008, their total monthly mortgage payments due were more than 31 percent of their gross monthly income.
• They certify they have not been convicted of fraud in the past 10 years, intentionally defaulted on debts, and did not knowingly or willingly provide material false information to obtain their existing mortgage(s).
How the HOPE for Homeowners program works
“HOPE for Homeowners will add to HUD’s existing efforts to make FHA refinancing available to homeowners who need it most,” said FHA Commissioner Brian D. Montgomery. “One year ago, FHA expanded refinancing into its FHASecure program. Since that time, we have helped more than 360,000 families keep their homes by refinancing with FHA, and we will assist a total of 500,000 families by the end of this year.”
The Board expects that the primary way homeowners will participate in the program is by working with their current lender. HOPE for Homeowners will serve as another loss mitigation tool available to distressed borrowers.
HOPE for Homeowners also includes the following provisions:
• The loan amount may not exceed a maximum of $550,440.
• The new mortgage will be no more than 90 percent of the new appraised value including any financed Upfront Mortgage Insurance Premium.
• The Upfront Mortgage Insurance Premium is 3 percent and the Annual Mortgage Insurance Premium is 1.5 percent.
• The holders of existing mortgage liens must waive all prepayment penalties and late payment fees.
• The existing first mortgage must accept the proceeds of the HOPE for Homeowners loan as full settlement of all outstanding indebtedness.
• Existing subordinate lenders must release their outstanding mortgage liens.
• Standard FHA policy regarding closing costs applies, and they may be:
o Financed into the new loan provided the value of the mortgage (including the Upfront Mortgage Insurance Premium) does not exceed 90 percent of the new appraised value of the home. o Paid from the borrowers’ own assets.o Paid by the servicing lender or third party (e.g., federal, state, or local program). o Paid by the originating lender through premium pricing.
• The borrower must agree to share with FHA both the equity created at the beginning of this new mortgage and any future appreciation in the value of the home.
• The borrower cannot take out a second mortgage for the first five years of the loan, except under certain circumstances for emergency repairs.
The lender will disclose to the homeowner the benefits of the program including home retention, a new affordable mortgage based on the current appraised value, and 10 percent equity. The lender will also explain the prohibition against new junior liens against the property unless directly related to property maintenance, and a minimum of 50 percent equity and appreciation sharing with the Federal government.
The costs to the homeowner include the upfront and annual insurance premiums, as well as a share of the equity created by the write-down associated with the HOPE for Homeowners mortgage and any future appreciation in the value of the home. At settlement, subordinate lien holders will receive a certificate that evidences their interest as an obligation backed by HUD, with payment conditional on the value of HUD’s appreciation share.
If the home is sold or refinanced, the homeowner will share the equity with FHA on a sliding scale ranging from a 100 percent FHA share after the first year to a minimum of 50 percent after five years. The lien holder that previously held the highest priority will receive payment up to a proportion of its original interest, not to exceed the amount of available appreciation. This type of delayed payoff will take place until all prior lien holders are satisfied or the amount of available appreciation is exhausted. All remaining appreciation is remitted to FHA.
The HOPE for Homeowners Board of Directors includes HUD Secretary Steve Preston, Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke, and FDIC Chairman Sheila Bair. They have named the following people to serve on the board as their designees: FHA Commissioner and Chairman of the Board Brian Montgomery, Federal Reserve Board Governor Elizabeth Duke, Treasury Assistant Secretary for Economic Policy Phillip Swagel, and Federal Deposit Insurance Corporation Director Tom Curry.
Read more about HOPE for Homeowners at www.fha.gov/hopeforhomeowners.
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