Selling Guide

Published December 4, 2019

B4-1.1-02: Lender Responsibilities (09/04/2018)

This topic contains information on lender requirements, including:

Lender Responsibilities

The lender is responsible for ensuring that the subject property provides adequate collateral for the mortgage. For most loans, Fannie Mae requires that the lender obtain a signed and complete appraisal report that accurately reflects the market value, condition, and marketability of the property. Some loans may be eligible for an appraisal waiver, and an appraisal is not required if the lender exercises the waiver and complies with the related requirements. (See B4-1.4-10, Appraisal Waivers, for additional information.)

If an appraisal is obtained, the lender is responsible for

For certain loans, the lender is relieved of a number of responsibilities related to the appraisal and subject property value. See A2-2.1-06, Representations and Warranties on Property Value, for additional information.

Confirmation and Documentation of the Current Owner

Confirmation that the property seller in a purchase money transaction (or the borrower in a refinance transaction) is the owner of the subject property based on publicly available information helps to identify property flipping schemes, which typically involve various combinations of transactions and result in a sale of a recently acquired property for significant profit based on a misleading or fraudulent appraisal with an inflated property value.

Lenders must confirm and document in the mortgage file that the property seller in a purchase money transaction or the borrower in a refinance transaction is the owner of the subject property when an appraisal is required. Examples of acceptable documentation include, but are not limited to:

  • a copy of a recorded deed, mortgage, or deed of trust,

  • a recent property tax bill or tax assessment notice,

  • a title report,

  • a title commitment or binder, or

  • a property sale history report.

This documentation is especially important for transactions involving an assignment (or sale) of a contract for sale and back-to-back, simultaneous, double transaction closings, or double escrows to support the property acquisition, financing, and closing.

When the transaction is part of an employee relocation, the relocation company may be the assignee of the seller, which should be indicated on the sales contract. Additionally, the appraiser must comment on this condition in the appraisal report.

Objective and Unbiased Appraisals

A lender must ensure that the appraiser

  • described the property and the neighborhood in factual, unbiased, and specific terms;

  • considered all factors that have an effect on value; and

  • was objective and unbiased in the development of the opinion of market value in the appraisal report.

A number of federal, state, and local laws prohibit discrimination in the appraisal of housing. Fannie Mae expects professional appraisers to fully understand that discriminatory valuation and appraisal reporting practices are not only illegal, but also unethical. Unintentional discrimination can occur as the result of what an appraiser states, or fails to state, in his or her appraisal report. The lender and the appraiser must ensure that the integrity of the loan decision is not influenced by subjective, racial, or stereotypical terms, phrases or comments in the appraisal report.

Prohibited practices include:

  • use of unsupported, descriptive comments or drawing unsupported conclusions from subjective observations. These actions may have a discriminatory effect;

  • use of unsupported assumptions, interjections of personal opinion, or perceptions about factors in the valuation process. These actions may have a discriminatory effect, and may or may not affect the use and value of a property;

  • use of subjective terminology, including, but not limited to:

    • “pride of ownership,” “no pride of ownership,” and “lack of pride of ownership”;

    • “poor neighborhood”;

    • “good neighborhood”;

    • “crime-ridden area”;

    • “desirable neighborhood or location”; or

    • “undesirable neighborhood or location”;

  • use of subjective terminology that can result in erroneous conclusions;

  • actions that may have a discriminatory effect or may affect the use and value of the property; or

  • basing the analysis or opinion of market value (either partially or completely) on the race, color, religion, sex, handicap, familial status, or national origin, of either the prospective owners or occupants of the property being appraised or the present owners or occupants of the properties in the vicinity of that property.

Reporting Unfavorable Conditions

The lender must ensure that appraiser comments regarding unfavorable conditions, such as the existence of an adverse environmental or economic factor, also discuss how the condition affects the value or marketability of the property being appraised and explain how the condition was taken into consideration in the valuation process. In such cases, the appraiser’s analysis must reflect and include comparable sales that are similarly affected whenever possible. The appraiser must address the impact these factors may have, if any, on the value and marketability of the subject property. (See B4-1.3-06, Property Condition and Quality of Construction of the Improvements, for further information).

Related Announcements

The table below provides references to the Announcements that have been issued that are related to this topic.

Announcements Issue Date
Announcement SEL-2018-07 September 04, 2018
Announcement SEL-2018-05 June 05, 2018
Announcement SEL-2017–03 March 28, 2017
Announcement SEL-2016–09 December 6, 2016
Announcement SEL-2016–08 October 24, 2016
Announcement SEL-2016–02 February 23, 2016
Announcement SEL-2014–03 April 15, 2014
Announcement SEL-2013–06 August 20, 2013
Announcement SEL-2013–03 April 9, 2013
Announcement SEL-2011–06 July 26, 2011
Announcement SEL-2011–01 January 27, 2011
Announcement SEL-2010–16 December 1, 2010