The lender is responsible for confirming that appraisal reports are complete and that any changes to the reports are made by the appraiser that originally completed the report. If the lender has concerns with any aspect of the appraisal that result in questions about the reliability of the opinion of market value, the lender must attempt to resolve its concerns with the appraiser that originally prepared the report. If the lender is unable to resolve its concerns with the appraiser, the lender must obtain a replacement report prior to making a final underwriting decision on the loan. Any request for a change in the opinion of market value must be based on material and substantive issues and must not be made solely on the basis that the opinion of market value as indicated in the appraisal report does not support the proposed loan amount. For information concerning the process lenders must follow to address a change of the opinion of market value, see Guidance on Addressing Appraisal Deficiencies in this topic.
Lenders must pay particular attention and institute extra due diligence for those loans in which the appraised value is believed to be excessive or when the value of the property has experienced significant appreciation in a short time period since the prior sale. Fannie Mae believes that one of the best ways lenders can reduce the risk associated with excessive values or rapid appreciation is by receiving accurate appraisals from knowledgeable, experienced appraisers.
If the lender considers an appraisal deficient, the lender has the following options for addressing the deficiencies:
contacting the appraiser to address deficiencies contained in the appraisal report,
obtaining a desk review or a field review of the original appraisal, or
obtaining a new appraisal of the subject property.
The lender can return the appraisal report to the appraiser that completed the assignment, identify the deficiencies found, and provide justification for requesting correction of the deficiencies the lender believes make the report unreliable.
If the lender is unable to obtain a revised appraisal that adequately addresses its concerns, a desk or field review of the report may be obtained. The review must be completed in accordance with the USPAP. Because the Scope of Work for either type of review allows for a change of the opinion of market value for something other than a mathematical error, the appraiser completing the appraisal review must be licensed or certified in the state in which the property is located, and he or she must have access to the appropriate data sources and must possess the knowledge and experience to appraise the subject property with respect to both the specific property type and geographical location.
The lender may forego either type of review and obtain a new appraisal. When a review appraisal or new appraisal is obtained, the lender must use the opinion of market value as stated in the review or new appraisal because the lender has, at that point in time, rejected the original appraisal. It is not acceptable for the lender to exercise blanket discretion by arbitrarily changing the opinion of market value from a report for use in the lending process. For example, it is not within the lender’s discretion to simply average the two opinions of market value in order to arrive at a final value conclusion.
A lender must continually evaluate the quality of the appraiser’s work through the normal review process of all appraisal reports, as well as through the spot-check field review or desk review of appraisals as part of its quality assurance system. For detailed requirements, see D1-3-04, Lender Post-Closing Quality Control Review of Appraisers and Appraisals.
Fannie Mae utilizes field reviews and other types of reviews for quality control purposes. Based on the review, Fannie Mae may refer unacceptable appraisal reports to state appraiser licensing or regulatory boards for investigation and action considered appropriate. In such cases, Fannie Mae provides the state board with a copy of the appraisal field review report and the original appraisal report.
Fannie Mae’s objectives in referring appraisal reports to state appraiser licensing or regulatory boards are
to emphasize continuing efforts to maintain the quality of appraisals,
to protect Fannie Mae’s interest,
to improve the quality of mortgages delivered to Fannie Mae by identifying appraisers that have performed appraisals of a sufficiently poor quality as to impair the security interests,
to help the industry enhance the quality of appraisals by identifying and referring individual appraisers that appear to be unethical or incompetent to the state appraiser licensing or regulatory boards for review, and
to help enforce professional standards.
Note: Fannie Mae’s decision to make such referrals does not affect the lender’s responsibility for managing the property valuation and appraisal review process.
Fannie Mae may refuse to accept appraisals prepared by specific appraisers, or Fannie Mae may notify a lender that appraisals prepared by a given appraiser are no longer accepted. When a lender is notified that appraisals from specific appraisers are no longer accepted, the lender is prohibited from delivering mortgages to Fannie Mae secured by properties appraised by that individual immediately following its receipt of Fannie Mae’s notice.
The table below provides references to the Announcements that have been issued that are related to this topic.