Freddie Refines Appraiser Guidelines

Freddie Mac issued a ""bulletin to its servicers"":http://www.freddiemac.com/sell/guide/bulletins/pdf/bll0918.pdf on Friday which clarifies its rules for property appraisals under the new Home Valuation Code of Conduct (HVCC) and spells out best practices servicers should follow to ensure loans meet the GSE’s definition of investment-quality mortgages and are eligible for sale to the government-backed mortgage financier.
Freddie Mac says appraisers ""must be familiar with the local market in which the property is located."" They must select ""appropriate comparable sales"" and certify them as ""most similar"" to the property being assessed. Appraisers are not required to use distressed properties, including REOs, foreclosures, or short sales, as comparable sales unless these properties are ""representative"" of the type of properties available in that local market.
The GSE said in its communication to servicers, ""Although Freddie Mac has seen improvements in credit quality over the last few months, we are still seeing a number of deficiencies in the underwriting process,"" citing appraisal quality, as well as income calculation, asset verification, liability calculation, and misrepresentation of occupancy as common underwriting missteps.
In addition to the clarification on property valuations, Freddie’s bulletin provides further guidance and revisions to underwriting requirements - all of which the GSE says will help sellers and servicers minimize the risks and costs associated with defaults and repurchases.
The bulletin follows Fannie and Freddie’s implementation of the new HVCC, which has been criticized by some industry organizations, including the ""National Association of Realtors"":http://www.realtor.org, for leading lenders to use appraisal management firms who are disconnected from the local market and for delaying and diminishing home sales. In response to the controversy, House lawmakers introduced ""bipartisan legislation"":http://www.govtrack.us/congress/bill.xpdxbill=h111-3044 late last month that would institute an 18-month moratorium on the HVCC rule.
The ""Appraisal Institute"":http://www.appraisalinstitute.org/ issued a statement on Monday applauding Freddie Mac's newly revised guidelines, which emphasize the use of qualified and experienced real estate appraisers.
The GSE’s bulletin states, ""Sellers should consider membership in a professional appraisal organization as a qualification criterion,"" when choosing a professional appraiser.
Jim Amorin, president of the Appraisal Institute, said, ""The recognition of the professionally designated appraiser has been a missing component in mortgage reform. These new guidelines are the right long-term solution for consumers and appraisers and will instill confidence in the safety and soundness of the mortgage lending process.""
According to the Institute, Freddie Mac's revised regulations are similar to those already employed by ""Fannie Mae"":https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/appraisalguidance.pdf , which says that among the qualifications that lenders should review are ""the appraiser's education, the appraiser's experience . . . (and) professional affiliations.""