Fannie Mae FAQs

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 Part 8 – Guidelines for Using Market Conditions Addendum to the Appraisal Report (Form 1004MC):

Finishing out the series on Fannie Mae FAQs, we are sharing Fannie Mae’s FAQ Attachment – Guidelines for Using Market Conditions Addendum to the Appraisal Report. This 2 page document provides valuable information about the purpose of the addendum and good examples for completing portions of the addendum.

Attachment – “Guidelines for Using Market Conditions Addendum to the Appraisal Report (Form 1004MC)”

Part 7 – Appraisal Policy, Continued:

1. (FNMA FAQ Q32): Is it acceptable for an appraiser to use sales that are not truly comparable to the subject?
Yes. If there is a shortage of truly comparable sales in the area where the subject property is located, either due to the nature of the property improvements or the relatively low number of sales transactions in the neighborhood, the appraiser might need to use as comparable sales, properties that are not truly comparable to the subject property. In some situations, sales of properties that are not truly comparable to the subject may simply be the best available and the most appropriate for the appraiser’s analysis. The use of these sales is acceptable provided the appraiser adequately documents the analysis and explains why these sales were used. This may often be the case in rural locations where the best and most appropriate sales may not be truly comparable to the subject being appraised.

2. (FNMA FAQ Q33): Can the appraiser use comparable sales that closed over twelve months ago?
Yes. The best and most appropriate sales may not always be the most recent. A sale more than 12 months old may be more appropriate in situations when market conditions have impacted the availability of recent sales as long as the appraiser reflects the changing market conditions.

Additionally, older comparable sales that are the best indicator of value for the subject property can be used if they are appropriate. For example, if the subject property is located in a rural area that has minimal sales activity, the appraiser may not be able to locate three truly comparable sales that sold within the last twelve months. In this case, the appraiser may use older comparable sales as long as he or she explains why they are being used.

 3. (FNMA FAQ Q34): Are there any limitations to the distance that a comparable sale may be located from the subject?
No. Comparable sales located a considerable distance from the subject property can be used if they represent the best indicator of value for the subject property. In such cases, the appraiser must use his or her knowledge of the area and apply good judgment in selecting the comparable sales that are best indicators of value, and the appraisal must include an explanation of why the particular comparables were selected. This may be especially important for appraising rural housing since rural properties often have large lot sizes, and rural locations can be relatively undeveloped.

4. (FNMA FAQ Q35): Must an appraiser utilize comparables that do not exceed the 15% net and 25% gross adjustment parameters?
No. The net and gross percentage adjustments to a comparable sale being in excess of 15% and 25%, respectively, may be considered as a general indicator of the comparability of a property. However, they are not necessarily indicative of the accuracy of the adjustments. The number and/or amount of the adjustments must not be the sole determinant in the acceptability of the comparable. It is acceptable for a comparable to have adjustments in excess of 15% net and 25% gross provided the appraiser explains why it was necessary to exceed those parameters. This may be especially important in small towns and rural areas where there may be a relatively low sales volume and a wide variety of property types. What is not acceptable is for an appraiser to make inappropriate adjustments in order to remain within the 15% and 25% parameters.

5. (FNMA FAQ Q37): What types of comments must the appraiser make when explaining the adjustments that were made in the Sales Comparison Approach?
The appraiser must provide appropriate comments that reflect the logic and the reasoning for the adjustments provided, especially for the characteristics reported on the appraisal report form between the Sales or Financing Concessions and the Condition line items. A statement only recognizing that an adjustment has been made is not acceptable.

Part 6 – Appraisal Policy, Continued.

1. (FNMA FAQ Q28): Should the ratings for Condition and Quality be selected on a relative basis or an absolute basis?
The Condition and Quality ratings should not be selected on a relative basis, meaning the ratings are not selected on how the property relates or compares to other properties in the neighborhood. The Condition and Quality ratings must be based on a holistic, or absolute, view of the property and any improvements. The appraiser must consider all the improvements to determine an overall Condition and Quality rating, selecting the rating that best reflects the property as a whole and in its entirety, rated on its own merits. This requirement also applies to the comparable sales.

2. (FNMA FAQ Q29): Are there situations when a selected Condition or Quality rating may change when the same transaction is being used in a subsequent report?
Yes. Ratings should remain the same when it reflects the same transaction being reported in subsequent reports; however, there may be instances in which additional information regarding the property may become evident at a later time and the appraiser may need to adjust the rating that is applied in a subsequent report. What is not acceptable is for the ratings to be changed merely to meet the needs of the assignment.

Part 5 – Appraisal Policy, Continued:

1. (FNMA FAQ Q23): Are loans secured by unique or non-traditional homes eligible for delivery to Fannie Mae?
Yes. Fannie Mae does purchase loans secured by unique or non-traditional housing types, such as, but not limited to, log homes, earth berm homes, and geodesic domes, which can be located in all areas, including rural locations. Loans on these types of properties are eligible for delivery to Fannie Mae provided the appraiser has adequate information to develop a reliable opinion of market value.

2. (FNMA FAQ Q24): Is there a required number of comparables that must be of similar design or appeal as the unique or non-traditional home that is being appraised?
No. There is no requirement that one or more of the comparables be of the same design and appeal as the property that is being appraised. However, appraisal accuracy is enhanced by the use of comparables that are most similar in design and appeal.

3. (FNMA FAQ Q25): Is there a required number of comparables that the appraiser must provide when appraising a one-unit property with an accessory unit?
Yes. If the accessory unit is legal, the appraiser is required to provide at least one comparable property with the same use to demonstrate the improvements are typical for the local market. If the accessory unit is illegal, the appraiser must provide three comparables with the same non-compliant zoning use to demonstrate the improvements are typical for the local market.

4. (FNMA FAQ Q26): If the subject property features an unpermitted addition, can the square footage of the unpermitted addition be included in the total gross living area reported on the appraisal report?
If the appraiser has identified an addition(s) that does not have the required permit, the appraiser must comment on the quality and appearance of the work and assess the impact, if any, on the market value of the subject.

Part 4 – Appraisal Policy, Continued:

1. (FNMA FAQ Q18): Are properties that are identified as having an over-improvement eligible for sale to Fannie Mae?
Yes. Improvements can represent an over-improvement for the neighborhood, but still be within the neighborhood price range. Lenders must review appraisals on properties with over-improvements that might not be acceptable to a typical purchaser to ensure the appraiser has adequately commented on the over-improvement and that only their contributory value is reflected in the appraisal analysis.

2. (FNMA FAQ Q20): If a property constitutes a legal, non-conforming use of the land and is a one-to four-unit property or a unit in a PUD, must a lender obtain documentation that indicates the improvements can be rebuilt to current density in the event of partial or full destruction?
No. The requirement for the copy of the zoning regulations or a letter from the local zoning authority that authorizes reconstruction to current density only applies when the property being appraised is a condo unit or a co-op share loan located in a project.

3. (FNMA FAQ Q21): Will Fannie Mae lend on a property where the utilities were not turned on at the time of the appraisal inspection?
Yes. Fannie Mae does not require that the utilities that serve the property be turned on at the time of the inspection. Fannie Mae requires that the utilities meet community standards. 

4. (FNMA FAQ Q22): Can a loan be delivered to Fannie Mae if the property is located on a community-owned or privately maintained street and there is no agreement or covenant for maintenance or statutory provisions that define these responsibilities?
Yes. If there are no statutory requirements for maintenance and either

       a. There is no agreement or covenant for maintenance, or
       b. An existing agreement or covenant does not contain provisions that describe the responsibility for payment of repairs, default remedies, the effective term of the agreement; and is not recorded in the land records of the appropriate jurisdiction,

Lenders may still deliver loans on these properties. However, should Fannie Mae experience any losses or expenses as a result of the physical condition of the street or in order to establish and/or retain access, the lender is responsible for the reimbursement of these losses or expenses.

Part 3 – Appraisal Policy:

1. (FNMA FAQ Q11): Is it acceptable for an appraiser to obtain and provide the required interior photographs at the time of the inspection for the Appraisal Update and/or Completion Report (Form 1040D)?
Yes. If the property being appraised is proposed or at a stage of construction where the required photographs cannot be obtained, they may be obtained at the time of the inspection for the Certification of Completion and provided with the Form 1004D.

2.  (FNMA FAQ Q12): If an appraiser provides an Appraisal Update and reports an increased value, can the lender utilize the value increase to underwire the loan in process?
No. The purpose of the Appraisal Update portion of the Form 1004D is to indicate whether the value has remained the same or decreased. If the value has increased, the lender would need to obtain a new appraisal that reflects the increase in value in order to utilize the higher appraised value in underwriting the loan.

3. (FNMA FAQ Q13): Can a previous appraisal be used for a subsequent refinance transaction when one of the borrowers is buying out the other borrower?
Yes. In this situation the continuity of obligation, as defined in Selling Guide topic B2-1.2-04: Continuity of Obligation, is met and the appraisal may be utilized for the subsequent transaction.

4. (FNMA FAQ Q16): What type of properties are to be analyzed for the data reported in the One-Unit Housing Trends portion of the Neighborhood section of the appraisal report form?
The data regarding trends to be reported in the One-Unit Housing Trends section must be reflective of those properties deemed to be competitive to the property being appraised. Additional commentary should be provided on the other segment(s) of the neighborhood when segmentation is present to aid in understand the overall neighborhood dynamics.

5. (FNMA FAQ Q17): Are the trends that are reported on the Market Conditions Addendum to the Appraisal Report (Form 1004MC) the same trends that are reported in the One-Unit Housing Trends section of the appraisal report (Form 1004)?
Yes. The conclusions regarding trends that are obtained from the Form 1004MC must be the same trends reported in the Neighborhood trends section of the Form 1004. The information reported on both forms must be consistent to provide the lender with a clear and accurate understanding of the market trends and conditions present in the subject neighborhood, based on properties that are considered competitive with the subject being appraised.

Part 2 – Appraisal Submission and Forms:

1. (FNMA FAQ Q9): If revisions are made to an appraisal report after it was submitted through the Uniform Collateral Data Portal (UCDP), does Fannie Mae require the revised appraisal also be submitted through UCDP?
Yes. Fannie Mae requires that the final version of the appraisal report that is utilized in making the underwriting decision be submitted through the UCDP and receive a “Successful” status from the UCDP prior to the delivery of the loan.

2. (FNMA FAQ Q10): Are there any exceptions to the requirement that the appraised value submitted in UCDP match the appraised value as reported at delivery?
Yes. An exception is allowed if the appraisal used to underwrite the loan is a desk or field review, because those types of reports cannot be uploaded to the UCDP. In those instances, the appraised value reported at delivery will reflect the value stated in the desk or field review. However, the original appraisal that was the subject of review must have been submitted to UCDP.

Part 1 – Property Eligibility:

1. (FNMA FAQ Q1): In the list of ineligible properties, boarding houses are identified as an ineligible property type. Is a group home considered to be a boarding house and therefore an ineligible property type?
No. Group homes are not considered to be boarding houses. Group homes are an eligible property type according to the requirements of the Selling Guide.

2. (FNMA FAQ Q2): Why are boarding houses and bed and breakfast properties considered to be an ineligible property type?
Fannie Mae purchases and securitizes mortgage loans secured only by properties that are primarily residential in nature. Boarding houses and bed and breakfast properties are not primarily residential in nature and therefore are not eligible.

3. (FNMA FAQ Q3): In originating a loan with a property located on a leasehold estate, does the lease need to be submitted to Fannie Mae for review and approval?
No. Lender must review the lease to ensure that it complies with the lease requirements as described in topic B2-3-03, Special Property Eligibility and Underwriting Considerations: Leasehold Estates in the Selling Guide.

4. (FNMA FAQ Q4): An exception to the Multiple Parcels policy is allowed if a non-adjoined parcel, divided from the main parcel by a road, is a non-buildable lot. In this scenario, where would a lender obtain evidence that the lot is non-buildable?
The documentation that indicates a lot is non-buildable must be obtained from the local municipality or jurisdiction in which the property is located and must be included in the loan file.

This FAQ, “Appraisal and Property Related Frequently Asked Questions (FAQs),” published by Fannie Mae, provides responses to common questions related to Fannie Mae’s property eligibility and appraisal policies and questions regarding revisions to the Selling Guide published April 2014. For more information, please visit Fannie

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