Chris Thomas

Fannie Mae just announced that there are some new appraisal requirements going into effect, in order to make sure that properties are valued correctly. The main change is the addition of the Market Conditions Addendum, which requires the appraiser to go into great detail to support the claim that a market has declining, stable, or increasing property values. This is something that everyone should be familiar with - sales will depend on it. The announcement from Fannie is 9 pages long, so we're supplying the link to the document, rather than pasting the entire thing in this email. Here is the link:

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0830.pdf

The new addendum must be used for all appraisals dated after April 1, 2009.

There are other changes as well.

- Supervisory appraisers can no longer just sign off on an appraisal - they must inspect the property themselves.

- The sales contract and all addenda must be given to the appraiser. If the contract is updated, the updated contract must be given to the appraiser.

- If the appraiser uses comparable sales from outside the neighborhood where the property is located, they must now explain why they are doing it.

Fannie also clarified some appraisal issues:

- Repair escrows can be used for minor problems with the property (worn carpet, minor plumbing leaks, holes in screens, cracked window glass, etc.).

- The appraiser must comment on each time the property has been listed for sale in the previous 12 months.

- The appraisal must be for the entire property, not just for a part of it (all acreage must be counted).

- If an adjustment for the effective age of the property is used in the appraisal, it must be explained.

- When anyone with a financial interest in the transaction (real estate agents, buyer, seller, mortgage broker, etc.) provides the appraiser with comps, the appraiser must verify them.

- Neighborhood boundaries cannot be expanded to encompass comps.

- Time adjustments must reflect the difference in market conditions between the date of sale of the comp and the date of the appraisal.

Everything other than the use of the new addendum goes into effect on January 1, 2009.

Again, these are big changes and they will have an impact on listing prices and sales prices (probably to lower them - that's the whole point of all of these changes). Make sure you read the Fannie Mae announcement and pass the word on to everyone you work with.

Here's another question we were asked at a class we recently taught:

Q: How do I know that the property taxes are up to date and paid when I buy a house?

A: The lender requires a tax certificate from the county showing the status of the property taxes. If the taxes are not current, the lender will insist that they be brought up to date at the closing.

We are often asked if borrowers have to include all of their income on a loan application. Except in the case of a loan where there are maximum income limits (an affordable housing program, for example), the answer is no. It is always best to submit a loan to underwriting with the least amount of income necessary for the approval because everything that is included on the application must be documented.

A good example of how this would work is if a borrower has $50,000 base income and $30,000 commission income. If the borrower can qualify for the loan with just base income and that's all we enter on the application, then all we have to document is base income. That can be done with just a paystub. However, if we included the commission income on the application, we would also need to provide the last two years of tax returns to prove the stability and continuity of the commission income. That slows down both the documentation collection process and the underwriting process. An easy loan has turned into a more difficult loan.

The same is true for assets. If a borrower only needs to have $5,000 in the bank to get an approval, but has $400,000 in ten different accounts, all we would include on the application is one account that has at least $5,000 in it. Again, it simplifies the loan process and results in faster turn times. Plus, the underwriters love us because we make their lives easier, and our loan submissions go to the top of the pile :-)

If someone is buying a HUD home that has a repair escrow amount listed, and is using FHA financing, they can include the amount of the repair escrow in the FHA loan without having to get a rehab loan. Let's say the house is listed at $100,000 and the escrow amount is $2,000. They would be able to pay $100,000 for the house, but get the extra $2,000 included in the loan.

The amount listed for the repairs is not a set number. Before getting the loan, the buyer would need to get an estimate, and that number would be the amount that is included in the escrow account. It could be higher or lower than the amount estimated by HUD. Just about the only limitation on these repair escrow loans is that the buyer cannot add any other repairs into the escrow account. If HUD says the escrow is to "repair the heating system", then it can only be used to repair the heating system.

These repair escrow loans are available with HUD's $100 down program also.

Here's another question we were asked at a recent class we taught:

Q: Do payroll deductions count as liabilities when calculating the debt-to-income (DTI) ratio?

A: If the deduction is used to pay a debt, such as child support, mandatory loan repayments, etc., then it must be counted as a liability. If the deduction is for payroll taxes, a contribution to a 401(K), union dues, etc., then it does not count as a liability.