AZ Real Estate Commentary

Fannie Mae Declining Market Alerts

Recently Fannie Mae announced that it will be alerting lenders if the collateral property for a mortgage is located in an area where house prices are declining. Fannie’s Desktop Underwriter will send a message to the lenders notifying them that they need to carefully review the appraisal to ensure its accuracy and require additional information from the appraiser, if necessary. They expect the appraiser to describe market trends and the effects it will have on the value of the property. Fannie Mae states “It is unacceptable for the appraiser to ignore these issues and not report the factual property value trends and market conditions. The alert process is to begin July 22."

Some questions addresses in the FAQ annoucement:

• What is the definition of a declining market?
• Is the lender or appraiser responsible for determining whether or not a property is in a declining market?
• How should a lender determine if a property is located in a declining market?
• What is the new DU message for properties located in declining markets?
• How can a lender verify that the appraiser has accurately indicated the property is not in a declining market?

Appraiser Responsibilities

The appraiser’s role is to provide the lender with an accurate and adequately supported opinion of value and an accurate description of the property. We expect the appraiser to accurately report on the primary indicators of market conditions in a given neighborhood whether increasing, stable, or declining.

At a minimum, the appraiser is expected to:

1. Use the most recent and similar comparable sales available as part of the sales comparison approach. Because excessive sales concessions can artificially inflate the sales price of a property, particular attention should be given to unusual sales or financing concessions in markets experiencing:

a. Declining property values,

b. An over-supply of properties, or

c. Marketing times in excess of six months

2. Provide an objective assessment of the primary indicators of market conditions in a given neighborhood whether they are increasing, stable, or declining. For example, when indicators such as price changes, supply and demand, and market activity reflect a decline in property values, an over-supply of homes, and/or marketing times in excess of six months, Fannie Mae expects that the appraiser has considered these factors as part of his or her analysis, and accurately reflects this information in the appraisal report.

3. Describe the reasons for these trends and indicate what, if any, impacts these trends have on the opinion of the market value for the subject property. It is unacceptable for the appraiser to ignore these issues and not report the factual property value trends and market conditions.

4. Research and/or review available information regarding the home price trends of the market in question.

To read the complete FAQ announcement from Fannie Mae, click here.