Fannie Mae adds appraisal, NFIP expiration guidance

Fannie Mae updated its list of unacceptable items in appraisals on Wednesday in line with research its regulator, the Federal Housing Finance Agency, has done related to bias in neighborhood descriptions, and codified some past guidance around contingencies in a government shutdown.

The government-related mortgage investor, which buys a significant portion of the home loans made in the United States, will no longer tolerate any appraisal referencing crime, either directly or through allusion.

The addition to its list of unacceptable items that could make a loan non-saleable to Fannie follows an update to the Uniform Standards of Professional Appraisal Practices last month. 

Fannie also made some changes to rules for hybrid appraisals for condominium units, something that became available in December, when a dataset jointly developed with Freddie Mac was activated. The enterprise plans to replace its existing data standard with the new one on April 1.

The main update in this alternative to traditional appraisal is the addition of a document that lenders can file when loan characteristics change and invalidate a value acceptance plus property data offer. Fannie is directing lenders to file Form 1073 hybrid when this occurs.

Fannie also made two smaller changes relevant to use of its Desktop Underwriter technology in this area.

One was a reference stating  “property data collection to be obtained after the initial DU offer,” which it took out so that valuation information could be used for multiple transactions. It also removed references to condition and quality ratings because they aren’t required in the new dataset.

Fannie also addressed the possibility that the National Flood Insurance Program could expire during government shutdowns by making temporary measures used in the past part of its guidelines. (While Fannie and Freddie are somewhat insulated from some impacts of a shutdown because of their quasi-governmental status, some ancillary services needed to close loans are public.)

The guidance allows lenders to continue selling mortgages without an active flood policy to Fannie in a shutdown if they fulfill certain requirements.

These include continuing to make timely determinations on the flood zone status of properties and all necessary related disclosures, and doing everything possible to get insurance in place quickly after a lapse in the NFIP’s authority, maintaining documentation to that end.

There are also some contingencies laid out related to refinances, indicating that lenders will need to follow procedures for a loan renewal adapted to the circumstance if insurance policies end during a shutdown and just prior to the sale of the mortgage to Fannie Mae.

If a loan requires additional coverage during this period, the mortgage may still be saleable if the borrowers can prove they’ve made an endorsement request and paid the excess premium required.

In general, Fannie also clarified that policies that don’t cover 100% of replacement cost are unacceptable.

Fannie also made some clarifications related to manufactured homes and adjustable-rate mortgages in its latest guide update.

Cash-out refinances on MH properties now allow a loan term up to 30-years for multi-wide structures.

The qualifying rate for 7- or 10-year hybrid ARMs must be no lower than the note rate unless those loans meet the definition of high-priced loans. Loans are generally considered high priced if they’re above the average prime offer rate for a comparable loan by 1.5 percentage points or more.