ACI Compliance Series
As we develop new products for appraisers, compliance with industry standards is always front and center. Our objective is to help improve appraisal quality and provide efficiencies to the process. Everybody wins by connecting industry needs with appraisal reporting techniques through technology, industry guidance, and practical advice. This is ACI’s contribution to the industry – and we hope you find it informative and helpful. Enjoy.
We all know (or should know) that using Fannie Mae/Freddie Mac (GSE) forms for non-lending purposes is a poor idea because the current GSE forms define the intended user as the “lender/client” and the intended use “for the lender/client to evaluate the property that is the subject of this appraisal for a mortgage finance transaction.”
Some have argued that GSE forms can be used for non-lending purposes if the appraiser makes clear and prominent countermanding statements identifying the actual intended user(s) and intended use. From a strict USPAP perspective that can be acceptable but there is no guarantee that an individual State Regulatory Agency would agree.
When the GSEs changed the forms in 2005, ACI was the first appraisal software vendor to provide a suite of non-lending forms. The GPAR forms gave the appraiser full control over identifying intended user(s) and intended use. ACI also removed unnecessary language in the forms that was specific to lending use and added numerous limiting conditions to reduce appraiser liability. While many appraisal software vendors merely mimicked the GSE forms other than intended user(s) and intended use, virtually all followed ACI’s lead with some sort of non-lending forms, meaning that now it’s simply unnecessary for an appraiser to use a GSE form for a non-lending assignment.
But what if the intended user is a lender/client and the intended use is at least related to the original mortgage lending transaction? Removal of private mortgage insurance (PMI) is a good example. On page one of the form in the “Subject” section the “Assignment Type” data field allows three options: Purchase Transaction, Refinance Transaction and Other, with some blank spaces after Other. So for a PMI removal assignment, the appraiser can check the Other box and insert “PMI removal” in the blank space. The intended user and intended use are still consistent with what is printed on the form. Additionally, the scope of work for the assignment is consistent with what is printed on the form.
Suppose though, that the intended user is a lender and the intended use is related to the original transaction, but the scope of work is not totally consistent with what is printed on the form? The most common example of this is when the lender needs to make a decision related to a property in foreclosure and the occupants will not permit access to the interior. If the property type is a house or a condo, the client can simply order the assignment reported on an exterior-only form like the 2055 or 1075. But what if the property type is a 2-4 family dwelling for which here are no GSE exterior-only forms?
The first option might be for the appraiser to suggest the use of a general-purpose form that does not have pre-printed language stating the appraiser completed an interior inspection. The appraiser can then report a scope of work that makes clear the inspection was limited to exterior-only.
But some clients want to use the GSE form because it’s a familiar format with which they are comfortable. In such cases, even if the appraiser argues for the use of a general-purpose form, the client may insist on the GSE form. The appraiser is then faced with decision involving the use of countermanding statements. Can it be done?
The GSE form states the appraiser must “perform a complete visual inspection of the interior and exterior areas of the subject property…” Some would argue that the use of a form with those statements would “lock-in” the appraiser to what is written on the form. Some may add that Fannie and Freddie “own” the forms and as such, they cannot be changed. Others will claim that countermanding statements are inherently misleading.
Understand that a form is simply a format for reporting an appraisal assignment. If the assignment conditions were such that GSE guidelines were to be met, then countermanding statements would not be appropriate as Fannie and Freddie will not accept such a report. However, if GSE use of the report is not an assignment condition, GSE requirements do not apply. The GSEs do not “own” the forms. While they developed the forms, neither Fannie nor Freddie have copyrighted the forms or claimed they should be used exclusively for GSE-related work.
If the client is the only intended user, is asking for the use of a specific form, and agrees to a countermanding statement, it would be difficult for anyone to legitimately claim the intended user was being misled. Remember, USPAP requires appraisers to avoid misleading intended user(s) but imposes no obligation on appraisers to avoid misleading a “reader” or any party other than intended user(s). For additional information on “misleading” see the previous blog on that issue.