ACI’s 2016 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.
For the sake of discussion, let’s suppose that an appraiser had a complaint filed against him with his State regulatory agency for non-compliance with USPAP. In this article, I’ll refer to the unfortunate appraiser as “Bob” and the State regulatory agency as the “State Board” or just “the Board.” The lender that engaged Bob to prepare the appraisal report intended to sell the loan to Fannie Mae. The lender accepted Bob’s report, made the loan, and then sold it to Fannie Mae as intended. Months later, Fannie Mae contacted the lender with a request for indemnification, claiming the report did not fully comply with several of the requirements published in the Fannie Mae Selling Guide and as a result, generated more risk for Fannie Mae. In the complaint to the State Board, the lender cited non-compliance with the Selling Guide as a USPAP violation.
Upon notification by the Board, Bob carefully reviewed the report and after comparison with the Selling Guide, realized that he did, in fact, fail to comply with some of Fannie Mae’s requirements. He knows that his State Board is a stickler on USPAP, but does not view his oversight as a violation of USPAP. He intends to admit that he overlooked a few Fannie Mae requirements but will claim that this is simply a business issue between him and his client. It’s also part of his plan to contend that the client never explicitly informed him that Fannie Mae requirements were part of the assignment but simply “ordered an appraisal reported on a URAR (1004) form.”
So what do you think about Bob’s chances with the State Board?
While you never know what a State Regulatory Agency will do, Bob’s chances of avoiding sanctions or discipline are probably not good. The lender’s claim that Bob failed to abide by Fannie/Freddie requirements is indeed a supportable USPAP violation. Let’s see how Fannie/Freddie requirements become USPAP obligations.
The SCOPE OF WORK RULE in USPAP states the appraiser must “gather and analyze information about those assignment elements that are necessary to properly identify the appraisal or appraisal review problem to be solved.” Those assignment elements are:
- client and any other intended users
- intended use of the appraiser’s opinions and conclusions
- type and definition of value
- effective date of the appraiser’s opinions and conclusions
- subject of the assignment and its relevant characteristics
- assignment conditions
The last item on the above list, assignment conditions, is discussed in the SCOPE OF WORK RULE as follows: “Assignment conditions include assumptions, extraordinary assumptions, hypothetical conditions, laws and regulations, jurisdictional exceptions, and other conditions that affect the scope of work. Laws include constitutions, legislative and court-made law, administrative rules, and ordinances. Regulations include rules or orders, having legal force, issued by an administrative agency.” Note the “conditions that affect the scope of work.”
Scope of work is defined as the “type and extent of research and analysis in an appraisal or appraisal review assignment. Essentially, it’s what you do and what you don’t do in the course of an assignment. As an example, during the course of an FHA assignment, the appraiser is expected to view the attic, while Fannie and Freddie do not require that the appraiser view the attic. The scope of each assignment is different in that there are different “conditions that affect the scope of work.”
It seems clear enough that the Appraisal Standards Board considers Fannie Mae requirements to fall under the heading of assignment conditions. While FAQ 163 is not specifically about assignment conditions, it contains a comment that reads “It should be noted that some assignment conditions, such as Fannie Mae appraisal guidelines…” So Bob’s idea that Fannie Mae requirements are not assignment conditions and part of the necessary scope of the assignment are not likely to go over very well with the State Board, at least not if the Board reads USPAP and the attendant Advisory Opinions and Frequently Asked Questions.
As far as Bob’s claim that his client did not specifically state that Fannie Mae requirements were a factor, the State Board is likely to counter that it is the appraiser’s responsibility to determine what assignment conditions apply. The SCOPE OF WORK RULE clearly states that it’s up to the appraiser to “determine and perform the scope of work necessary to develop credible assignment results.” Note that “assignment results” goes beyond the opinion of market value and includes essentially all of an appraiser’s opinions and conclusions specific to the assignment. Additionally, the SCOPE OF WORK RULE also states that an acceptable scope of work must meet or exceed “the expectations of parties who are regularly intended users for similar assignments” and “what an appraiser’s peers’ actions would be in performing the same or similar assignment.”
Unfortunately, the outlook for Bob is not good. He failed to properly develop an acceptable scope of work based on the intended use of the assignment. This speaks to the importance of having a thorough understanding of Fannie Mae requirements and guidelines. These can be found in the current edition of the Fannie Mae Selling Guide, available at https://www.fanniemae.com/content/guide/selling/b/index.html with chapter B4-1 covering appraisal requirements. Consider downloading the PDF document so you can pull it up and search for pertinent topics as the need arises.
There is one final issue before we close. What if a client orders an assignment and wants it reported on a Fannie Mae form, but informs you that Fannie Mae requirements don’t apply? This is common when the client intends to use the report for internal purposes, such as portfolio evaluation or foreclosure. Lending clients are familiar with the form and often prefer it to alternate formats.
If the client can’t be persuaded from using the Fannie Mae form in favor of an alternate format such as ACI’s gPAR® (general purpose appraisal report) form, the appraiser should check the “Other” box in the Subject section for Assignment Type and clearly state that form is being used at the specific request of the client and is not intended for use in a transaction where Fannie Mae, Freddie Mac, FHA, VA or any other third party assignment conditions apply.
Note that the above advice applies only to assignments where the client is a lender or an agent of a lender and the intended use is at least tangentially related to a mortgage finance transaction. It does not apply to non-lending assignments such as divorce, estate, pre-listing, etc. For non-lending assignments, never use a Fannie Mac/Freddie Mac form.