Announcement 20-0016: Updated Agency Appraisal Requirements

Overview

Carrington Mortgage Services, LLC (CMS) is actively monitoring the spread of COVID-19 (coronavirus) throughout the United States and its potential impact to our borrowers and loan originations. Our ability to continue to serve our customers is a top priority. This document has updated Agency Guidance for VA and FHA. As the Agencies provide additional Appraisal guidance, this announcement will be updated and redistributed.

FNMA Temporary Appraisal Requirement Flexibilities

These temporary flexibilities are effective immediately for all Mortgages in process and remain in place for Mortgages with Application Received Dates on or before May 17, 2020.

Effective immediately, Fannie Mae is allowing temporary flexibilities to their appraisal inspection and reporting requirements. As described below, FNMA will accept an alternative to the traditional appraisal required under Selling Guide Chapter B4-1, Appraisal Requirements, when an interior inspection is not feasible because of COVID-19 concerns. FNMA will allow either a desktop appraisal or an exterior-only inspection appraisal in lieu of the interior and exterior inspection appraisal (i.e., traditional appraisal).

If a traditional appraisal is not obtained and there is insufficient information about the property for an appraiser to be able to complete an appraisal assignment with a desktop or exterior-only inspection appraisal, the loan will not be eligible for delivery to FNMA.

Loan purposeLTV ratioOccupancyOwnership of loan being refinanced

Permissible appraisals

(in order of preference)

Purchase*Per Eligibility MatrixPrincipal residenceN/A

Traditional appraisal

Desktop appraisal

Exterior-only appraisal

≤ 85%Second home Investment

Traditional appraisal

Desktop appraisal

Exterior-only appraisal

> 85%Second homeTraditional appraisal
Loan purposeLTV ratioOccupancyOwnership of loan being refinanced

Permissible appraisals

(in order of preference)

Limited cash-out refinancePer Eligibility MatrixAllFannie Mae-owned

Traditional appraisal

Exterior-only appraisal

Not Fannie Mae-ownedTraditional appraisal
Cash-out refinanceFannie Mae or not Fannie Mae-ownedTraditional appraisal

*Excludes new construction and construction-to-permanent loans.

NOTE: For all loans with LTV ratios greater than 80%, FNMA require mortgage insurance in accordance with their standard Selling Guide policy. Sellers must consult with their mortgage insurance companies to confirm coverage for mortgages using one of the temporary appraisal flexibilities.

Desktop appraisals

For purchase money transactions when an interior and exterior appraisal is not available, Sellers are encouraged to obtain a desktop appraisal rather than an exterior-only appraisal.

The minimum scope of work for a desktop appraisal does not include an inspection of the subject property or comparable sales. The appraiser relies on public records, multiple listing service (MLS) information, and other third-party data sources to identify the property characteristics.

When a desktop appraisal is performed, reported on Form 1004 or Form 1073, and submitted to FNMA through the Uniform Collateral Data Portal® (UCDP®), the appraisal will be scored by Collateral Underwriter® (CU®). All loans with a CU risk score of 2.5 or less will receive value representation and warranty relief under Day 1 Certainty. With desktop appraisals, Sellers will have the added risk management and efficiency benefit of being able to use CU to aid in the appraisal review process.

The table below provides the appraisal report form that must be used to complete the desktop appraisal for each property type.

Property Type Acceptable Appraisal Form
One-unit property, including a unit in a planned unit development (PUD) or a detached condominium unitUniform Residential Appraisal Report (Form 1004)
Condominium unitIndividual Condominium Unit Appraisal Report (Form 1073)
2-4 Unit PropertySmall Residential Income Property Appraisal Report (Form 1025)
Manufactured HomeManufactured Home Appraisal Report (Form 1004C)

Exhibits for Desktop Appraisals

Each desktop appraisal report must include the following exhibits:

  • a location map indicating the location of the subject and comparables, and
  • photographs of the subject property. FNMA recognizes that it may be challenging in some instances to obtain photographs; however, it is expected that the appraiser utilize available means to obtain relevant pictures of the subject property.

Exterior-only Inspection Appraisals

An exterior-only inspection appraisal may be obtained in lieu of an interior and exterior inspection appraisal for the following transactions:

  • Purchase money loans
  • Limited cash-out refinances where the loan being refinanced is owned by Fannie Mae

Sellers will not receive value representation and warranty relief under Day 1 Certainty® for loans with exterior-only appraisals.

The table below shows the appraisal report form that must be used to complete an exterior-only inspection appraisal for each property type. Because there are not appropriate exterior-only appraisal report forms available for two-four unit properties and manufactured homes, FNMA will accept an exterior appraisal scope of work completed using the applicable forms listed below.

Property Type Acceptable Appraisal Form
One-unit property, including a unit in a planned unit development (PUD) or a detached condominium unitExterior-Only Inspection Residential Appraisal Report (Form 2055)
Condominium unitExterior-Only Inspection Individual Condominium Unit Appraisal Report (Form 1075)
2-4 Unit PropertySmall Residential Income Property Appraisal Report (Form 1025)
Manufactured HomeManufactured Home Appraisal Report (Form 1004C)

Exhibits for Exterior-only Inspection Appraisals

Sellers are reminded that the following exhibits to the appraisal report are required for an exterior-only inspection appraisal:

  • a street map that shows the location of the subject property and of all comparable sales that the appraiser used;
  • clear, descriptive photographs (either in black and white or color) that show the front of the subject property, and that are appropriately identified (photographs must be originals that are produced either by photography or electronic imaging); and
  • any other data−as an attachment or addendum to the appraisal report form−that are necessary to provide an adequately supported opinion of market value.

FHLMC Temporary Appraisal Requirement Flexibilities

These temporary flexibilities are effective immediately for all Mortgages in process and remain in place for Mortgages with Application Received Dates on or before May 17, 2020.

Freddie Mac understands that due to the COVID-19 pandemic there may be instances where a Seller is unable to obtain an interior inspection of the subject property. As a result, Freddie Mac is allowing temporary exceptions to their property eligibility and appraisal requirements.

Freddie Mac is revising its appraisal inspection and reporting requirements. As described in detail below, for certain Mortgages, when a Seller cannot obtain an appraisal with an interior inspection as a result of the COVID-19 pandemic, Freddie Mac will accept either an appraisal with an exterior-only inspection or a desktop appraisal (as described below) in lieu of the interior and exterior inspection appraisal required under Section 5601.5(a).

There may be instances where there is insufficient information about the property for an appraiser to complete an appraisal assignment with a desktop appraisal or an appraisal with an exterior-only inspection. In these instances, the Mortgage will not be eligible for sale to Freddie Mac until the appraiser has sufficient information to complete the desktop appraisal or an appraisal with an exterior-only inspection, or an appraisal with an interior and exterior inspection is obtained.

The following table provides appraisal requirements based on Mortgage purpose, loan-to-value (LTV) ratio, occupancy type and Mortgage ownership.

Permissible appraisal requirements
Mortgage purposeLTV ratioOccupancy typeOwnership of Mortgage being refinancedPermissible appraisals
Purchase transaction*Up to 97%Primary ResidenceN/AInterior and exterior inspection appraisal, desktop appraisal or exterior-only appraisal
≤85%Second homes and Investment PropertiesN/AInterior and exterior inspection appraisal, desktop appraisal or exterior-only appraisal
˃85%Second homesN/AInterior and exterior inspection appraisal
No cash-out refinanceAs permitted in the GuideAllMortgage being refinanced owned by Freddie MacInterior and exterior inspection appraisal or exterior-only inspection
Mortgage being refinanced not owned by Freddie MacInterior and exterior inspection appraisal
Cash-out refinanceAs permitted in the GuideAllMortgage being refinanced owned or not owned by Freddie MacInterior and exterior inspection appraisal

*These flexibilities are not permitted for Construction Conversion, Renovation or new construction properties.

Note: For all Mortgages with LTV ratios greater than 80%, FHLMC will require mortgage insurance in accordance with Guide requirements. Sellers must consult with their mortgage insurance companies to confirm coverage for Mortgages using one of the temporary appraisal flexibilities.

Appraisals with Exterior-only Inspections

The table below provides the appraisal report form that must be used to complete an appraisal with an exterior-only inspection for each property type. Because there are not appropriate exterior-only appraisal report forms available for 2- to 4-unit properties and Manufactured Homes, FHLMC will accept an exterior-only appraisal scope of work completed using the applicable forms listed below.

Property typeAcceptable appraisal form

1-unit property, including

a unit in a Planned Unit Development (PUD) or a Detached Condominium Unit

Guide Form 2055, Exterior-Only Inspection Residential Appraisal Report
Attached Condominium UnitForm 466, Exterior-Only Inspection Individual Condominium Unit Appraisal Report
2- to 4-unit propertyForm 72, Small Residential Income Property Appraisal Report
Manufactured HomeForm 70B, Manufactured Home Appraisal Report

Mortgages with appraisals with exterior-only inspections will not receive the appraised value representation and warranty relief described in Section 5601.9(b).

Exhibits for Exterior-only Inspection Appraisals

Sellers are reminded that the following are required in connection with an appraisal with an exterior-only inspection:

  • A street map that shows the location of the subject property and of all comparables that the appraiser used
  • Clear, descriptive photographs (either in black and white or color) that show the front of the subject property, and that are appropriately identified. (Photographs must be originals that are produced either by photography or electronic imaging); and
  • Any other data (as an attachment or addendum to the appraisal report form) that are necessary to provide an adequately supported opinion of market value

For Purchase Transaction Desktop Appraisals

Sellers are encouraged to obtain a desktop appraisal in lieu of an appraisal with an exterior-only inspection when an interior and exterior inspection is not available.

The minimum scope of work for a desktop appraisal does not include an inspection of the subject property or comparable sales. The appraiser relies on public records, multiple listing service (MLS) information or other third party data sources to identify the property characteristics.

When a desktop appraisal is obtained using Form 70, Uniform Residential Appraisal Report, or Form 465, Individual Condominium Unit Appraisal Report, and submitted to the Uniform Collateral Data Portal® (UCDP®), the appraisal will be assessed for valuation representation and warranty relief in Loan Collateral Advisor®. All appraisals with a risk score of 2.5 or less that meet the requirements in Section 5601.9(b) will receive valuation representation and warranty relief and Sellers will have the added risk management and efficiency benefit of being able to use Loan Collateral Advisor to aid in the appraisal review process

The table below provides the appraisal report form that must be used to complete the desktop appraisal for each property type.

Property typeAcceptable appraisal form
1-unit property, including a unit in a Planned Unit Development (PUD) or a Detached Condominium UnitForm 70, Uniform Residential Appraisal Report
Condominium UnitForm 465, Individual Condominium Unit Appraisal Report
2- to 4-unit propertyForm 72, Small Residential Income Property Appraisal Report
Manufactured HomeForm 70B, Manufactured Home Appraisal Report

Exhibits for Desktop Appraisals

Each desktop appraisal must include the following exhibits:

  • Photographs of the subject property. Freddie Mac recognizes it may be challenging in some instances to obtain photographs; however, it is expected that the appraiser utilize available means to obtain relevant pictures of the subject
  • A location map indicating the location of the subject and comparables.

VA Guidance for Property inspections – Updated 03/27/20

Effective Date

The VA policy outlined below is effective for all loans closed on, or after, 3/27/2020 and until further notice or the rescission of the VA 20-26-11 Circular.

Valuations may come in a form of an Exterior-Only appraisal with enhanced assignment conditions or in limited instances, a Desktop appraisal.

On page 1 of the Uniform Residential Appraisal Report (URAR), Subject section, “Map Reference” appraisers are to state “Exterior-Only” or “Desktop.” These procedures are temporary in nature and VA will return to normal operations after the national emergency

The report will be competed “AS IS” unless there are MPR requirements the appraiser observed in the review of the property. Without an interior review of the property, the appraiser can make an Extraordinary Assumption (EA) concerning MPRs with the information available.

The appraiser will continue to gain access to view the interior property in the instances outlined below.

(1) Purchase Transaction (vacant property). When the appraiser’s assigned geographic jurisdiction does not have restrictions imposed by authorities prohibiting individuals leaving their domicile, such as mandatory quarantine or shelter-in-place.

(2) Purchase or Refinance Transaction (property occupied). When the appraiser’s assigned geographic jurisdiction does not have restrictions imposed by authorities prohibiting individuals leaving their domicile, such as mandatory quarantine or shelter-in-place. In addition, all parties must agree to the interior inspection and meet the following:

  1. either party has not been instructed by health authorities to stay home or practice social distancing; or
  2. does not have flu-like symptoms (such as fever, cough, or shortness of breath); or
  3. has not been quarantined under direction of public health authorities; and
  4. no parties are within the CDC guidance of high risk found at: https://www.cdc.gov/coronavirus/2019-ncov/specific-groups/high-risk-complications.html.

If either party does not wish to move forward with the interior inspection or do not meet the criteria listed above, the appraiser may move forward with an Exterior-Only appraisal with enhanced assignment conditions. Sellers may not direct the appraiser to conduct an interior inspection.

Exterior-Only Appraisal

This report option with enhanced assignment conditions will be completed on the FNMA 2055/1075 URAR form. For manufactured homes and multi-unit (2- to-4 unit) properties, appraisers will use the 1004C or 1025 form. Appraisers must boldly and inconspicuously state “Per Department of Veterans Affairs, no interior inspection was provided due to COVID-19.”  Exterior-Only Appraisal with enhanced assignment conditions will be limited to the maximum 2020 Freddie Mac Conforming Loan Limit for a one-unit limit for the county or county-equivalent area.

Purchase or Refinance transactions

When an area may be restricting personal contact or when either party are in or have others that reside with them that are categorized as high risk according to the CDC, the appraiser must make every effort to complete the enhanced assignment conditions listed below.

(1) The appraiser will review the full exterior of the property and provide photos of all sides of the property with detailed notes of the exterior and any visible MPRs. In instances of obstructed or restricted view and access is unable to be granted or allowed, Multiple Listing Service (MLS) photos of these areas may be utilized. If MLS photos are utilized, it must be explained in the appraisal report.

(2) A measurement of the footprint of the home should be provided if accessible. This is not to determine the gross living area (GLA) but for the appraiser to reconcile with public records.

(3) The appraiser will conduct a detailed interview over the phone with the occupant, Veteran, or real estate professional regarding the property. It is the appraiser’s responsibility to obtain sufficient information to provide a creditable report. Interview questions should be noted and kept in the appraisers work file. Key items that may impact market value should be noted in the appraisal report with details about what was provided and by whom.

(4) The appraiser may utilize any and all photos available from MLS, provided by the occupant, Veteran, or real estate professional.

Desktop Appraisal Valuations

This report option will be completed on the FNMA 1004, 1073, 1004C, 2025 and the appraiser will be required to attach a copy of the provided Scope of Work (SOW) Exhibit A, certifications, and assumptions in all reports. Appraisers must boldly and inconspicuously state “Per Department of Veterans Affairs, no interior inspection was provided due to COVID-19”.

  1. Desktop valuations will be limited to the maximum 2020 Freddie Mac Conforming Loan Limit for a one-unit limit for the county or county-equivalent area. The Seller will address this at the time of the assignment.
  2. Desktop appraisals will be conducted when the appraiser’s assigned geographic jurisdiction has restrictions imposed by authorities prohibiting individuals leaving their domicile, such as mandatory quarantine or shelter-in-place. Sellers must state in both in “public” notes in WebLGY and by e-mail to the appraiser if they will accept a Desktop appraisal. If the Seller will not accept a Desktop appraisal, the appraiser will place the assignment on hold for 30 days and then subsequently cancel, if the status has not changed. The appraiser will annotate “public” notes in WebLGY updates on a weekly basis.

Purchase transactions: The appraiser defines the scope of the work and will annotate in the appraisal report concerning the source of information provided.

Cash-Out Refinance Transactions: The appraiser will prioritize assignments based on purchase transactions first and determine if sufficient information is publicly available and verifiable. Appraisers are not required to proceed on the assignment if information is not available to provide a credible report. In the event the appraiser is not able to complete the assignment, the Seller may choose to cancel the request or have the VA Regional Loan Center (RLC)  suspend the assignment until the national emergency is lifted and a more detailed report can be produced.

Additional Notes

VA understands that there may be insufficient data available to produce a creditable report. Appraisers are not required to accept a Desktop valuation order. In addition, the use of Assisted Appraisal Processing Program (AAPP) is not authorized for Desktop appraisals. When an appraiser believes the scope of work required to develop a credible report is not capable in a Desktop appraisal, the appraiser must contact the RLC to place the assignment on hold.

Reconsideration of Value

In times of uncertainty, the housing market strengths may be less predictable to report. Appraisers will have comparable sales that took place prior to the President declaring a national emergency and active and pending sales can be less predictable. During this time, it is important to ensure that Veterans continue to be able to purchase a home. VA, the Seller, and the appraiser will work together during this time to assist in the best possible outcome for the Veteran.

Purchase Transactions: Reconsideration of Values (ROV) for purchase transactions will be restricted to no greater than 5 percent from the appraiser’s opinion of value. The same criteria is required as outlined in VA Pamphlet 26-7, Chapter 10 Appraisal Process (NEW), Section 22. In addition, a field review by RLC staff will not be a completed in conjunction with the ROV request.

Cash-Out Refinance Transactions: VA will suspend ROV requests for cash-out refinance loans until further notice.

Memorandum of Values

In extreme cases when an appraiser is not available to complete an appraisal assignment for a purchase, VA has the authority and ability to issue a Memorandum of Value (MOV). This will be completed on a case-by-case basis.

Termite Inspections

VA Pamphlet 26-7, Chapter 12 Minimum Property Requirements (NEW), Section 33, Topic b, requires a wood inspection report if the property is located in an area on the Termite Infestation Probability Map where the probability of termite infestation is “very heavy” or “moderate to heavy”. If there is no known or visible evidence of termite infestation present, the seller and realtor must provide a certification to that fact. If there is known or visible evidence of termite infestation, a clear termite report must be provided within one year of close of escrow.

Any Additional NOV Conditions

Any additional items that need to be met on the Notice of Value (NOV) to comply with VA requirements will have to be met in 180 days from the date of the NOV issuance. All conditions must be completed before the loan will be guaranteed by VA. The Veteran must acknowledge and accept any and all conditions not met prior to closing

Appraisers should continue to conduct business as outlined in Chapter 10 of the Lender’s Handbook.

Appraisers should contact the RLC of jurisdiction if they have been impacted by COVID-19 and are unable to complete an appraisal assignment. The email addresses for each of the RLCs are available at: https://www.benefits.va.gov/HOMELOANS/contact_rlc_info.asp.

Appraisers should continue to conduct business as outlined in Chapter 10 of the Lender’s Handbook.

Appraisers should contact the RLC of jurisdiction if they have been impacted by COVID-19 and are unable to complete an appraisal assignment. The email addresses for each of the RLCs are available at: https://www.benefits.va.gov/HOMELOANS/contact_rlc_info.asp.

FHA Guidance for Property inspections – Updated 03/30/20

Effective Date

The FHA Appraisal guidance in Mortgagee Letter 2020-05 is effective immediately for appraisal inspections completed on or before May 17, 2020.

Please note: The policy changes in the Mortgagee Letter are temporary and will not be incorporated into the HUD Single-Family Housing Policy Handbook 4000.1.

HUD Single Family Housing Appraisal Policy

When applicable, as described below, the appraiser may amend the scope of work to perform an Exterior-Only (viewing from the street) or Desktop-Only. The Appraiser may rely on supplemental information from other reliable sources such as Multiple Listing Service (MLS), and Tax Assessor’s Property Record to prepare an appraisal report. The Appraiser may rely on information from an interested party to the transaction (borrower, real estate agent, property contact, etc.) with clear appraisal report disclosure when additional verification is not feasible. The appraisal report must contain adequate information to enable the intended users to understand the extent of the inspection that was performed.

The Exterior-Only and Desktop-Only Appraisal options must continue to be reported on the current FHA approved appraisal forms with amended certifications and scope of work disclosures.

Appraisal Forms and Amended Certifications

The optional Exterior-Only and Desktop-Only appraisals must be reported on the existing Acceptable Appraisal Reporting Forms by Property and Assignment Type. These forms will require amended certifications and clear scope of work disclosures. Sellers are reminded that Exterior Appraisal forms Fannie Mae 2055 and Fannie Mae 1075 are not FHA approved forms and are not compatible with FHA’s Electronic Appraisal Delivery (EAD) portal.

The appraisal report must include a signed certification indicating whether the Appraiser did or did not personally inspect the subject property and the extent of the inspection. FHA has provided model certifications for the Exterior-Only and Desktop-Only scope of work.

Exterior-Only Option

The required protocols and exhibits under the Exterior-Only Option are:

  • Appraiser will observe the Property and Improvements from the street.
  • The Appraisal will be completed “AS IS” unless Minimum Property Requirements (MPR) related deficiencies are observed from the street or otherwise known.
  • The Appraiser may utilize extraordinary assumptions when necessary.
  • No sketch, interior photos or rear exterior photographs are required.

Desktop-Only Option

The required protocols and exhibits under the Desktop-Only Option are:

  • Appraiser will not physically observe the Property and Improvements.
  • The Appraisal will be completed “AS IS” unless MPR related deficiencies are known.
  • The Appraiser may utilize extraordinary assumptions when necessary.
  • No sketch, interior photos, exterior photographs are required.
  • No comparable viewing nor photos are required.

FHA Purchase Transactions

FHA will accept appraisals for Purchase transactions with an optional Exterior-Only or Desktop-Only scope of work by the Appraiser. These flexibilities are not permitted on New Construction, Construction to Permanent, and 203(k) purchases.

FHA Refinance

FHA will accept appraisals for Rate and Term Refinance and Simple Refinance with an optional Exterior-Only scope of work by the Appraiser. These flexibilities are not permitted on Cash out Refinances and 203(k) refinances.

Form 1004D Part B Completion Report

When an Appraisal Update and/or Completion Report (Form 1004D) Part B is required to evidence the completion of required repairs, FHA will permit a letter signed by the borrower affirming that the work was completed with further evidence of completion, which may include photographs of the completed work, paid invoices indicating completion, occupancy permits, or other substantially similar documentation. All completion documentation must be retained in the case binder. These flexibilities are not permitted on New Construction, Construction to Permanent, and 203(k) transactions.

Contacts

Please contact CorrespondentRM@carringtonms.com with any questions.

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