Up until this year Fannie/Freddie reviewed a very small fraction of the loans it funded every year. An incredible amount of bad appraisals slipped through the door, with the resulting huge financial losses to both those GSE’s. Well, that has changed.
Starting now, quality truly means something. Fannie/Freddie up to this point has been forcing loans that have bad appraisals back onto the local lender. This means your local community bank has been forced to accept a ‘cram down’ from Fannie/Freddie. Many times this is not a loan in financial difficulty. It just has failed the appraisal review. Sometimes that can be worse. Community banks are not set up to finance long term fixed rate loans. Within a few years as the cost of money goes up, they will be actually losing dollars every year on these loans. Simple stated, if an appraiser provides poor quality (and he might not even know he’s doing that) the local bank WILL be losing significant dollars.
This year the GSE’s are required to analyze every single appraisal before they can allow a loan to fund. This will not be an overnight process, the local lender may not be seeing the impact of this yet, but it will happen. They will be using the AQM initiative and the UAD system to achieve this. Let’s be clear about this, this is a 100 percent ‘review’ requirement for every appraisal. Every week there will be thousands of loans stopped for inadequate appraisals.
Missing information and questions regarding consistency and accuracy must be answered completely and because the loan closing is being delayed Quickly! Appraisers must improve the accuracy of the information contained in their appraisals and understand how to determine adjustments. Appraisers must understand that the accuracy of the information is just as important as the Estimate of Value.
Failure to do this will result in the lender becoming increasing frustrated with the professionalism of the appraiser, and for the appraiser, providing inconsistent/defective work will result in being ‘blacklisted’ by Fannie/Freddie or being placed on the 100% full review list. Then the lender and their AMC will not use you. When viewed from their perspective that is the right decision.
This is where SAMCO really helps the community bank. Our professional, trained review staff do a ‘hard stop’ on the appraisal and send it back to the appraiser when Appraisal Standards/USPAP are not met. SAMCO protects the lender by improving closing time, preventing cram downs, and improving the quality of your asset determination. The best part of the community banker working with SAMCO is it does not cost them a penny! The Consumer pays for the order management/review fee, raising the community bank’s overall profitability and freeing staff up for other responsibilities. A win-win.