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Residential Department: Valuation Insight: September 2010


Valuation Insight

Fannie gets the picture(s)

I have always said that when it comes to determining real estate's true value, nothing replaces a seasoned professional appraiser’s onsite impressions. Fannie Mae agrees.

This past June (, Fannie updated its appraisal requirements for loan applications taken after Sept. 1. This adds to an appraiser’s responsibilities in an effort to improve report quality.

With millions of distressed properties on the market, Fannie Mae wants to make certain it is not stuck with damaged goods. Starting this month, the agency is requiring all appraisal reports include interior photos of the property's kitchen, main living area and bathrooms. In the past, appraisers simply would note damage. But a picture paints a thousand words — and some of these homes have lengthy tales to tell.

Fannie also is taking measures to keep lenders from using less-experienced appraisers, be it for cost reasons or because they might be deemed more pliable. As the June announcement puts it, “appraisers who lack the requisite knowledge, experience, and access to appropriate data must not be utilized.” The announcement also includes an update “to reflect Fannie Mae’s requirements whenever an appraiser chooses to use either a foreclosure sale or a short sale as a comparable property."

Fannie likely is correct in believing it should help improve the valuation process and ensure it has the most-relevant information about the properties securing the loans it buys. It is prudent risk management to be more involved in all aspects of the origination process.

A few years ago, if Fannie had a quality-control-audit hit on some facet of a loan file, it was a simple matter to insist on the loan’s repurchase. That is still available, of course. But buybacks have put many firms out of business, and there is not much help for investors when buybacks occur.

We can expect more changes like these in coming months. If providing interior photos is now standard operating procedure for your lenders' appraisers, we may well see video files next as a “virtual tour” of the property for investors. Internal- and external-appraiser-panel-management standards — with metrics and analysis backing them up — also may make sense, given the additional interest Fannie is taking in the appraisal process. 


Griff Straw is president of Solidifi U.S., a leading technology-enabled appraisal-management company and provider of collateral-risk-management and data-analytic services. He writes a monthly column on valuation issues for Scotsman Guide. Straw is a 30-year mortgage banker, a former Freddie Mac technology executive and a Mortgage Bankers Association Master Faculty member. Reach him at or (703) 496-7579.

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