Fannie Mae released new guidelines for appraising rural properties March 25, and at the same time clarified its policy on using appraisal management companies.
In releasing the guidelines, Fannie noted that it recognizes how properties in low-population areas can present appraisers with special challenges due to unusual building types, distances between properties, large lot sizes that may include farmland and nonpublic utility sources.
“Qualified appraisers who understand the characteristics of these markets are key to ensuring compliance with Fannie Mae property eligibility and appraisal requirements,” the government-sponsored enterprise stated in the guidelines, Lending Letter LL-2014-02.
The GSE also noted that in rural areas, small lenders often lack sufficient staff to maintain a separation between the loan production and appraisal processes, leading them to rely on AMCs to comply with Fannie’s appraisal requirements.
However, the guidance stated, “Lenders are not required to use an AMC or any other third-party vendor to order appraisals.” It also noted that lenders can use in-house appraisers so long as their function is independent of loan production staff, and they also may hire independent fee appraisers.
Fannie said its primary concern is that lenders “demonstrate prudent safeguards and processes” to maintain separation between loan production and appraisals.
The guidance noted that appraisers can have difficulty determining eligibility for backing by Fannie where mixed-use or mixed zoning is common. Fannie confirmed it will purchase loans that finance properties in rural areas as long as their primary use is residential. They will not, however, purchase mortgages on properties used mainly for agricultural or commercial purposes.
The letter also expressed the GSE’s recognition that it can be difficult for appraisers to identify comparables in some rural markets. “The adjustments may exceed the generally accepted practice that any variation from the comparable sale price be limited to 15 percent net and 25 percent gross adjustments,” the guidance stated. “This is often unavoidable given the limited availability and suitability of comparable data. Whenever possible, appraisers should attempt to balance the analysis by isolating dominant features within the subject property and select sales that compare to those features.”
Read Fannie Mae’s new guidance for rural appraisals.