Although Freddie Mac has seen improvements in credit quality over the last few months, they are still experiencing a number of deficiencies in the underwriting process. In a just released Guide Bulletin to Freddie Mac Sellers and Servicers, Freddie Mac states: “Common underwriting issues relate to, but are not limited to, income calculation, asset verification, liability calculation, misrepresentation of occupancy and appraisal quality.”
“In order to improve underwriting quality and, ultimately, performance of the Mortgages we purchase, with this Guide Bulletin, we are providing further guidance on existing underwriting requirements and revising other underwriting requirements with respect to Borrower income, capacity, assets and required documentation[, and] reminding Sellers of our appraisal requirements, available tools and providing best practices.”
All of this can be found in Bulletin 0918. Much of the bulletin addresses the appraisal issues that came out of the Home Valuation Code of Conduct (HVCC) [see last week’s post “Have you heard of the HVCC?”]. The bulletin sets forth guidelines on: qualified appraisers; credible appraisals; comparable sales; and monitoring appraisal quality. Some of these guidelines include:
- Appraisers must be certified or licensed in the State in which the property is located, and must be eligible to perform appraisals in that State
- Appraisers must be familiar with the local market in which the property is located, must be competent to appraise the subject property type, and must have access to the data sources needed to develop a credible appraisal
- Sellers must provide appraisers with the sales contract (for purchase transactions), the terms of any financing and contributions that are outside the contract, and any specific requirements of their Purchase Documents (i.e., scope of work) or the Sellers’ policies and procedures if additional requirements have been established
- The appraiser’s opinion of value must reflect the value of the subject property without concessions. The appraiser must take concessions into account for both the subject property, and the comparable sales. The appraiser must make market-based adjustments to the comparable sales to determine the price the purchaser would have paid for the property without the concessions.
The underwriting of the appraisal report of an appraisal must be independent of loan production