B4-1.3-12, Appraisal Quality Matters (05/01/2024)

The lender is responsible for confirming that appraisal reports are complete and that any changes to the reports are made by the appraiser that originally completed the report. If the lender has concerns with any aspect of the appraisal that result in questions about the reliability of the opinion of market value, the lender must attempt to resolve its concerns with the appraiser that originally prepared the report. If the lender is unable to resolve its concerns with the appraiser, the lender must obtain a replacement report prior to making a final underwriting decision on the loan. Any request for a change in the opinion of market value must be based on material and substantive issues and must not be made solely on the basis that the opinion of market value as indicated in the appraisal report does not support the proposed loan amount. For information concerning the process lenders must follow to address a change of the opinion of market value, see Guidance on Addressing Appraisal Deficiencies in this topic.

Lenders must pay particular attention and institute extra due diligence for those loans in which the appraised value is believed to be excessive or when the value of the property has experienced significant appreciation in a short time period since the prior sale. Fannie Mae believes that one of the best ways lenders can reduce the risk associated with excessive values or rapid appreciation is by receiving accurate appraisals from knowledgeable, experienced appraisers.

If the lender considers an appraisal deficient, it has the following options for addressing the deficiencies:

• contacting the appraiser to address deficiencies contained in the appraisal report,

• obtaining a desk review or a field review of the original appraisal, or

• obtaining a new appraisal of the subject property.

The lender can return the appraisal report to the appraiser that completed the assignment, identify the deficiencies found, and provide justification for requesting correction of the deficiencies the lender believes make the report unreliable.

If the lender is unable to obtain a revised appraisal that adequately addresses its concerns, a desk or field review of the report may be obtained. The review must be completed in accordance with the USPAP. Because the Scope of Work for either type of review allows for a change of the opinion of market value for something other than a mathematical error, the appraiser completing the appraisal review must

• be licensed or certified in the state in which the property is located,

• have access to the appropriate data sources, and

• possess the knowledge and experience to appraise the subject property with respect to both the specific property type and geographical location.

The lender may forego either type of review and obtain a new appraisal. When a new appraisal is obtained, the lender must document the deficiencies that are the basis for ordering the new appraisal and adhere to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value. The lender must either document the resolution of the noted deficiencies in the original appraisal or detail the reasons for relying on a second opinion of market value.

A lender must continually evaluate the quality of the appraiser’s work through the normal review process of all appraisal reports, as well as through the spot-check field review or desk review of appraisals as part of its quality assurance system. For detailed requirements, see D1-3-04, Lender Post-Closing Quality Control Review of Appraisers, Appraisals, Property Data Collectors, and Property Data CollectionD1-3-04, Lender Post-Closing Quality Control Review of Appraisers, Appraisals, Property Data Collectors, and Property Data Collection.

Reconsideration of Value

For loans requiring an appraisal report, the lender must have policies and procedures in place for a borrower-initiated reconsideration of value (ROV). At a minimum, the ROV process must meet Fannie Mae requirements and adhere to all applicable local, state, and federal laws.

The ROV process must include a review and resolution procedure for the ROV request, and steps for the borrower(s) to appeal an appraisal when it is believed the opinion of value

• is unsupported, 
• may be deficient due to unacceptable appraisal practices, or
• reflects prohibited discriminatory practices.

Regardless of the outcome of the ROV, the lender is responsible for ensuring the appraisal report and opinion of market value are reliable and adequately supported.

The lender must provide a disclosure to the borrower outlining the ROV process at the time of loan application and again when the appraisal report is provided to the borrower. The disclosure must make it clear that only one borrower-initiated ROV is permitted per appraisal. The following table describes the information required to initiate the ROV process.

In addition to the borrower ROV submission requirements, the lender's ROV policies and procedures must include instructions on required information for a borrower-submitted ROV and standardized communication to the appraiser. The following table describes additional lender requirements.

If material deficiencies identified in the appraisal report are not corrected or addressed by the appraiser upon request, or if there is evidence of any unacceptable appraisal practices detailed in B4-1.1-04, Unacceptable Appraisal PracticesB4-1.1-04, Unacceptable Appraisal Practices, the lender must forward the appraisal report and summary of findings to the appropriate appraisal licensing agency or regulatory board. The lender must also report suspected overt violations of anti-discrimination laws to the proper local, state, or federal agency. In the event of these occurrences, the lender may obtain a second or subsequent appraisal report.

Note: After a loan has closed, an ROV request is no longer allowed to be submitted by the borrower.

Fannie Mae conducts different levels of due diligence for quality control purposes and may refer unacceptable appraisal reports to state appraiser licensing or regulatory boards for investigation.

Fannie Mae’s objectives in referring appraisal reports to state appraiser licensing or regulatory boards are

• to emphasize continuing efforts to maintain the quality of appraisals,

• to protect Fannie Mae’s interest,

• to improve the quality of mortgages delivered to Fannie Mae by identifying appraisers that have performed appraisals of a sufficiently poor quality as to impair the security interests,

• to help the industry enhance the quality of appraisals by identifying and referring appraisals that are not adequately supported or credible, and

• to help enforce professional standards.

Note: Fannie Mae’s decision to make such referrals does not affect the lender’s responsibility for managing the property valuation and appraisal review process.

Fannie Mae may refuse to accept appraisals prepared by specific appraisers, or Fannie Mae may notify a lender that appraisals prepared by a given appraiser are no longer accepted. When a lender is notified that appraisals from specific appraisers are no longer accepted, the lender is prohibited from delivering mortgages to Fannie Mae secured by properties appraised by that individual immediately following its receipt of Fannie Mae’s notice.