Date:
February 14, 2006 (with correction on page 4)
To:
All Fannie Mae Single-Family Mortgage Sellers and Servicers
Subject:
LL01-06:
Hurricane-Related Special Relief Measures
Almost six months after Hurricanes Katrina and Rita (“the Hurricanes”) struck the Gulf
Coast, servicers have successfully helped many homeowners work through very difficult and
challenging situations. Unfortunately, due to the magnitude of the damage and the
uncertainties that continue to exist, many homeowners are understandably not yet in a
position to make final decisions about rebuilding and returning to their homes. Therefore,
Fannie Mae and our servicers continue to put our primary focus and our energies on
forbearance policies, repayment plans, modifications, and insurance settlements.
Our disaster relief provisions require servicers not to begin, or continue, any legal action
until they can review any effect the disaster may have had on the condition of the property
or the borrower's employment or income status. Those provisions also make it clear that
foreclosure proceedings may begin (or continue) only when foreclosure is the only
alternative. Given the additional time it is taking for some borrowers and servicers to
determine the best solution, we expect servicers to continue to defer any legal action until
they have the information to complete the assessment.
Of particular concern to us, our servicers, and others in the industry are situations when
servicers have still not heard from, or been able to contact, borrowers who had to leave their
homes due to the Hurricane damage. We are aware of servicers’ efforts to try to locate and
contact borrowers and, as noted below, Fannie Mae is prepared to help with those efforts.
This Letter updates our guidance on various servicing and underwriting issues. Based on our
frequent discussions with servicers, we continue to strive for policies and guidance that
enable servicers to operate in the most effective and efficient manner as they assist
borrowers and carry out their responsibilities.
-2-
Contacting Borrowers
We urge our servicers to continue proactive attempts at contacting borrowers using all
means and available information. When, despite these efforts, a servicer is still unable to
locate a borrower, especially a borrower who owns one of the properties identified by
Fannie Mae as likely to have incurred damage, the servicer should submit a request to us for
assistance in contacting the borrower. In some cases, we will work with commercial search
service providers to perform a comprehensive multi-state search in an attempt to locate the
borrower.
Servicers
should
submit
all
requests
via
e-mail
to
[email protected].
With respect to contacting borrowers who are in bankruptcy when the automatic stay is in
effect, servicers are encouraged to consult with their bankruptcy counsel to determine how
to permissibly communicate with borrowers regarding these issues. As one alternative,
servicers may consider conducting communications through the borrowers’ bankruptcy
counsel.
Continuing Forbearance
The continuation of a forbearance plan may be appropriate when the borrower has
expressed a desire to retain the property but is not yet able to resume making payments. In
addition, a forbearance plan may be appropriate under other circumstances, such as:
• The borrower has a pending insurance claim.
• The borrower is in the process of rebuilding.
• The borrower is in the process of finding a new job.
• The borrower is in the process of relocation.
Servicers should continue working with these borrowers to provide assistance, including
continued suspension or reduction of mortgage payments, which addresses the particular
circumstances faced by each borrower. Our Servicing Guide provides guidance for
forbearance terms in natural disaster situations.
Foreclosure Moratorium
We are establishing a moratorium on foreclosures in counties and parishes where properties
securing mortgages sustained moderate and significant damage. The states and their
respective counties or parishes affected by this moratorium are:
Alabama - Baldwin, Clarke, Mobile, and Washington;
Louisiana - Cameron, Jefferson, Orleans, Plaquemines, St. Bernard, St. Tammany, and
Calcasieu;
Mississippi - George, Hancock, Harrison, Jackson, Pearl River, and Stone; and
Texas – Jasper, Jefferson, Newton, and Orange.
This moratorium of any foreclosure action of mortgages secured by properties in these
counties or parishes will extend through the end of May 2006.
-3-
For mortgages in these counties and parishes that are in special servicing MBS pools,
servicers will follow the standard reclassification process as stated in Part VI Chapter 3, of
the Servicing Guide. The result is that any seriously delinquent MBS pool mortgage has to
be removed from the MBS pool under this moratorium.
For mortgages in these counties and parishes that are in regular servicing MBS pools,
servicers will follow established servicing requirements for seriously delinquent mortgages as
stated in the Servicing Guide, Part VIII, Chapter 1.
During the moratorium, servicers should continue their efforts to contact or to maintain
contact with borrowers to determine what additional steps can be taken to tailor loss
mitigation solutions that address the particular circumstances faced by each borrower.
Foreclosure alternatives such as deed-in-lieu and pre-foreclosure sales should be encouraged
if the homeowner is not in a position to cure the mortgage delinquency using our other loss
mitigation options.
Foreclosure Approvals
In Lender Letter 03-05, we asked that servicers obtain written approval from Fannie Mae
before beginning or continuing any foreclosure action with respect to a mortgage secured by
a property located in the counties and parishes that were designated by the Federal
Emergency Management Agency (“FEMA”) as eligible for Individual Assistance (the
“FEMA Disaster Areas”). We are revising this requirement in this Lender Letter to take into
account changing circumstances.
All mortgages not secured by properties in the counties and parishes under the moratorium
should be handled in one of two ways:
q If the property sustained significant damage or the servicer has been unable
to contact the borrower, the servicer must obtain our prior approval before
beginning or continuing a foreclosure action.
q In all other cases, the servicer should follow established foreclosure policies.
Foreclosure Evaluation Process
Decisions to begin, continue, or recommend a foreclosure action should be made only after
the servicer’s investigation and analysis supports a conclusion that foreclosure is appropriate
and is the only alternative under the circumstances. If after the review and evaluation, a
servicer is in doubt about beginning or continuing a foreclosure action, the servicer should
contact Fannie Mae.
We are providing the following guidance to assist servicers when determining whether to
begin, continue, or recommend a foreclosure:
-4-
1.
The servicer should first determine whether the mortgage is secured by one of the
properties in the counties and parishes under the moratorium. Those mortgages are
excluded from foreclosure action.
2.
If the mortgage is secured by a property that is not in the counties and parishes
under the moratorium, the servicer must conduct a property inspection, and
q determine the extent of any damage,
q determine if any damage adversely impacts the property value and makes
foreclosure impractical, and
q determine if the property is affected by environmental hazards.
If the property has sustained significant damage and is not in the counties and parishes
under the moratorium, the servicer must obtain our approval to pursue foreclosure. [The word
“not” was inserted in the preceding sentence as a correction made February 16, 2006.]
Fannie Mae should be contacted when a servicer determines that the property is affected by
environmental hazards.
3.
When the servicer has been unable to contact the borrower, the servicer should be
able to demonstrate that all reasonable means of contacting the borrower have been
exhausted. The servicer may be asked to provide Fannie Mae with information on its
attempts to proactively contact borrowers. If Fannie Mae decides to conduct a
comprehensive search in an attempt to locate a borrower, the information on the
servicer’s search efforts will minimize duplication of efforts. If the servicer has been
unable to contact the borrower, the servicer must obtain our approval to pursue
foreclosure.
4.
When the borrower has been contacted, the servicer should be able to demonstrate
that all reasonable efforts to cure the delinquency, using our special relief provisions
or loss mitigation alternatives, have been exhausted. Additionally,
q The servicer should maintain all relevant information in support of its efforts
to cure the delinquency.
q The servicer must document the borrower’s intent regarding the property,
including the borrower’s desire and ability to cure the delinquency.
q The servicer should document the effect of the disaster on the borrower’s
income and/or employment.
5.
For bankruptcy cases, the determining factors for foreclosure are:
q whether relief from the automatic stay has been obtained, or
q whether the property was surrendered in a Chapter 7 bankruptcy case.
6.
The servicer should ensure that hazard and/or flood insurance claims, including
claims on flood insurance that the borrower may have voluntarily obtained, have
been filed and proceeds received.
If, after the investigation and analysis the servicer concludes that foreclosure is appropriate
and is the only alternative under the circumstances, the servicer should begin, continue, or
recommend a foreclosure action. For those mortgages requiring our approval to foreclose, a
-5-
servicer must submit a request via e-mail to [email protected]. We are
requesting that servicers provide to us additional information when submitting a request for
our approval to foreclose (see Attachment 1). This information will assist us in determining
whether to authorize foreclosure, continue loss mitigation, or take other action. Servicers are
required to provide the information in a format (preferably in Microsoft Excel) that is
consistent with the order in which the data elements are presented in Attachment 1.
Bankruptcy
As set forth in the Servicing Guide, the servicer (assisted by appropriate legal counsel)
should take all actions that are necessary to protect our interests in bankruptcy cases, e.g., by
filing proofs of claim, monitoring proceedings, pursuing loss mitigation, and reviewing and
objecting to bankruptcy plans if appropriate. However, servicers should not seek relief from
the automatic stay at this time to foreclose on properties in the counties and parishes under
the moratorium. Moreover, before seeking relief from the automatic stay in order to
foreclose upon a property that is not in the counties and parishes under the moratorium and
is significantly damaged, or is owned by a borrower whom the servicer has not been able to
contact, the servicer must obtain Fannie Mae’s written approval to foreclose (see discussion
above). We recognize that, with respect to these situations, there may be reasons to seek
relief from the automatic stay aside from a desire to foreclose, such as to deal with insurance
proceeds. In such cases, the servicer may file a motion for relief from the automatic stay
without having received Fannie Mae’s written approval to foreclose.
If Fannie Mae has approved foreclosing on a property and the borrower subsequently files a
bankruptcy case, no additional approval is needed from Fannie Mae for a servicer to seek
relief from the automatic stay.
Additional Legal Fees
We anticipate that additional legal fees may be incurred as a result of the need to restart
foreclosures that have been put on hold as a result of the Hurricanes, because of the need to
bring foreclosures judicially in Mississippi in some cases, or for other reasons. If the case is
managed through our Retained Attorney Management Network, a request for the approval
of excess fees should be submitted through our Retained Attorney Management Network
application. If the case is not being managed through our Retained Attorney Management
Network, a request for approval of excess fees should be submitted using our existing
request template and sent to [email protected].
We also want to remind servicers that when a foreclosure action is put on hold, the fee that
the attorney (or trustee) charges in connection with the foreclosure proceedings must be
prorated to the amount of work actually performed before the foreclosure action was
stopped, and consistent with our standard reimbursable fee (or any additional fee we
authorized). Additionally, before requesting reimbursement for fees paid to an attorney (or
trustee), a servicer must review and approve the fees and costs to ensure that they are in
compliance with our guidelines.
-6-
Short Payoffs
Some servicers have asked whether we would consider granting delegated authority to
approve short payoffs on disaster-affected mortgages. While we are committed to creating
efficiencies for our servicers, the challenging nature of the issues involved in approving short
payoffs, such as determining property values, prevents us from delegating these approvals.
Property Preservation
Our Servicing Guide requirements for property preservation and protection provide that
servicers must pay all "out of pocket" costs and expenses incurred when performing
servicing obligations in preserving and protecting the security property. Generally, these
servicing advances may be recovered from the borrower, insurance proceeds, or other
available sources. When the cost or expense relates to protection of the security or
foreclosure costs for a whole mortgage or a participation pool mortgage held in our
portfolio, or for an MBS pool mortgage serviced under the special servicing option, we will
reimburse the servicer for such unrecovered costs or expenses.
Prepayment Premiums
In Announcements 04-03 and 04-06, we discussed our criteria for mortgages that contain
prepayment premiums. In those Announcements, we encouraged lenders to waive all or part
of a prepayment premium if a mortgage is paid off prior to its maturity because the home is
sold. As a result of the Hurricanes, a number of borrowers may choose to prepay their
mortgage obligations with insurance proceeds rather than repair or rebuild. We encourage
servicers to waive the prepayment premium for those Hurricane impacted borrowers who
choose to prepay their mortgage obligations.
Disbursement of Hazard Insurance Proceeds
Servicers are reminded that Announcement 05-06 provided streamlined procedures for
disbursing insurance claim proceeds as a result of natural disasters. These procedures are
based on the status of the mortgage and the extent of the damages and provide lenders with
more discretion to release insurance proceeds on mortgages that were current prior to the
disaster.
Delinquency Status Reporting
Some servicers are not reporting “delinquency status” and “reason for delinquency” codes
when transmitting monthly delinquency status information - particularly on hurricane
impacted mortgages. We want to remind servicers of their obligation to report the
appropriate "delinquency status" and "reason for delinquency" codes as part of their next
scheduled delinquency status report as described in the Servicing Guide, Part VII, Chapter 6:
Delinquency Status Reporting. The servicer must report the specific "delinquency status"
-7-
code that best describes the latest action it has taken to cure a delinquency or, if that failed,
to liquidate the mortgage. The servicer also must report the specific "reason for
delinquency" code that best describes the primary reason for a delinquency. There may be
multiple reasons for any given delinquency, however, the servicer should report the
delinquency code that most specifically describes the circumstance that appears to be the
primary contributing factor to the delinquency.
Servicing Questions and Answers
Attachment 2 contains additional servicing related questions and answers based on questions
we have received from servicers since the Hurricanes. Servicers must adhere to Fannie
Mae’s published servicing guidelines relating to natural disasters as well as the Lender Letters
issued in the aftermath of the Hurricanes. These questions and answers supplement those
guidelines by using examples and providing suggestions.
Property Valuation Questions and Answers
In Lender Letter 02-05, we issued property valuation guidance on appraisals for properties
that have been impacted by the Hurricanes. Since then, lenders have requested policy
interpretations concerning property valuation issues. Attachment 3 contains questions and
answers to clarify the application of our property valuation policies.
******
Servicers and lenders should contact their Servicing Consultant or Customer Account
Manager or call our National Servicing Organization's Customer Care Center at 1-888-3266438 (enter special code 7222 for Hurricane-related questions) if they have any questions
about the topics discussed in this Lender Letter.
Pamela S. Johnson
Senior Vice President
Attachments (3)
-1-
Attachment 1
Additional Information to be Provided when Submitting Requests to Seek
Fannie Mae’s Approval for a Foreclosure
(all requests must be sent to
[email protected])
Field Number
Requested Information
1
2
3
Fannie Mae loan number
Servicer loan number
Describe loss mitigation efforts and provide justification for pursuing
foreclosure
Suspense Balance - amounts collected and placed in a suspense account and
not yet applied to the loan
Current Escrow Balance – enter negative amount if negative
Corporate advances made to a 3rd party (for taxes, insurance, etc.) and not yet
collected from the borrower
If this loan is a 2nd lien what is the unpaid principal balance of the 1st lien?
If available, estimated fees to be incurred for legal actions relating to a
bankruptcy/foreclosure that are over Fannie Mae’s allowable attorney or
trustee fees
Amount of taxes due in the current year
Percent of mortgage insurance coverage on loan
Amount of hazard claim proceeds collected and not yet applied to the debt
Amount of hazard claim proceeds pending and not received by servicer
Amount of flood claim proceeds collected and not yet applied to the debt
Amount of flood claim proceeds pending and not received by servicer
4
5
6
7
8
9
10
11
12
13
14
-1-
Attachment 2
Servicing Questions and Answers
Q 1: What is Fannie Mae’s expectation for standard financial information when a
servicer is developing terms for either a repayment plan or a mortgage modification?
In Lender Letter 03-05, we stated that servicers should consider each borrower’s financial
circumstances in order to develop terms for a repayment plan or a modification that the
borrower will find affordable. While we expect that a servicer will obtain financial
information before determining which relief measure is most appropriate for a given
borrower (including extending the term to 480 months), the servicer is not required to
include the information in Home Saver Solutions Network.
Q 2: What if a borrower whose property is located in one of the FEMA Disaster Areas
has informed the servicer that he or she no longer desires to retain the property and
has insufficient funds to satisfy the mortgage obligation?
The borrower should be reminded of his or her obligation to satisfy the mortgage debt.
Occasionally, the use of relief provisions may not be feasible or productive. When all
measures short of foreclosure have been exhausted for a conventional mortgage, the servicer
should consider recommending to us one of the following:
• The servicer may consider recommending a preforeclosure sale to Fannie Mae.
Under this procedure, when the borrower cannot sell his or her property for the full
amount of the indebtedness to us, we will consider accepting a payoff of less than
the total amount owed on the mortgage, if that will enable us to reduce the loss we
would incur if we foreclosed and acquired the property.
• The servicer may consider recommending that Fannie Mae accept a deed-in-lieu of
foreclosure from a borrower who is experiencing financial hardship if other relief
measures or loss mitigation alternatives are not feasible. The servicer should require
the borrower to submit a letter to request acceptance of a deed-in-lieu, provide
documentation related to his or her financial hardship, and to acknowledge that our
acceptance of a deed-in-lieu would be an accommodation.
Both of these permanent loss mitigation alternatives for mortgages impacted by the
Hurricanes require prior approval by Fannie Mae.
Decisions to accept a preforeclosure sale or a deed-in-lieu typically require a determination
of current property value. Because of the challenging nature of assessing property values,
particularly for those properties in areas that sustained significant damage, Fannie Mae will
be working closely with servicers on these workout situations. To request our approval for
either a preforeclosure sale or a deed-in-lieu, the servicer should transmit a description of the
borrower's financial circumstances, general summary information about satisfaction of the
eligibility criteria for the recommendation, an indication of whether the borrower can make a
cash contribution, and its recommendation through our Home Saver Solutions Network.
Servicers do not have to provide a property market value analysis (an appraisal).
-2-
The servicer should not recommend a preforeclosure sale or a deed-in-lieu when the
property is affected by environmental hazards. The servicer should instead contact Fannie
Mae for further guidance.
Q 3: What should a servicer do if it has been unable to make contact with the
borrower and it has received insurance claim proceeds?
We require servicers to try to contact borrowers whose mortgages are in forbearance to
determine their intentions with respect to their properties, to determine the effect of the
disaster on the borrowers’ employment and income status, and to discuss loss mitigation
alternatives. If the borrower cannot be located after the servicer has exhausted all
reasonable efforts to contact the borrower, then:
• if the insurance proceeds are sufficient to pay the mortgage in full, we expect
servicers to apply the insurance claim proceeds to the mortgage indebtedness if
permitted to do so by (and in accordance with) the terms of the mortgage instrument
and applicable law;
• if the insurance claim proceeds are insufficient to pay the mortgage in full, servicers
should contact Fannie Mae for further guidance.
Q 4: Should a mortgage be reamortized if the borrower requests that insurance claim
proceeds be used to reduce the debt?
Yes. When a borrower makes a substantial principal curtailment, he or she may request that
the mortgage balance be reamortized to reduce the mortgage payment. If this happens, the
servicer should treat the request as a request for a formal mortgage modification, requiring
the borrower to complete an Agreement for Modification or Extension of Mortgage (Form 181). The
servicer may agree to such requests for any current portfolio mortgage or for a current first
mortgage that is in an MBS pool—by reducing the P&I payment only (based on a
reamortization of the current principal balance using the current interest rate and remaining
mortgage term). In the case of a delinquent mortgage, any funds submitted must be applied
toward curing the delinquency. If there are any remaining funds, the servicer may then apply
them as an additional principal payment.
Q 5: What should happen if an insurance claim(s) has not yet been filed?
Servicers must ensure that hazard and, if applicable, flood insurance claims are filed. If the
servicer becomes aware of a loss and the borrower has not filed a proof of loss, the servicer
must take appropriate action to ensure that the proof of loss is filed within the time period
specified in the insurance policy.
-3-
Q 6: Should a servicer cancel the borrower’s insurance policies?
No. The servicer should not cancel the borrower’s insurance policies. However, servicers
should contact Fannie Mae regarding the continuance of individual lender-placed insurance
policies or requests by borrowers to cancel or reduce insurance coverage.
Q 7: How should servicers manage emergency repairs or property preservation
issues?
Servicers should continue to ensure that properties are secure and protected from further
damage. If the costs associated with property preservation have been denied by the
insurance carrier, a request can be sent to Fannie Mae for consideration. Requests should be
sent to [email protected].
-1-
Attachment 3
Property Valuation Questions and Answers
Q 1:
Is Fannie Mae willing to accept streamlined property appraisals or valuation
alternatives for the areas impacted by the Hurricanes?
No. We are continuing to require lenders to use state-licensed or state-certified
appraisers to appraise properties based on interior and exterior inspections for
properties to be secured by mortgage loans for delivery to Fannie Mae. We have not
received any reports from lenders about shortages of state-licensed or state-certified
appraisers in the areas impacted by the Hurricanes.
Q 2:
Will Desktop Underwriter offer streamlined
recommendations for properties in the affected areas?
property
fieldwork
No. Properties in the affected areas will only receive an appraisal recommendation
based on an interior and exterior property inspection.
Q 3:
When should the property be appraised “as-is” versus “as-repaired”?
We permit an appraisal to be based on the “as-is” condition of the property as long
as no adverse conditions exist that affect the livability, soundness, or structural
integrity of the property, and the appraiser's opinion of value reflects the “as-is”
condition of the property. When conditions exist that affect the livability,
soundness, or structural integrity of the property, the property must be appraised
subject to completion of the specific alterations or repairs (“as-repaired”). In
addition, the lender must obtain a completion report from an appraiser that confirms
that the alterations or repairs have been performed and support the “as-repaired”
value of the property, before it delivers the mortgage to us.
Q 4:
When should the property be appraised subject to an inspection?
The appraiser has a responsibility to note in the appraisal report any adverse
conditions that were observed during his/her inspection of the subject property or
that he or she became aware of during the normal research involved in performing
the appraisal. In situations where an adverse condition may be observed by the
appraiser, but the appraiser may not be qualified to decide whether that condition
requires repair, the property must be appraised subject to an inspection by a qualified
professional. In such cases, the lender must have the property inspected by the
appropriate professional, and any adverse conditions must be repaired before the
lender delivers the mortgage to Fannie Mae.
-2-
Q 5:
Does the appraiser need to rely on post-Hurricane comparable sales (closed
sales and/or contracts for sale) to develop an accurate opinion of market
value for properties in the market areas that experienced significant property
damage?
Yes. The appraiser must rely on post-Hurricane closed comparable sales that closed
based on a post-Hurricane contract for sale and/or post-Hurricane contracts for
sale, from the subject neighborhood and/or competing neighborhoods as the basis
for the value conclusion for post-Hurricane appraisals for properties in the market
areas that experienced significant property damage. The recent contracts for sale
that are based on post-Hurricane market activity are most likely the best indicators of
value for post-Hurricane appraisals for both the hardest-hit areas with significant
property damage as well as the locations with lesser damage. We recognize that, at
least in the short-term, there may be limited post-Hurricane closed comparable sales
and/or contracts for sale available to measure the impact of the Hurricanes.
Therefore, the appraiser may need to use some comparable sales that closed prior to
the Hurricanes, or contracts for sale executed prior to the Hurricanes, but in no
event may only pre-Hurricane comparables be used. The appraiser may submit more
than three comparable sales to support the value opinion, as long as at least three are
closed sales.
Q 6:
What is Fannie Mae’s expectation when no post-Hurricane closed
comparable sales and/or contracts for sale are available to measure the
impact of the Hurricanes?
We recognize that, at least in the short-term, there may be no post-Hurricane closed
comparable sales and/or contracts for sale available to measure the impact of the
Hurricanes for some neighborhoods, such as those that are in the hardest hit areas
where there is extreme property damage. In such cases, the appraiser will not be able
to develop an accurate current opinion of market value due to the lack of an active
residential real estate market, demonstrated by a lack of post-Hurricane closed
comparable sales and/or contracts for sale. If the appraiser cannot develop an
accurate opinion of market value, the mortgage will not be eligible for delivery to
Fannie Mae.
Q 7:
Does the appraiser need to rely on post-Hurricane comparable sales (closed
sales and/or contracts for sale) to develop an accurate opinion of market
value for properties in the market areas that experienced only minimal
property damage?
Not necessarily. Although the recent closed post-Hurricane comparable sales that
closed based on a post-Hurricane contract for sale, and/or post-Hurricane contracts
for sale are most likely the best indicators of value for post-Hurricane appraisals for
the areas with significant property damage as well as the locations with minimal
damage, many of the counties that FEMA has designated as eligible for Individual
Assistance experienced a level of damage that does not appear to have had an
-3-
adverse impact on the local residential real estate market. For instance, some of the
market areas north and west of New Orleans have experienced post-Hurricane
appreciation in market value. In addition, post-Hurricane markets in many of the
local residential real estate markets in the counties in central and northern Mississippi
that FEMA designated as eligible for Individual Assistance appear to be functioning
as they did pre-Hurricane. In such cases, the appraiser’s reliance on post-Hurricane
closed sales and/or contracts for sale is not critical. Therefore, we will accept
appraisals on properties in market areas with minimal property damage based on preHurricane comparable sales as long as the appraiser is able to demonstrate that the
Hurricanes did not have an adverse impact on the local real estate market and he or
she is able to develop an accurate opinion of the market value of the property.
Q 8:
Is it necessary for the appraiser to report post-Hurricane contracts for sale in
a sales comparison analysis adjustment grid in addition to post-Hurricane
and/or pre-Hurricane closed sales to support the value conclusion for postHurricane appraisal reports?
No. The appraiser may use post-Hurricane contracts for sale by presenting the
sale(s) in an adjustment grid in addition to three closed post-Hurricane and/or preHurricane sales or as market data support in the comments section below the
adjustment grid (or in an addendum) to support his or her conclusions about the
subject market area. The analysis of and reliance on post-Hurricane closed sales
and/or contracts for sale may be necessary to develop an accurate post-Hurricane
opinion of market value. The appraiser must perform this analysis and provide his
or her support for any “Time” or market condition adjustments to reflect the value
of the property based on the current market conditions. In addition, it is acceptable
for the appraiser to simply summarize his or her conclusions about the subject
market area for locations that experienced a level of damage that did not have an
impact on the local residential real estate market.
Q 9:
We have received reports that few, if any, property sale transactions have been
recorded in some market areas since the Hurricanes. What does Fannie Mae
expect an appraiser to do to verify the terms of recent sales?
Appraisers are expected to use all available market data in their analysis of properties
in areas impacted by the Hurricanes. Therefore, the appraiser must analyze and
report on contracts for sale for the subject neighborhood and competing
neighborhoods as the basis for the value conclusion for post-Hurricane appraisals.
Appraisers are required to verify the terms of recent contracts for sale through real
estate agents and brokers (since that information is not generally disclosed in the
MLS data until the sale is closed and the transaction has been recorded).
-4-
Q 10: Are mortgages secured by properties in areas that have experienced postHurricane appreciation in value, which may or may not be sustainable,
eligible for delivery to Fannie Mae?
Yes. We will accept mortgages secured by properties that have experienced postHurricane appreciation because of the increased demand for undamaged housing as
long as the appraiser’s adjustments to the comparable sales for the increase in value
are representative of the market. “Time” adjustments must be supported by
comparable sales. In such cases, the appraiser must analyze and support the “Time”
adjustments in the appraisal report with post-Hurricane closed comparable sales or
post-Hurricane contracts for sale. This level of analysis will enable the appraiser to
measure the impact of the Hurricanes on property values and to develop an accurate,
current opinion of market value.
Q 11: Are appraisal reports that contain supplemental statements or limiting
conditions to address the uncertainty raised by the Hurricanes acceptable to
Fannie Mae?
No. We will not accept appraisals with supplemental statements or limiting
conditions that address the Hurricanes. Such statements or limiting conditions to
the appraisal could result in an inaccurate value conclusion because the dynamics of
the market may have been ignored. Although we will permit an appraiser to add
certain certifications to an appraisal report, we will not purchase or securitize a
mortgage when an appraiser has added a limiting condition to the appraisal report.
We recognize that, at least in the short term, there may be limited market data
available to measure the impact of the Hurricanes. In view of this, we will accept the
following notice for appraisals in the market areas affected by the Hurricanes, for
such time as it is relevant to the facts pertaining to a particular property:
The effective date of this appraisal assignment is subsequent to Hurricane
Katrina and/or Hurricane Rita. The appraiser has researched and analyzed
all reasonably available data to arrive at an accurate appraisal of the subject
property. The reader is cautioned that as additional data become available
the value conclusion in this report may be affected.