Due to the Presidential Disaster Declaration issued on March 13, 2020, certain governmental entities (GSE’s) have issued guidance to assist financial institutions in providing necessary services to the public. On April 14, 2020, the GSE’s adopted an interim final rule to amend the agencies’ regulations regarding appraisals of real estate for certain transactions. The interim rule outlines existing flexibilities and temporary changes to industry appraisal standards and regulations. Interim Rule
The temporary changes require appraisals be completed in compliance with USPAP. Since USPAP does not require an inspection, desktop and exterior-only reports can fulfill this requirement. Advisory Opinion 2 states an appraiser can determine the characteristics of a property through a variety of sources including property inspection, asset records, photographs, property sketches, and recorded media. The interim rule allows appraisers to rely on information from an interested party to the transaction (borrower, real estate agent, property contact, etc.) with clear appraisal disclosure when additional verification is not feasible. The appraisal report must contain adequate information to enable the intended users to understand the extent of the inspection performed and a signed certification indicating whether the appraiser did or did not personally inspect the subject property and the extent of the inspection.
The Appraisal Standards Board’s USPAP Q&A issued March 17, 2020, indicates an emergency condition may require an appraiser to modify the scope of work and make an extraordinary assumption about the interior of a property. USPAP permits extraordinary assumptions so long as the appraiser has a reasonable basis for the extraordinary assumption and it results in credible assignment results. Regardless of any instructions provided by the GSEs or any other user, it is up to, the appraiser to determine that adequate information is available to produce credible assignment results. If adequate information is not available and/or extraordinary assumptions cannot be made in accordance with USPSP requirements, the appraiser must not perform the appraisal.
The Appraisal Standards Board recently stated that, with proper disclosure, the modification of a “standard” appraisal report form does not result in a misleading report if the modifications do not create a conflict that cannot be properly understood. The GSE’s have authorized the use of specific replacement language that reports completed under the temporary rule must include describing the Scope of Work, Statement Assumptions and Limiting Conditions, and Certifications for Desktop appraisal and a different specific text for Exterior-only appraisals. Lenders have been made aware of the authorized changes to the wording. The modified language can be found here for the Desktop Appraisal and here for the Appraisal with Exterior Only Inspection. The text must be copied and pasted into the form (do not use an image or pdf). In addition, for desktop appraisals, the appraiser must enter “Desktop Only” in the map reference field. Desktop forms include the 1004, 1073, 2090, 1025, or 1004C. For exterior only inspections, the appraiser must enter “Exterior Only” in the map reference field. Exterior-only forms include the 2055, 1075, 2095, 1025, or 1004C. This allows Fannie and Freddie to identify appraisals completed using the temporary rule.
The interim rule temporarily amends the requirement that consumers be provided a copy of the appraisal report prior to closing. It allows appraisals to be deferred for up to 120 days from the closing date. The appraisal must be completed before the interim final rule expires on December 31, 2020, if it is not extended.