FAQs Fannie Mae
Providing Mortgage Liquidity For A Brighter Future
FANNIE MAE
Officially named the Federal National Mortgage Association (FNMA), is a government-sponsored enterprise (GSE) that plays a vital role in the U.S. housing finance system. It was built by Congress in 1938, and it operates in the secondary mortgage market, buying mortgages from lenders and then packaging them into mortgage-supported securities (MBS) that are sold to investors. By doing so, FANNIE MAE provides liquidity to the mortgage market and helps facilitate homeownership.
FANNIE MAE’s activities help to increase the availability and affordability of mortgage credit. By purchasing mortgages from lenders, FANNIE MAE allows lenders to restock their funds and make new loans to borrowers. It helps to uphold a steady flow of mortgage funds in the market and supports access to homeownership for a wide range of borrowers.
While the U.S. government created FANNIE MAE, it is not a government agency. It is a publicly-traded company, explicitly its operations are controlled by the Federal Housing Finance Agency (FHFA). FANNIE MAE operates with a public mission to facilitate stability and affordability in the housing market.
Fannie Mae Guidelines & Appraisal Reporting
Several of the most utilized Fannie Mae guidelines are most particularly areas regarding the subject in comparison to comparable properties. Highly reliable comparable selection will determine the market value and typically this is the area in which most lenders and/or clients and readers such as borrowers need clarification. The items outlined need to be followed and MUST be addressed on all home loans.
Fannie Mae Appraisal Guidelines
Appraisers Comparable Selection Requirements
The appraiser is responsible for determining which comparables are the best and most appropriate for the assignment. Fannie Mae expects the appraiser to account for all factors that affect value when completing the analysis. Comparable sales should have similar physical and legal characteristics when compared to the subject property. These characteristics include, but are not limited to, site, room count, gross living area, style, and condition. This does not mean that the comparable must be identical to the subject property, In particular, it should be competitive and appeal to the same market participants that would also consider purchasing the subject property.
Limited Sale Comparables
Comparables being significantly different from the subject property can be acceptable, providing that the appraiser describes the differences, consider these factors in the market value, and provide an explanation justifying the use of the comparable(s)In a perfect world an appraiser would have comparable sales within the same neighborhood of the same style, square footage, age, lot size, updates/upgrades, exterior amenities, bedrooms/bathroom count, condition, and quality of construction. Unfortunately, this rarely happens. So, upon arriving at the comparable selection an appraiser chooses properties that are the most reflective of the subject property while also conforming to the wide array of lender and/or Fannie Mae guidelines. These guidelines often may have an impact on the appraised value. comparable selection
Settled Sale Dates
- Fannie Mae, lenders and/or clients prefer the selection of 2 properties that have settled within the past 90 days.
- Older comparable sales that are the best indicator of value for the subject property can be used if appropriate.
- Comparable sales that are more than six months old must be accompanied by an appraiser explanation for use.
- A minimum of 3 comparable sales that have been settled or closed within the last 12 months must be reported as part of the sales comparison approach to value.
Distance Guidelines
- Comparable properties should be within one mile and are typically the standard for lenders and/or Fannie Mae.
- This is typically achieved in a more densely populated suburban or urban area.
- Problems with this guideline occur when the property is in a rural area.
- Rural properties often have large lot sizes and rural locations can be relatively undeveloped; therefore, there may be a shortage (or absence) of recent truly comparable sales in the immediate vicinity of a subject property that is in a rural location.
- Comparable sales located a considerable distance from the subject property can be used if they represent the best indicator of value for the subject property.
- In this situation, the appraisal must include an explanation of why the comparable properties were selected. Many factors for the lack of comparable properties within a mile. These can be presence of an in-ground pool, large site size or outbuildings are just a few reasons why one-mile would be exceeded and would need comments in the report.
Bracketing
In selecting comparable sales and listings Fannie Mae, clients and/or lenders would prefer to use the bracketing method. To demonstrate, bracketing is a method of using at least one comparable superior and one inferior to the subject feature. It is preferred to use as many bracketed items as possible:
- Adjusted & Unadjusted Sale Price
- Style
- Gross Living Area (GLA)
- Lot Size
- Condition
- Bedroom & Bath count
- Price per SF
- Foundation type
- Basement (GBA) & Finish
- Other Major Physical Characteristics
Land Value exceeding 30% of market value
Furthermore, If this land to market value percentage/ratio exceeds 30% a comment is warranted. This is often the situation on large parcels of land or waterfront lots or areas where buildable land is in higher demand.
Gross Living Area (GLA) Square Footage
Comparable properties should be within 15% of the subject. Anything beyond that will warrant additional commentary. In this situation an expanation is needed.
Bedrooms, Size & Egress and Other Requirements
- Similar bedroom count is most appropriate.
- Typically, at least two comps should have the same bedroom count.
- One more or fewer bedroom is ordinarily acceptable for 3+ bedroom homes.
- Two-bedroom homes being appraised should have one or more two-bedroom comparable properties
- Three- and four-bedroom homes can usually be compared with appropriate commentary and availability in the market.
- Bedroom counts exceeding what is typical in the market requires commentary. Some examples are garage conversions, room additions and splitting of larger bedrooms or sitting areas.
- Per the (IRC)Bedroom minimum size is 70 sf. The minimum wall length is 7 feet. Furthermore, if a bedroom is 6 feet by 12 feet it may meet the minimum size however it does not meet the minimum size guidelines due to not meeting the minimum wall length.
- Bedrooms must have ingress/ egress and 4 walls to be considered. Typically, a window and a door. Rooms such as open loft space are not considered a bedroom by the market.
- A closet is not always required to be a bedroom. Fannie Mae has no requirement that a bedroom must have a closet. This is especially true of older homes. However, in newer construction neighborhoods where a closet in the bedrooms is expected, not many buyers in that neighborhood would want to buy a house without closets in the bedrooms. It’s always best to check the local residential codes because your local code may require one. For the valuation purpose, the appraiser expects to see closets in your bedrooms and if applicable may apply a functional utility adjustment for missing closets.
Homes of Differing Styles
- The appraiser is required to report the architectural Design/Style of the subject and comparable properties.
- Design descriptions include colonial, cape cod, split level, Bi level, contemporary, Georgian, provincial, farmhouse etc.
- Fannie Mae and/or the lender require the appraiser to provide at least one closed sale that has the same (or similar) design style as the subject, even if it is necessary to extend the search parameters (in time or distance).
- If absolutely no such closed sale is available, even after extending standard search parameters, specific commentary must be provided describing the research efforts and search parameters used.
Seller Concessions & Adjustment Guidelines
Special attention will be paid to sales or financing concessions in markets that are experiencing declining property values, an oversupply of properties, or marketing times over six months as seller concessions may be most prevalent in the market and require some amount of adjustment if they directly impact sale prices.
Predominant Value
The appraiser must state the predominant price as a single figure or as a range, if more appropriate.
The price range must reflect high and low prevailing prices for the property type being appraised. Additionally, high and low (outlier) extremes should be excluded from the range, which means that the predominant price will be that which is the most common or most frequently found in the neighborhood.
Other Fannie Mae Requirements
- Accuracy
- Knowledge of the area or geographical competency
- Determining highest and best use
- Zoning restrictions & compliance
- Eligibility criteria, conformity
- Environmental issues
- Documenting repairs and related comments
- Calling for qualified inspections
Additional data and/or requirements for appraisers, lenders, underwriters, mortgage requirements, liability assessments and eligibility requirements can be found at https://www.fanniemae.com