Agency Appraisal Requirements

Overview

Carrington Mortgage Services, LLC (CMS) is actively monitoring the spread of COVID-19 (coronavirus) throughout the United States and its potential impact to our borrowers and loan originations. Our ability to continue to serve our customers is a top priority. As the Agencies provide additional Appraisal guidance, this bulletin will be updated and republished.

FNMA Temporary Appraisal Requirement Flexibilities

These temporary flexibilities are effective immediately for all Mortgages in process and remain in place for Mortgages with Application Received Dates on or before May 17, 2020.

Effective immediately, Fannie Mae is allowing temporary flexibilities to their appraisal inspection and reporting requirements. As described below, FNMA will accept an alternative to the traditional appraisal required under Selling Guide Chapter B4-1, Appraisal Requirements, when an interior inspection is not feasible because of COVID-19 concerns. FNMA will allow either a desktop appraisal or an exterior-only inspection appraisal in lieu of the interior and exterior inspection appraisal (i.e., traditional appraisal).

If a traditional appraisal is not obtained and there is insufficient information about the property for an appraiser to be able to complete an appraisal assignment with a desktop or exterior-only inspection appraisal, the loan will not be eligible for delivery to FNMA.

Loan purpose LTV ratio Occupancy Ownership of loan being refinanced Permissible appraisals
(in order of preference)
Purchase* Per Eligibility Matrix Principal residence N/A Traditional appraisal

Desktop appraisal

Exterior-only appraisal

≤ 85% Second home Investment Traditional appraisal

Desktop appraisal

Exterior-only appraisal

> 85% Second home Traditional appraisal
Limited cash-out refinance Per Eligibility Matrix All Fannie Mae-owned Traditional appraisal

Exterior-only appraisal

Not Fannie Mae-owned Traditional appraisal
Cash-out refinance Fannie Mae or not Fannie Mae-owned Traditional appraisal

*Excludes new construction and construction-to-permanent loans.

NOTE: For all loans with LTV ratios greater than 80%, FNMA require mortgage insurance in accordance with their standard Selling Guide policy. Lenders must consult with their mortgage insurance companies to confirm coverage for mortgages using one of the temporary appraisal flexibilities.

Desktop appraisals

For purchase money transactions when an interior and exterior appraisal is not available, lenders are encouraged to obtain a desktop appraisal rather than an exterior-only appraisal.

The minimum scope of work for a desktop appraisal does not include an inspection of the subject property or comparable sales. The appraiser relies on public records, multiple listing service (MLS) information, and other third-party data sources to identify the property characteristics.

When a desktop appraisal is performed, reported on Form 1004 or Form 1073, and submitted to FNMA through the Uniform Collateral Data Portal® (UCDP®), the appraisal will be scored by Collateral Underwriter® (CU®). All loans with a CU risk score of 2.5 or less will receive value representation and warranty relief under Day 1 Certainty. With desktop appraisals, lenders will have the added risk management and efficiency benefit of being able to use CU to aid in the appraisal review process.

The table below provides the appraisal report form that must be used to complete the desktop appraisal for each property type.

Property Type Acceptable Appraisal Form
One-unit property, including a unit in a planned unit development (PUD) or a detached condominium unit Uniform Residential Appraisal Report (Form 1004)
Condominium unit Individual Condominium Unit Appraisal Report (Form 1073)
2-4 Unit Property Small Residential Income Property Appraisal Report (Form 1025)
Manufactured Home Manufactured Home Appraisal Report (Form 1004C)

Exhibits for Desktop Appraisals

Each desktop appraisal report must include the following exhibits:

  • a location map indicating the location of the subject and comparables, and
  • photographs of the subject property. FNMA recognizes that it may be challenging in some instances to obtain photographs; however, it is expected that the appraiser utilize available means to obtain relevant pictures of the subject property.

Exterior-only Inspection Appraisals

An exterior-only inspection appraisal may be obtained in lieu of an interior and exterior inspection appraisal for the following transactions:

  • Purchase money loans
  • Limited cash-out refinances where the loan being refinanced is owned by Fannie Mae

Lenders will not receive value representation and warranty relief under Day 1 Certainty® for loans with exterior-only appraisals.

The table below shows the appraisal report form that must be used to complete an exterior-only inspection appraisal for each property type. Because there are not appropriate exterior-only appraisal report forms available for two-four unit properties and manufactured homes, FNMA will accept an exterior appraisal scope of work completed using the applicable forms listed below.

Property Type Acceptable Appraisal Form
One-unit property, including a unit in a planned unit development (PUD) or a detached condominium unit Exterior-Only Inspection Residential Appraisal Report (Form 2055)
Condominium unit Exterior-Only Inspection Individual Condominium Unit Appraisal Report (Form 1075)
2-4 Unit Property Small Residential Income Property Appraisal Report (Form 1025)
Manufactured Home Manufactured Home Appraisal Report (Form 1004C)

Exhibits for Exterior-only Inspection Appraisals

Lenders are reminded that the following exhibits to the appraisal report are required for an exterior-only inspection appraisal:

  • a street map that shows the location of the subject property and of all comparable sales that the appraiser used;
  • clear, descriptive photographs (either in black and white or color) that show the front of the subject property, and that are appropriately identified (photographs must be originals that are produced either by photography or electronic imaging); and
  • any other data−as an attachment or addendum to the appraisal report form−that are necessary to provide an adequately supported opinion of market value.

FHLMC Temporary Appraisal Requirement Flexibilities

These temporary flexibilities are effective immediately for all Mortgages in process and remain in place for Mortgages with Application Received Dates on or before May 17, 2020.

Freddie Mac understands that due to the COVID-19 pandemic there may be instances where a Lender is unable to obtain an interior inspection of the subject property. As a result, Freddie Mac is allowing temporary exceptions to their property eligibility and appraisal requirements.

Freddie Mac is revising its appraisal inspection and reporting requirements. As described in detail below, for certain Mortgages, when a Lender cannot obtain an appraisal with an interior inspection as a result of the COVID-19 pandemic, Freddie Mac will accept either an appraisal with an exterior-only inspection or a desktop appraisal (as described below) in lieu of the interior and exterior inspection appraisal required under Section 5601.5(a).

There may be instances where there is insufficient information about the property for an appraiser to complete an appraisal assignment with a desktop appraisal or an appraisal with an exterior-only inspection. In these instances, the Mortgage will not be eligible for sale to Freddie Mac until the appraiser has sufficient information to complete the desktop appraisal or an appraisal with an exterior-only inspection, or an appraisal with an interior and exterior inspection is obtained.

The following table provides appraisal requirements based on Mortgage purpose, loan-to-value (LTV) ratio, occupancy type and Mortgage ownership.

Permissible appraisal requirements
Mortgage purpose LTV ratio Occupancy type Ownership of Mortgage being refinanced Permissible appraisals
Purchase transaction* Up to 97% Primary Residence N/A Interior and exterior inspection appraisal, desktop appraisal or exterior-only appraisal
≤85% Second homes and Investment Properties N/A Interior and exterior inspection appraisal, desktop appraisal or exterior-only appraisal
˃85% Second homes N/A Interior and exterior inspection appraisal
No cash-out refinance As permitted in the Guide All Mortgage being refinanced owned by Freddie Mac Interior and exterior inspection appraisal or exterior-only inspection
Mortgage being refinanced not owned by Freddie Mac Interior and exterior inspection appraisal
Cash-out refinance As permitted in the Guide All Mortgage being refinanced owned or not owned by Freddie Mac Interior and exterior inspection appraisal

*These flexibilities are not permitted for Construction Conversion, Renovation or new construction properties.

Note: For all Mortgages with LTV ratios greater than 80%, FHLMC will require mortgage insurance in accordance with Guide requirements. Lenders must consult with their mortgage insurance companies to confirm coverage for Mortgages using one of the temporary appraisal flexibilities.

Appraisals with Exterior-only Inspections

The table below provides the appraisal report form that must be used to complete an appraisal with an exterior-only inspection for each property type. Because there are not appropriate exterior-only appraisal report forms available for 2- to 4-unit properties and Manufactured Homes, FHLMC will accept an exterior-only appraisal scope of work completed using the applicable forms listed below.

Property type Acceptable appraisal form
1-unit property, including a unit in a Planned Unit Development (PUD) or a Detached Condominium Unit Guide Form 2055, Exterior-Only Inspection Residential Appraisal Report
Attached Condominium Unit Form 466, Exterior-Only Inspection Individual Condominium Unit Appraisal Report
2- to 4-unit property Form 72, Small Residential Income Property Appraisal Report
Manufactured Home Form 70B, Manufactured Home Appraisal Report

Mortgages with appraisals with exterior-only inspections will not receive the appraised value representation and warranty relief described in Section 5601.9(b).

Exhibits for Exterior-only Inspection Appraisals

Lenders are reminded that the following are required in connection with an appraisal with an exterior-only inspection:

  • A street map that shows the location of the subject property and of all comparables that the appraiser used
  • Clear, descriptive photographs (either in black and white or color) that show the front of the subject property, and that are appropriately identified. (Photographs must be originals that are produced either by photography or electronic imaging); and
  • Any other data (as an attachment or addendum to the appraisal report form) that are necessary to provide an adequately supported opinion of market value

For Purchase Transaction Desktop Appraisals

Lenders are encouraged to obtain a desktop appraisal in lieu of an appraisal with an exterior-only inspection when an interior and exterior inspection is not available.

The minimum scope of work for a desktop appraisal does not include an inspection of the subject property or comparable sales. The appraiser relies on public records, multiple listing service (MLS) information or other third party data sources to identify the property characteristics.

When a desktop appraisal is obtained using Form 70, Uniform Residential Appraisal Report, or Form 465, Individual Condominium Unit Appraisal Report, and submitted to the Uniform Collateral Data Portal® (UCDP®), the appraisal will be assessed for valuation representation and warranty relief in Loan Collateral Advisor®. All appraisals with a risk score of 2.5 or less that meet the requirements in Section 5601.9(b) will receive valuation representation and warranty relief and Lenders will have the added risk management and efficiency benefit of being able to use Loan Collateral Advisor to aid in the appraisal review process

The table below provides the appraisal report form that must be used to complete the desktop appraisal for each property type.

Property type Acceptable appraisal form
1-unit property, including a unit in a Planned Unit Development (PUD) or a Detached Condominium Unit Form 70, Uniform Residential Appraisal Report
Condominium Unit Form 465, Individual Condominium Unit Appraisal Report
2- to 4-unit property Form 72, Small Residential Income Property Appraisal Report
Manufactured Home Form 70B, Manufactured Home Appraisal Report

Exhibits for Desktop Appraisals

Each desktop appraisal must include the following exhibits:

  • Photographs of the subject property. Freddie Mac recognizes it may be challenging in some instances to obtain photographs; however, it is expected that the appraiser utilize available means to obtain relevant pictures of the subject
  • A location map indicating the location of the subject and comparables.

VA Guidance for Property inspections

Appraisers should continue to conduct business as outlined in Chapter 10 of the Lender’s Handbook.

Appraisers should contact the RLC of jurisdiction if they have been impacted by COVID-19 and are unable to complete an appraisal assignment. The email addresses for each of the RLCs are available at: https://www.benefits.va.gov/HOMELOANS/contact_rlc_info.asp.

FHA Guidance for Property inspections

The FHA is continuing to require Appraisals with Property inspections for Single Family Programs. The FHA Roster Appraiser must complete all required appraisals in accordance with acceptable Appraisal Reporting Forms and Protocols.  Appraisers should stay informed of CDC Coronavirus updates, and incorporate prudent measures in their business practice regarding personal contact with the borrower and/or occupants. FHA is closely monitoring the situation and will provide updated guidance, as needed.

USDA Guidance for Property inspections

USDA has not announced any temporary guidance as of 3/24/20.

Contacts

Please contact your Account Executive or Account Manager with any questions.

Carrington thanks you for your business.

Verbal Verification of Employment Requirements

Overview

Carrington Mortgage Services, LLC (CMS) is actively monitoring the spread of COVID-19 (coronavirus) throughout the United States and we understand there may be concerns about its potential impact to our borrowers and loan originations. Our ability to continue to serve our customers is a top priority. As the Agencies provide additional guidance, this bulletin will be updated and republished.

Effective: These temporary employment and income verification flexibilities are effective immediately for all Conventional product only loans in process and remain in place for loans with application dates on or before May 17, 2020. Please note that the Guidelines/ Matrices and AUS messages will not be updated to reflect these temporary policies.

Verbal Verification of Employment

In cases where there is difficulty in obtaining the verbal verification of employment (VVOE) due to disruption to operations of the borrower’s employer, the following temporary process applies:

  • Written VOE: Obtain an email directly from the employer’s work email address that identifies the name and title of the verifier and the borrower’s name and current employment date within 10 calendar days of the note date.
  • The Work Number: We will continue to accept automated verifications such as those from The Work Number, although the last date of employment verified must be within 10 calendar days of the note date. In situations where the automatic database upload has not been refreshed within the last 10 calendar days, we will have to wait for the next refresh period.
  • Paystub: Provide a year-to-date paystub dated within 10 calendar days of the note date.
  • Bank statements: Provide a bank statement evidencing the automatic payroll deposit reflecting the employer’s name within 10 calendar days of the note date. (The 10 calendar days is calculated from the date of the payroll deposit, not the bank statement date.)
  • Self-Employment: Verification of self-employment will follow existing guidance, but must be dated within 10 calendar days of the note date.

Continuity of Income:

It is important to remind our Associates of ensuring sustainable homeownership for our borrowers in light of recent events.

Given the current economic climate associated with the COVID-19 pandemic and its impact on employment and income, our Underwriting team will practice additional due diligence to verify the most recent information is obtained. This will ensure any disruption to borrowers’ employment (or self-employment) and/or income due to the COVID-19 pandemic is not expected to negatively impact their ability to repay the loan.

Contacts

Please contact your Account Executive or Account Manager with any questions.

Carrington thanks you for your business.

Carrington Temporarily Suspending Non-QM Lending

Non-QM Update

Carrington Mortgage Services remains committed to the Non-QM market as one of the key leaders in the industry. Unfortunately, we have to temporarily discontinue offering Non-QM loans due to current secondary market conditions. We’re happy to say that any approved loans that are locked will be honored through the remaining locked term. Unfortunately, we will not be accepting any new Non-QM submissions for our Carrington Flexible Advantage, Flexible Advantage Plus, Investor Advantage, and Prime Advantage products.

Non-QM Loans that have been submitted or approved without rate lock cannot proceed under this program. For locked loans, we are not offering lock extensions at this time.

As the market stabilizes, Carrington will be at the forefront and will re-introduce our Non-QM product line.

We sincerely apologize for the temporary inconvenience this may cause and look forward to serving your Non-QM borrowers in the near future.

On the Brighter Side

Carrington continues to offer its full suite of government loans including FHA, VA & USDA loans full doc and streamlines. And don’t forget about our conventional Fannie/Freddie loan products.

  • FICOs down to 500
  • Manual underwriting (for those out of the box borrowers)
  • Expanded DTI on FHA loans available
  • So much more…

See Our Loan Products

Home Loan Rates Rising

Last Week in Review: Home Loan Rates Rising

This past week, home loan rates ticked up again despite the Fed recently cutting rates by a full point and the 10-year Note remaining just above 1%.

Why?

Mortgage backed securities (MBS) are Bonds that price home loan rates. This week, the spread or difference in yield between the 10-year Note and MBS spiked to the highest level in decades. This means that despite the record low yield in Treasuries, home loan rates continue to rise.

This has to do with MBS investors having less of an appetite for MBS, given the uncertainty of the current economic environment. The only way you can attract investors to buy MBS is by increasing the interest rate or yield to the investor. We are seeing this today.

Also, there is a reality that $1T in Bonds will be coming to the Bond market in the near future to pay for the economic stimulus package in order to help the economy during and after this coronavirus crisis. That huge amount of new Bond supply dilutes the Bond market and pressures prices lower and rates higher.

We may not see a more natural interest rate spread between Treasuries and MBS until we get past the worst of the coronavirus and its economic impact. Until then, expect more price and rate volatility.

Bottom line: home loan rates remain very close to the best levels ever, and with the Fed buying MBS for the foreseeable future, we are not expecting home loan rates to go too high any time soon.

Home Loan Rates Ticked Up

Last Week in Review: Rate Movements Explained

This past week was a head-scratcher as home loan ticked up slightly week over week despite the 10-year Note yield hitting a historic low of 0.31% and Stocks enduring heavy losses. Typically, when Stocks drop, so do rates — especially after historic Stock losses like those this past week.

So, what happened?

Home loan rates are determined on the pricing of mortgage backed securities. Due to all of the recent refinance activity as a result of the low rates, the Bond market was flooded with an enormous supply of Mortgage Bonds.

When additional supply comes into any market, prices can move lower, and that is what we saw last Monday as mortgage backed securities touched a six-year price high and started to reverse lower.

Once Mortgage Bonds started to drop in price, thereby increasing rates, something very interesting happened. The sell-off in Mortgage Bonds really gained steam causing a further bump up in rates.

Why did mortgage backed securities drop so fast?

Mortgage backed securities carry prepayment or refinance risk, which limits how fast rates drop when they are dropping. The opposite is also true. This means when rates start to rise, the prepayment or refinance risk goes away causing a sharp move lower in prices and higher in rate.

Bottom line: home loan rates remain within a whisker of the best levels seen earlier in the week. And there is an old saying, “the cure for higher rates, is higher rates,” meaning at some point as prices drop and interest rates tick up, investors will buy Mortgage Bonds and stabilize interest rates.

Coronavirus Uncertainty Fueling Low Rates

Last Week in Review: How Low Can Rates Go?

Home loan rates touched all-time lows this past week, fueling refinance activity and creating a sense of urgency for homebuyers to lock in purchase loans.

The question many people are asking is, “how low can rates go?”

The short answer — no one knows. A lot will be determined by the economic impact of the coronavirus and that is impossible to handicap at the moment.

What we do know:

  • The coronavirus outbreak is improving in China and the outbreak numbers here in the U.S. have not exploded, as of yet. This is good news, and should it continue, it is unlikely we will see much lower home loan rates in the near future.
  • Home loan rates have not improved in lockstep with the 10-year Note yield, which has also declined, though much more sharply, to a historic low of .66%. The reason — mortgage backed securities (MBS), where home loans are priced, carry a different risk profile than that of Treasuries. Investors in MBS are subject to refinance risk when rates go lower. To offset that risk, investors demand a premium within MBS which creates a higher price to both the lender and ultimately the homeowner.
  • Mortgage lenders are so busy they can hardly keep up with the business. What is one thing you don’t do when business is so busy? Lower price.

Bottom line: today represents a golden opportunity to lock in the best rates in the history of the U.S. and should be taken by those who can benefit.

The Lowest Rates EVER

Last Week in Review: The Lowest Rates EVER

Bonds love bad news, uncertainty, and fear, which is causing rates to move lower.

This past week, the escalation of the coronavirus fears caused enough anxiety to push rates down to the lowest levels in U.S. history.

Here’s what we know: Mortgage Bonds, which determine loan pricing, ticked to the best levels ever on Thursday, and the 10-year Note yield hit 1.25%, the lowest EVER!

Here’s what we don’t know: what is next for the coronavirus or its impact on the global economy.

With that said, if the coronavirus story brightens at all and becomes less uncertain or better, we could easily see rates move up just as quickly as they moved lower. On the other hand, should the coronavirus story worsen deeply, we should expect rates to fall further.

Bottom line: with rates at the lowest level in our history and hinging on the status of the coronavirus outbreak, now may present the opportunity of a lifetime to either refinance or purchase a home.

Definition of Goldilocks

Last Week in Review: A Great 2020 Housing Story

Here’s some good news… the continued strength of the labor market, along with historically low mortgage rates, will keep positive housing momentum alive in 2020.

The Unemployment Rate is currently at a 50-year low of 3.6% with expectations for the index to push even lower to 3.25% by year’s end, matching lows last seen in 1953.

Freddie Mac recently reported that 30-year fixed rate mortgages are at three-year lows while mortgage activity continues to increase.

Low rates, a solid economy, and a strong labor market have also cut mortgage delinquency rates. The Mortgage Bankers Association recently reported that the mortgage delinquency rate in Q4 2019 fell to its lowest level since the current survey series began in 1979.

In addition, the Census Bureau announced that the U.S. homeownership rate rose to 65.1% at the end of Q4 2019, the highest since the end of 2013.

The Fannie Mae Home Purchase Sentiment Index is near all-time highs reflecting that it is a good time to both buy and sell a home.

Finally, the New York Fed reports that $750B in new mortgages were originated in Q4 2019, more than any quarter since Q4 2005.

Bottom line: jobs buy houses, not low rates. But as we move into 2020, we have both a robust labor market and historically low rates — a true Goldilocks situation — fueling housing.

Three Reasons Why Rates May Have Bottomed

Last Week in Review: What the Market Is Saying

Home loan rates continue to hover right near three-year lows. There are many “smart” folks on Wall Street who say rates are going to push even lower at some point…and they may be right. But what if they’re wrong? What if rates have bottomed for the foreseeable future?

Yes, locking a home loan right here would be wise.

Here are three reasons why rates may have bottomed — at least for now:

  1. Solid economic numbers continue to be reported. We are seeing a historically strong labor market, rising wages, high consumer and business confidence, and an overall boost in housing. Bonds hate good news and there is simply too much good news to go around at the moment.
  2. Signs of improvement around the globe. One of the main tailwinds to our low rates is the relative underperformance of countries around the globe. It appears that many parts of the world are doing a bit better thanks to central bank monetary stimulus. If this trend continues, it’s tough to see much better rates anytime soon.
  3. The trading action in the Treasury market. This may be signaling that further rate improvement from here may be tough to achieve. In recent weeks, in the face of heightened fear and uncertainty surrounding the coronavirus (which usually lowers rates), the 10-year Note yield was unable to move beneath 1.50%, which is also close to a historically low yield seen just a few times in the last decade. If the 10-year Note can’t improve in the face of very uncertain news, a near-term bottom might be in place.

So, what would push rates to historically low levels? It would likely take some very bad news like an escalation of the coronavirus outbreak or possibly something worse.

Bottom line: the U.S. economy is performing very well. Rates are near historic lows and the markets are telling us this may be about as good as things get — for now. So, if you, your family, friends, or clients are considering a home loan, now is a terrific time to lock in at incredible rates.

Back to the Future for the Financial Markets

Last Week in Review: Recovering From the Coronavirus

This past week was a bit rough for the Bond market as home loan rates steadily ticked higher and off the best levels in three years.

The coronavirus has been a tailwind to the Bond market and home loan rates for the past few weeks, but this week the story seems to be less negative and less uncertain. As better news started to emerge in the coronavirus headlines, financial markets started paying attention back to the economic outlook or “future” of our economy.

The news has been solid across the board with better than expected readings in manufacturing, services, and jobs.

The end of the impeachment process also removed uncertainty and helped Stocks focus on the good economic news at the expense of Bonds and home loan rates.

Bottom line: while rates ticked up week over week, they remain within a whisker of the best levels in three years. If the coronavirus outbreak story becomes more positive, home loan rates could inch higher still, meaning now is a great time to refinance or purchase a home.