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Finally, Some Standardization in Appraisals

Mortgage & Lending Law and Real Estate Law by Simon Offord, Esq.

Recently, Fannie Mae and Freddie Mac teamed up to create a standardized system for use by appraisers to improve the quality and consistency of appraisal data. This system has been termed the UMDP, or Uniform Mortgage Data Program.

Before the UMPD, two different appraisers could produce two different reports of the same property with wildly different information contained therein. Even if the two appraisals came in at a similar value, the descriptions of property, the quality of improvements, views, and conditions would likely use varied abbreviations, scales, and terminology. This is because until now, there was no standardized system for appraisers.

The goal of the UMDP is to capture consistent data in appraisals, drive improved loan quality, and manage risk effectively. The first step in this process is to create a Uniform Appraisal Dataset (UAD). The UAD is a standardization of appraisal data, abbreviations, terminology, and rating systems to be used in all appraisals.

For example, the UAD sets forth specific ratings to be used in describing the condition of the home. Before the UAD, appraisers were free to use their own terminology and ratings systems in describing the quality of the property. Whereas before, an appraiser could use his own system to describe a property, for example as average, average-good, average-old, average(+), etc., the UAD sets specific condition ratings that must be used. This will prevent the confusion that could be caused by allowing appraisers to use their own terminology to describe condition, as the range of possible ratings before was limited only by the appraiser’s own vocabulary.

The UAD has also set standard definitions for the view, quality of improvements, location, and financing information. In addition, the UAD has created an accepted list of abbreviations to assist appraisers in making sure all relevant information fits in the appraisal form fields. All of these standardized definitions and abbreviations can found on Fannie Mae’s website.

The UAD should go a long way towards standardizing appraisals and making them more relevant for both the lender and consumer. Many also believe that this system will allow lenders to unearth fake or incompetent appraisals, and in the process prevent loan fraud. Others believe that these changes could ultimately lead to lower interest rates resulting from the decreased possibility of loan fraud and the excess risk that places on lenders.

Brewer Offord & Pedersen LLP has extensive knowledge and experience in the real estate industry, including with appraisals and buying and selling of homes. Brewer Offord & Pedersen LLP would be happy to answer your questions about the appraisal process, or about real estate generally. Brewer Offord & Pedersen LLP can be reached at (650) 327-2900, or on the web at www.BrewerFirm.com.

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