Census Tracts & Appraising
CENSUS TRACTS are based primarily on POPULATION density…
The latest ‘buzz word’ in our profession is an indication from Fannie Mae that as of Jan. 26, 2015, their Collateral Underwriter electronic review software (made available only to Lenders/AMC’s for 1004 and 1073 reports) will be able to compare your report info to other property reports and data narrowed down to a local CENSUS TRACT.
In my previous messages, I’ve asked a basic question:
When’s the last time you actually researched comparable sales or other property info based around local CENSUS TRACTS?
I would guess for the vast majority of (residential) appraisers you never have!
I would also bet that most appraisers never have seen (or even cared about!) a CENSUS TRACT map for their area. Well, have no fear. You can click the link below, and find the CENSUS TRACTS in your county/parish – choose your state first. By enlarging the presented map, you can see the actual boundaries with some clarity. Note, some counties have two or more maps.
The CENSUS TRACT number has been a data reporting point on our mortgage report forms for decades. Put there as a way to track how well lenders complied with fair housing and lending laws. Well, now FNMA has decided this is a valid data point with which to compare the subject and comparable properties, and then judge your work based on what their Collateral Underwriter report process produces.
CENSUS TRACTS are based primarily on POPULATION density, not on actual types of structures and residences within each boundary. CENSUS TRACTS don’t always follow the same defined geography that an appraiser uses for a neighborhood description. CENSUS TRACTS in urban areas are compact and closely spaced; in suburban/rural areas they are larger, again, defining the population density in a given area which is kept around 4,000 people, although this can vary from around 1,500 to around 7,500 or so. CENSUS TRACT boundaries (and numbers) are dividable, as POPULATION changes.
Why is this being done? Short version: because it can be done easily and quickly using the UCDP/.xml report submittal process. Longer version: because FNMA can’t easily ‘define a neighborhood’ for data tracking purposes, so they have settled on the CENSUS TRACT as a way to “somewhat” define the subject’s neighborhood for THEIR purposes. In other words, they can’t easily geo-code your written neighborhood description in the report.
In suburban/rural areas, this new CENSUS TRACT evaluation process may not be a significant problem. But in urban areas, especially where developed residential areas have hopscotched across the landscape as in-fill developments and don’t follow a neat and tidy build-out in terms of quality, size and condition of homes, this may start to bite appraisers in the toosh, when multiple CENSUS TRACTS have to be used to obtain appropriately comparable properties.
It’s not time to panic, yet. Or to decline assignments routed to FNMA. But appraisers need to become more aware of the entire evaluation process soon to overtake ‘us’ and learn to write reports and rebuttals that are defensible when the inevitable letter(s) of concern from FNMA start arriving.
Do I sense that FNMA will change their position on this. Nope! They refuse to change a poorly designed MC Form, so why should they modify their stance on CENSUS TRACTS even when presented evidence that a CENSUS TRACT and Neighborhood don’t mesh?