Concession Reporting Confusion
…how are these "lender contributions" identified…
Appraisers are ‘required’ to report comparable sales or financingthat benefit a borrower in the GSE form appraisal report, on the second line in the comparison grid (as a negative adjustment).
Secondly, for subject properties, appraisers are ‘required’ to report any concession benefiting the borrower on page 1 of the report form. Subject concession amount is NOT entered on the Comparable grid.
Well now, FNMA has issued a modification to their Selling Guide (which takes effect as of 4/03/18) – SEL–2018-03 – (I have added type face enhancements):
With this update we are clarifying that lender-sourced contributions to fund closing costs and prepaid fees that are normally the responsibility of the borrower are permitted provided the following:
A lender-sourced contribution may not be
- used to fund any portion of the down payment;
- subject to repayment requirements, or require financial obligation apart from the subject mortgage; or
- passed to the lender from a third party.
The amount of the lender contribution. Otherwise, the amount of the contribution is not limited except when the lender is an interested party to a purchase transaction as defined in B3-4.1-02, Interested Party Contributions, and in that case, the interested party contribution (IPC) policy applies. Any excess lender credit required to be returned to the borrower in accordance with applicable regulatory requirements is considered an overpayment of fees and charges, and may be applied as a principal curtailment or returned in cash to the borrower.
Here is a link to B3-4.1-02 in the FNMA Selling Guide.
The confusion I see with this change is ‘how’ are these "lender contributions" identified in a way that the appraiser knows about them?
If these contributions are applied in the background after the appraisal has been submitted, and without notification to the appraiser in advance, then the “value” of the property can be artificially increased in the report because the “lender contribution” has not been accounted for.
. Seems to me that this new FNMA policy just adds fuel to that fire. That fire is one that has artificially raised all property values across the US because the concession amounts (which in effect lower the property ‘value’) are never disclosed in the deed when a property sale is recorded. The deed only shows the contracted ‘sale price’ of the property.
Occasionally I see local property listings that state the RE commission will be paid on the sale amount LESS the concession given up by the seller. That’s an honest way to reveal how a concession actually affects the true ‘value’ of the property. Wonder if that will apply when the LENDER provides the concession – especially if it’s not disclosed in the contract??