Concession Reporting Confusion
…how are these "lender contributions" identified…
Appraisers are ‘required’ to report comparable sales or financing concessions that 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 should not exceed the amount of borrower-paid closing costs and prepaid fees. 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.
Revealing concession amounts is an item that has confounded and confused appraisers for decades. 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??
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Sales concessions are not recorded in tax records either.
And why do they want appraisers to go extinct….hmmmmm.
In California, our California Association of Realtors(r) [CAR] forms spell out the financing and closing costs on page one. This may or may not be true in other states.
The TRID disclosure document would have to spell this out. Why not start requiring copies of the TRID to be provided by the lender with the appraisal order? You know…the same one that’s used as an excuse to say we cannot raise the appraisal fee!
The lender “credit” typically has nothing to do with the price of the home in comparison to a seller concession. In some cases, these lender “credits” will negate or net-lower any points or fees that the borrower pays. It may not even be clear on a Loan Estimate that one is receiving a lender “credit”. IMO: SEL–2018-03-04 purpose is to reinforce the fact that these credits cannot go towards down-payment. I do not think it was directed towards appraisers or meant to be confused with concessions.
I concur with your conclusion re a LENDER credit. Concessions are something else though it’s easy for them to be conflated with each other in the marketplace.
Traditionally a seller paid ‘credit’ in escrow affects cash equivalence to the seller and originates from proceeds that would otherwise be paid to the seller, absent the credit.
Third party payment or assistance was perceived to affect the disclosed ability of a borrower to come up with the full downpayment and closing costs.
Conventional lenders cared about it – VA did not. FHA rode the fence.
Financing closing costs makes sense. The ‘credit’ part of the above article is a miniscule bookkeeping amount. The overestimation of closing costs.
I wouldn’t mind financing all closing costs IF it meant raising appraisal fees to a more reasonable $1,000 (net to appraiser) per non complex FNMA assignment and assuming we could eliminate the contingent nature of escrowed fees being dependent on closing.
Presumably lender ‘assistance or credits to borrower’ have been funded into the loan (principal) and need to be refunded. The term ‘credit’ is a another poor choice of words by FNMA guaranteed to cause easily avoidable confusion.
I just had a realtor tell me he could not remember if there was concession, maybe but he didn’t know. Call the listing agent!!! Iam fuming
Its been over 31 years since I last sold R.E. as an agent. Tell me which house it was today and I can still generally remember the concessions involved. That guy must be a super successful agent doing dozens of deals a year….then again, maybe he can’t remember how many he sells either. Sad response.
I called an agent yesterday on a review. Retro value 02/2017. Involved pro forma rents reported for an income property. He still remembered the details; and opined that while supported-they were at the upper limit then. (Appraiser concluded $400 per unit above those). Good agents are worth their weight in gold. Bad agents aren’t worth their weight in …something else less pleasant.