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November 10, 2005

Fannie Mae Clarifies “Intended User”; Appraisal Institute Provides Input

Addressing concerns of appraisers over the “intended user” elements of its latest Uniform Residential Appraisal Report, Fannie Mae has issued a clarifying statement, based in part on input received from the Appraisal Institute. Mark Simpson, Fannie Mae's director of property standards said, “Recognizing that there may be confusion in the appraisal community about the distinction between parties who ’use‘ and parties who ’rely‘ on appraisal reports,” Fannie Mae has developed the following additional notice or statement that it will accept when the appraiser believes the Lender/Client is the only Intended User:

“The Intended User of this appraisal report is the Lender/Client. The Intended Use is to evaluate the property that is the subject of this appraisal for a mortgage finance transaction, subject to the stated Scope of Work, purpose of the appraisal, reporting requirements of this appraisal report form, and Definition of Market Value. No additional Intended Users are identified by the appraiser.”

Simpson added, “The use of this additional notice or statement may help to clarify the identification of the Intended User as addressed in the Uniform Standards of Professional Appraisal Practice and on the revised appraisal report forms. This statement is consistent with Fannie Mae policies and we will purchase loans with this additional language in the reports." He emphasized, however, that Fannie Mae will not accept appraisals with additional notices or statements that may conflict with Certification # 23.

“Appraisers traditionally have not identified the other parties to a mortgage finance transaction that often rely on the accuracy of the appraisal report as Intended Users based on the current definition of an Intended User in the Uniform Standards of Professional Appraisal Practice. However, if the appraiser believes that any of these parties should be identified as additional Intended Users based on information provided by the Lender/Client or from other sources, he or she should identify them as such in the appraisal report,” Simpson stated.

Simpson acknowledged the Appraisal Institute’s input on this issue. "Fannie Mae has worked closely with the Appraisal Institute to clarify the meaning of 'intended users' and parties that 'rely' on an appraisal report in conjunction with the certification required in its new appraisal forms," Simpson said. "These clarifications help reinforce [Fannie Mae’s] view that appraisers are accountable for the quality of their work," Simpson added.

In its seminars on the subject the Appraisal Institute instructs students that the lending institution, the client, is the "intended user." Despite that instruction, confusion has existed because the form itself asks the appraiser to acknowledge that other parties may receive and rely on the report. Instructor Alan E. Hummel, SRA, stated, "After teaching this seminar it became clear that some clarification was needed. I believe this statement helps clarify the issue as it clearly identifies the lender as the intended user."

The issue has also been subject to comment by the Association of Appraiser Regulatory Officials and the Appraisal Standards Board of The Appraisal Foundation.

For the complete Frequently Asked Questions from Fannie Mae, visit Question 11 deals specifically with this issue.

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