‘1004D’ and ‘Declining Market’
We all know that we are going through a ‘Declining Market’ where the Value of the house is falling like there’s no bottom. And what are the Fannie Form 1004D and what effect it has on the loan process in the ‘Declining Market’?
Definition - Appraisal Update and/or Completion Report (Fannie Mae Form 1004D)
“This report form is intended to provide the lender/client with an accurate UPDATE of a prior appraisal and/or to report a certification of completion. The appraiser must identify the service(s) provided by selecting the appropriate report type.”
This is the Fannie Mae definition of the form 1004D. If I may apply this into the real life, it means that 1004D can be used for two separate situations.
First part is the UPDATE. Oh, those updates. It was printed on the form as ‘SUMMARY APPRAISAL UPDATE REPORT’ and the appraiser supposed to put a check mark on this if the lender wants an update. The lender will ask this 1004D if the original appraisal was written over 4 months ago or close to that. This update is completely different from a simple condition saying ‘provide one additional comparable to support the value’. One additional comparable is just supporting addendum that can be done on the desk. But, please remember that once the word ‘Update’ or ‘1004D’ is mentioned, this is NOT just an addendum, rather it is like almost re-appraisal, at least, like drive-by.
There are number of things the appraiser has to do in order to complete 1004D; 1) concur with the original appraisal, 2) perform an exterior inspection of the subject property from at least the street, and 3) research, verify, and analyze CURRENT market data….. This is the killer in this market condition since the appraiser needs to certify that the value has not declined, by using CURRENT SALES DATA. The question on the form is ‘Has the market value of the subject property declined since the effective date of the original appraisal?’ What answer can the appraiser possibly put down for this question, especially on the current market condition? You guessed it….. ’Yes’ it has declined… (I personally do not like this situation but that is what’s happening, no exceptions for our neighborhoods). Thus, it will make the loan process come to a screeching halt, not to mention the 5% off the evaluation on the declining market. If it has not declined, I do not have to do anything more other than marking it ‘No’. But if it was ‘Yes’, declined, then another question follows, how much? I almost feel like to say ‘you do not want to know’ in many cases. Can I? Unfortunately, No…… So, avoid running into an Update situation if do not want to lose that loan. Someday soon, if the market turns its head toward the sky again, then we should not have any problem with update. Till then, be aware of 1004D.
Second part is what we used to call ‘Final Inspection’ on a new construction. We used to use a form 442(with photos) and some lenders are still asking for form 442/Final Inspection. The Freddie Mac still calls it 442. Now, we use form 1004D’s second section called ‘Certification of Completion’ for it and that is so called ‘Final Inspection’. Since it is a ‘Certification of Completion’, we can use it for Repair condition also. If the original appraisal report was marked as ‘Subject to repair…’, and the repair was done, then 1004D’s ‘Certification of Completion’ section needs to be completed, with photos as usual.
That being said, we all hope that the value of the homes hit the rock bottom soon so it can bounce up. Be happy for ..... something...whatever.