Q&A with Freddie Mac’s SF Chief Appraiser: Upgrading from ACE+ PDR to Hybrid Appraisal
At Freddie Mac, we’re continually developing and testing new collateral valuation options that can help alleviate pressure on appraisers during high volume periods and provide opportunities for borrowers and lenders to save time and money. Our latest solution is ACE+ PDR (automated collateral evaluation plus property data report). With ACE+ PDR, additional property information is collected on-site by trained data collectors using the proprietary Freddie Mac PDR dataset, in lieu of a traditional appraisal.
With that said, there are certain situations in which a lender’s review of the PDR may reveal that the subject property isn’t eligible for the offering. In these situations, the lender doesn’t need to go back to the drawing board with a full traditional appraisal; rather, they can upgrade to a hybrid appraisal. Scott Reuter, Freddie Mac Single-Family chief appraiser and director of valuation, takes a look at some of these situations and answers a few questions to offer more insight on this topic.
Q: Why would a lender need to upgrade to a hybrid appraisal?
A: It’s possible that during the review of the PDR, the lender might identify characteristics or conditions of the subject property that don’t meet Freddie Mac’s ACE+ PDR eligibility requirements. In that situation, the lender would need to upgrade to a hybrid appraisal.
Q: What are examples or characteristics of adverse site conditions that might require an upgrade to a hybrid appraisal?
A: There are several situations that could require an upgrade from ACE+ PDR to a hybrid appraisal. These site characteristics or conditions include:
- Extreme slope
- Substantial junk or trash
- Failing structures
- Adverse easements or encroachments
- Environmental conditions or land uses
Q: Other than site concerns, what else would require an upgrade?
A: Other characteristics or conditions include:
- The building status is “proposed”
- 0 bedrooms above grade and/or 0 bathrooms above grade
- A measured gross living area above grade of fewer than 400 square feet
- External obsolescence (i.e., adjoins an industrial site, landfill, airport, power lines, major utility, commercial site, railroad tracks or major highway), or
- Mixed-use (i.e., altered or modified specifically to support or facilitate any non-residential or income producing use)
Q: Does an upgrade to a hybrid appraisal require another site visit by an appraiser?
A: No. With a hybrid appraisal upgrade from ACE+ PDR, the appraiser doesn’t need to go back on-site. An appraiser can use the PDR that was completed by a trained property data collector. With the data and photographs from the PDR, the appraiser can complete the hybrid appraisal using Form 70H.
When a hybrid appraisal is used as the upgrade, Form 70H must disclose the identity of the property data collector in the body of the report and the completed PDR must be included as an addendum. The appraiser conducting the valuation analysis must be permitted to contact the property data collector to verify any information in the PDR and to adjust that information, as necessary, to complete Form 70H.
Q: What are other lender responsibilities when they upgrade?
A: The lender must have oversight of the data collector performing the property data collection. The lender, or its authorized third party, must have adequate processes and procedures in place to ensure the accuracy and reliability of the PDR. The lender must also ensure that all exhibits required for the PDR are included (floor plan with dimensions and calculations, entire suite of photographs, etc.).
The lender must include a targeted review of appraisal reports completed using the hybrid process as part of their quality control sampling. Form 70H must be submitted to the Uniform Collateral Data Portal® (UCDP®) and receive a “Successful” status prior to the delivery date of the loan.
Q: Freddie Mac wants to know if the property is livable. How is that determined?
A: Generally, we need to know if there are any physical factors that affect the livability, soundness or structural integrity of the property. Understanding that this term may seem subjective, there are items called out in the PDR that would identify these items. They include but are not limited to:
- Active roof leaks
- Water seepage or significant plumbing leaks
- Uncapped wiring
- Curled, cupped, or missing roof shingles
- Damaged or failing foundations
- A mechanical system where it is apparent it has exceeded its expected life or mechanical systems that are non-functional, or
- A sanitary system with evidence of failure