Fannie Mae: GLA Adjustments Should Be Higher

Fannie Mae announced last week that it is concerned that many GLA adjustments are “artificially low.”

As evidence, they noted that more expensive homes have much higher Price/GLAs than less expensive homes, but only slightly higher GLA adjustments:

Screen Shot 2015-02-06 at 8.24.38 PM (Click for a larger version)

 

Fannie Mae implicitly blamed both itself and automated review systems:

“The guideline for 15% net and 25% adjustments was widely implemented as an eligibility ‘hard stop’ due to many rules-based automated review systems. Analysis of appraisals submitted to UCDP made it clear that many appraisal reports never exceeded the 15% or 25% guideline – the focus of many appraisers had become keeping the amount of the adjustments within the guidelines instead of reflecting actual market reaction for specific characteristic(s).”

Fannie Mae removed those limits in December of 2014 in significant part because of this concern that GLA adjustments are too low.

 

It’s interesting to note that regression-based GLA adjustments “are usually different (i.e., larger) than what an appraiser typically uses,” according to A Guide to Appraisal Valuation Modeling, published by the Appraisal Institute. Insomuch as regression analysis is a best practice of creating data-driven adjustments, that fact would seem to further validate Fannie Mae’s claim.

This resonates strongly with us at Statwing. In the thousands of regressions that we’ve walked our free-trial users through to get them started, regression-based GLA adjustments are very frequently higher than the appraiser would typically use.

The full announcement has more details, and also discusses many clarifications of the role of Collateral Underwriter.

 

 

 

Join us for a free webinar to learn how to use regression to make highly defensible adjustments. Webinars are held every Monday, Wednesday, and Friday and are taught by Rick Hamilton of Appraisals First Cincinnati.

“This webinar is the perfect introduction to using regression to make data-driven adjustments. Rick is an experienced and thoughtful teacher.”

- John Smithmyer
AQB Certified USPAP Instructor
Licensed Appraiser Instructor
Georgia Appraiser School

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