Freddie Mac and the Appraisal Institute recently announced a partnership to help real estate appraisers to value manufactured homes. The training through this partnership aims to provide practical appraisal training to all appraisers, as well as specifically-targeted training and case studies to address manufactured housing valuation assignments for Freddie Mac’s CHOICEHome program. Scott Reuter, Chief Appraiser and Director of Single-Family Valuation at Freddie Mac spoke to MReport about why this training was needed and what it entails.
What was the reason behind providing training to appraisers on manufactured homes?
This program fits under our Duty to Serve initiative, which was mandated by Congress through our regulator the Federal Housing Finance Agency (FHFA). The Duty to Serve statute requires both government-sponsored enterprises (GSEs) to provide leadership in three underserved areas. One is rural housing, second is affordable housing preservation, and third is manufactured housing.
Under this initiative, we started with the CHOICEHome Program, where manufactured homes are built to certain specifications that are in addition to what a normal manufactured home might have. The ultimate aim of this program is to increase the standardization between site-built and manufactured homes as well as increase the volume of manufactured homes.
The pillar of the CHOICEHome products is the minimum specifications that go above and beyond the normal manufactured home. They include interior drywall throughout a 512 roof pitch and energy-efficient packages. The specifications under this program also include these homes being placed on a permanent foundation as well as other site-built-type features such as a garage and carport.
Through the CHOICEHome Program, we’re focusing on introducing high-quality affordable housing options into the marketplace. And that’s where the appraisal training for manufactured homes comes into the picture. From a practical standpoint, we thought that one of the key elements of setting this program up for success was to understand how this may be met by appraisers when they're valuing these homes.
What are some of the challenges that appraisers face while valuing these homes, and how will the training help them?
The CHOICEHome Program is currently in its pilot stage, and we’re envisioning that these homes are most likely going to be introduced primarily in the rural market. A practicing appraiser faces challenges on a good day with site-built homes in rural settings, let alone the kind of a specialized manufactured home that's built to all these higher specifications. So from a policy perspective, we’re allowing flexibility so the appraiser can cascade their valuations into that we would like for them to compare these to other choice built homes.
However, since this is a brand new product being introduced to the market, the likelihood that they're going to find another CHOICE-built home that sold recently close by to use for comparison will be remote. So, the collateral policy flexibility will be to use other similar manufactured housing or use a site-built home as a comparable sale when it's appropriately adjusted.
The training will help appraisers to make these comparisons, which in many cases are not apples to apples since many of the existing manufactured housing stock is below the standards of the CHOICEHome Program in terms of construction and design elements. On the other hand, site-built homes are more likely to be superior in these areas, thereby creating an issue for the appraiser to reconcile and adjust to appropriately value these homes.
What led Freddie Mac to partner with the Appraisal Institute for this training?
The theory behind this training program is to work towards being mindful about the expectations set for the appraisers when they’re in the field. And that led us to the partnership with the Appraisal Institute. Our peers at the institute agreed that this was something that needed attention in the marketplace. They have been great partners, showed a lot of hard work and leadership in setting up this class so that we could introduce this course into the market.
How is the course set up to benefit appraisers?
The course is being offered in a couple of different ways. The pilot component is a four-hour course being offered to lenders and appraisers. We have also created a full seven-hour course so that it matches the continuing education (CE) needs of appraisers. This course is a full one-day CE option, which is approved across the country as well.
The course is also receiving some academic interest as well as interest from numerous future course instructors from across the country. To become a trainer for this course, appraisal trainers actually take the course and must pass a one-hour exam. For appraisers, this course walks through various case studies to illustrate how the appraiser can develop a value for CHOICE manufactured homes.
Within this training, what are some of the biggest challenges that appraisers and trainers are likely to face?
The most significant training challenge would be to walk appraisers through how to appropriately adjust a site-built home to a manufactured home. At Freddie Mac, we manage risk and there was a concern that by allowing the use of site-built comparable sales to a manufactured home, there would be a real risk of overvaluation of manufactured homes.
But this challenge is also the driving force for this training to arm appraisers with the appropriate training and knowledge to appraise such homes. The training is really a practical, step-by-step guide to how you can appropriately value the manufactured homes under our CHOICEHome Program.
Is the training being offered only for the first year or will it continue beyond this phase?
We launched this training in Dallas recently and are now rolling it out state by state. Once it's introduced across the country, it'll be in the permanent curriculum of the Appraisal Institute. To create this training program, the Appraisal Institute has put in a tremendous amount of rigor in terms of not only the content review but peer review as well.
What are your takeaways from this project?
This project has been interesting because it's enlightened me to how this market acts and behaves nationwide. Many appraisers are in markets that are close to or on the periphery of where there is manufactured housing. Your typical appraiser, I'm told, will get anywhere from 12 to 15 manufactured home assignments a year if they're in a market where these are somewhat prevalent. From a practicing appraiser standpoint, that might be one a month.
This course is also intended to be in the reference library for appraisers so that when they get these assignments, they can refer to the course booklet to appropriately walk through the steps they need to take to begin to gather their data, analyze it, developed the report, and finalize the value. We’re also putting together a component for the underwriters and the lenders, to help them understand the appraising process better.
One of the things we also did was to include a one-page job aid for underwriters and lenders. So hopefully that'll lessen some questions back to appraisers on manufactured home valuations. I'm sure we will, as we pilot and test and learn, make some more additions, but we're trying to be very thoughtful about how this may work its way through the system to allow, again, not only appropriate valuation, but also reduce the back and forth between the appraisers, the lenders, and the underwriters, which defeats the efficiency.