FHFA did not document reviews of desktop appraisals, inspector finds

The Federal Housing Finance Agency did not document its reviews of desktop appraisal reports, which makes it difficult to determine how the program is working, a report from its Office of the Inspector General said.

On Oct. 18, 2021, the FHFA permanently allowed desktop appraisals for Fannie Mae and Freddie Mac. In these cases, a person doing the valuation need not physically be present on the property.

Desktop appraisals are just one of five components for the FHFA's valuation modernization program, which also includes hybrid appraisals and appraisal waivers.

The OIG findings cover reports submitted starting in October 2021 through March 31 this year. However, Freddie Mac did not add desktop appraisals to its automated underwriting system until March 6, 2022, while Fannie Mae included it days later in a March 19 update. Starting in July 2022, both companies were required to submit quarterly reports regarding desktop appraisals.

Submission reviews of those reports are to be conducted by the Office of Housing and Regulatory Policy.

"While we acknowledge the current de minimis volume of desktop appraisals, OHRP management may nevertheless be challenged in assessing the effectiveness of desktop appraisals without documenting its reviews," the FHFA-OIG report stated.

OHRP noted that desktop appraisals during the OIG review period were used on less than 1% of the GSEs' total loan volume. As a result, the OHRP Review Process document did not apply in this case.

Still, FHFA agreed with the OIG's findings and said it would implement its two recommendations, according to a letter attached to the report.

The first requires the FHFA to document reviews of quarterly desktop appraisal reports.

"Because desktop appraisals were not on OHRP's Monitoring and Surveillance List, OHRP was operating consistent with established processes," the FHFA response letter said. "However, FHFA will augment its existing review of the Enterprises' management reports on desktop appraisals by documenting the Agency's review, including any findings, in the quarterly monitoring and surveillance reporting cycle by June 30, 2024."

The second called on the FHFA to immediately place desktop appraisal report reviews on the OHRP Monitoring and Surveillance List; the agency replied it already took this action.