Mortgage groups urge FHFA to modernize appraisals

Multiple organizations in the mortgage industry sent a joint letter to the Federal Housing Finance Agency expressing support in President Donald Trump's March executive order and asking Director Bill Pulte to update the appraisal process.

The consortiums requested Pulte and the agency to consider expanding the use of hybrid valuation methodologies, increasing the deployment of value acceptance and sharing more data with appraisers, according to the letter sent Friday.

"Everything can always be optimized, especially as technology becomes better and better," said Brendan McKay, co-founder of the Broker Action Coalition, one of the eight organizations that signed the letter. 

The organizations said the marketplace and consumers can benefit from technological advancements through the use of hybrid valuations, which utilizes a scanning technology to complete appraisals at a significantly lower cost. The process includes allowing borrowers, real estate agents and loan officers to photograph the interior and exterior of a property, and then the appraiser uses the data obtained by the scanning technology to complete their report. This protocol was successfully used during the pandemic, the letter said.

This method is cheaper and five times more efficient than the typical appraisal process, which requires an appraiser to drive to the property, record the measurements and drive back, McKay said.

"The requirements to become an appraiser are extremely high, and that ... has made it very difficult to recruit new people as appraisers," he added. "The scanning technology will help with that, in addition to lowering some of the too high requirements to become an appraiser in the first place."

The organizations also recommended expanded value acceptance, permitting waiver of the appraisal requirement for low-risk properties, by the government-sponsored entities. Value acceptance has been confined to properties with values at or below $1 million since Fannie Mae first introduced it in 2016, when the high-cost area loan limits for GSE loans were $625,500. That limit has since increased to $1.25 million.

The letter proposed raising the value acceptance limit to $2-million properties, but McKay said there shouldn't be a limit at all and the data should speak for itself.

"I don't think the logic holds up to having a hard cap ceiling," he added. "I'm generally a believer that any time you have policies like this, they should include automatic increases over time."

The final suggestion made was that the entities should allow greater access to the GSE Uniform Collateral Data Portal, which the letter described as the most expansive set of property data. The organizations recommended the entities provide appraisers with limited access to the appraisal dataset, possibly using features from Collateral Underwriter and Loan Collateral Advisor, to improve appraisal reliability, reduce costs and improve borrower experience.

The Housing Policy Council organized the joint letter to share the industry's excitement for the executive order and offer a few recommendations, McKay said. Section six of the executive order, issued March 13 and titled "Promoting Access to Mortgage Credit," said Pulte will consider modernizing appraisal regulations and guidance, simplifying appraiser qualification requirements and reducing appraisal requirements for low-risk transactions.

Many of the same organizations sent joint letters to the Federal Housing Administration and Department of Veterans Affairs over the last two months regarding appraisal issues as well.