In a selling guide published last week, Fannie Mae showed it is moving away from the position that a property appraisal is a requirement to prove value for a lender to sell a loan to the government-sponsored enterprise.
Also, it is looking to substitute the term "value acceptance" in place of appraisal waiver, although at first both will co-exist in the Fannie Mae lexicon.
While the valuation profession has used
"This announcement does raise concerns and questions about increasing collateral risk at a time of market volatility," Craig Steinley, president of the Appraisal Institute, said in a statement.
"Further, the change complicates appraiser recruitment and diversity efforts through the insertion of an unregulated contingent of property data collectors into the mortgage lending process," he said.
White it is too soon after the announcement to realize the effects of the change, Jeff Leinan, co-president of Plaza Home Mortgage, a San Diego-based Fannie Mae and Freddie Mac approved seller, was in favor of the shift.
"I think the fact that we're utilizing technology to make the process of buying a home, faster, less expensive and probably a higher quality at some point, possibly just because of the use of the data, I applaud the direction," Leinan said. "It's a great direction that we're moving in, ultimately great for borrowers and for lenders."
As for the quality of the valuation, "I trust the agencies understand the data metrics that they're working with," Leinan continued. "I think we'll continue to see the programs evolve and continue to get better as their databases continue to build out and to get more information as well."
And those in the appraisal management company and technology segments welcomed the changes, saying it brings Fannie Mae and Freddie Mac closer together in terms of process, which will become faster and cheaper.
Freddie Mac already offers ACE+ PDR; the acronyms stand for automated collateral evaluation, which is its
"Freddie Mac's goal is to purchase loans supported by the most appropriate and reliable valuation method available to help it mitigate the associated risk," said Scott Reuter, the GSE's chief appraiser.
The Fannie Mae announcement calls this valuation modernization while Freddie Mac uses appraisal modernization. Both are working together to upgrade the Universal Appraisal Dataset. But Fannie Mae and Freddie Mac have undertaken several initiatives separately that have resulted in a number of options lenders may use.
It is also too early to gauge any impact the almost-harmonization of the process between the two will mean for lenders, Plaza's Leinan said. However, he added it is always better for originators when the two secondary market agencies align as much as possible.
In the end, lenders will get speedier appraisals and reduced costs, noted Danielle Walker, vice president of product development at Xactus Appraisal Firewall. "And even more importantly for consumers, consumers want a simple more cost-effective process and it's definitely a big step in that direction."
With both Fannie Mae and Freddie Mac having these programs, which is enhanced by the data in the
It creates a more modern process that will reduce appraisal turn times, which in turn cuts down the time to close a loan when it is fully adopted, she added.
Even though fewer standard appraisal orders will be needed going forward, the future for the mortgage business is "combining technological advancements with human interaction wherever it is needed," Walker said. "There always was, is and will be a need for people to be involved…in different, better, more productive ways."
For years, the number of active appraisers has been
On the other hand, the pandemic also boosted the use of electronic alternatives to a full appraisal.
Incenter Appraisal Management already employs inspectors, which could be appraisers, real estate agents, or someone else that has gone through a training class the company offers, explained Mark Walser, president.
These people are background-checked and trained on how to do property scans and data collection. The company is both an AMC and a technology provider.
Even with the changes, appraisers are still needed for the home purchase process, and a traditional appraisal remains an option, Walser said. "This also helps bring trainees into the industry and replenish the appraisal population," countering the Appraisal Institute's assertions.
The Fannie Mae changes are effective immediately. However Desktop Underwriter will not be updated until the weekend of April 15 to cover this revision.
"One thing I really appreciated about Fannie Mae's approach and the way that they released this is they're not going headlong into it," Walser said. "They realize the industry needs time to get used to it and lenders need to write policies to accept it."
Value acceptance better covers the use of data and technology to reflect the pricing information provided by the lender than appraisal waiver does, the Fannie Mae announcement said, adding in the interim, it will use "value acceptance (appraisal waiver)" to describe this process.
The bulletin introduces the value acceptance + property data option for lenders. A third party will take an interior and exterior look at the subject home.
As part of this, the lender is required to vet the third party through an annual background check, plus ensure they have the right professional training and knowledge to do the work.
"The property data collection is used by the lender to confirm property eligibility, and an appraisal is not required," the bulletin said. "This option also requires submission of the data to Fannie Mae's Property Data API based on a new data standard."
Hybrid appraisals involve the use of another person to provide interior and exterior data to an appraiser; these are used for some mortgages secured by a single unit where a value acceptance + property data valuation was started but a change in the loan's characteristics makes it no longer eligible for this option.
The changes now allow for alternatives to the Fannie Mae 1004D form, the appraisal update and/or completion report, including the use of an attestation letter that a newly constructed property was completed by the borrower and builder; for rehabilitation work it allows for a borrower to send that letter.
"Those [1004D inspections] are the bane of most people in the industry right now because typically, the appraisers view them as an inconvenience," said Walser. The fees aren't as high and it can take days to schedule, something critical when a closing is imminent.
Such alternatives are already available for non-qualified mortgages. Walser provided an example where Incenter was able to use its proprietary technology to provide an appraiser with time-stamped and location-coded photographs to provide proof the construction work was completed on a non-QM loan that was closing the next day and it was unable to schedule someone to inspect in person.
That convenience will now extend to Fannie Mae mortgages, he said.
The potential for eliminating racial bias in appraisals is likely the most important impact from Fannie Mae's changes to the home valuation process, said Bien-Aime, who is Black.
"It's a very personal issue to me, and this will actually help alleviate the problem," Bien-Aime said. "It'll practically all but eliminate the appraisal bias because an appraiser can't be biased if they're not inspecting the property and meeting the borrower."
Indeed, if these options are used, a property valuation decision will be made on the data without any other factors about the borrower being included.
Complaints about biased valuations in both
