Click Here to Call Congress about Fannie/Freddie's Risky
Appraisal Waiver Programs
Freddie Mac & Fannie Mae have embarked on programs that waive appraisal requirements in first purchase and refinance transactions, using propriety models and generally unreliable data from MLSs and public records for collateral risk decision making. According to Fannie & Freddie, this is being done to lower costs and shorten closing time for consumers. While Fannie Mae has indicated the appraisal waivers will represent only 5 percent of their loan portfolio, Freddie Mac has thus far being unwilling to provide estimates, indicating that as much as one-third of their portfolio may be offered appraisal waivers. These programs will create unnecessary and unacceptable risks for taxpayers and homeowners, and they come at a time when markets are at all-times - when risk mitigation should be tantamount.
Congress is once again turning housing finance reform, and as they deliberate, they should hear from appraisers on why appraisal waivers are a bad idea and a risk to taxpayers.
Appraisal Organizations Write to Congress Regarding GSE Appraisal Waivers
On September 6, 2017 a broad coalition of 35 national and state organizations of real estate appraisers, including the Appraisal Institute, wrote to both the Senate Banking Committee and House Financial Services Committee raising concerns over the new appraisal waiver programs implemented by Fannie Mae and Freddie Mac.
Letter to the Senate Banking Committee
Letter to the House Financial Services Committee
AI Expresses Concern about Possible Appraisal Waivers
The Appraisal Institute was one of several organizations that met with officials from Fannie Mae, Freddie Mac and the Federal Housing Financial Agency on May 23 to discuss concerns about initiatives under consideration that would waive appraisals in purchase and refinance loan transactions.
Both government-sponsored enterprises said they are preparing limited appraisal waiver programs, but the size and scope of each program as they pertain to the refinance and purchase loan markets could not be determined, which raises some concern. AI urged officials to further study their proposals and to publicly define the scope of any waiver program to ensure that similar criteria — such as having previous appraisal information on file — is applied by each agency.
Freddie Mac OKs Appraisal Alternative for Some Mortgages
Freddie Mac announced Aug. 18 that it will utilize automated collateral evaluations to determine when an automated appraisal can supplant a traditional appraisal for new home mortgages and refinancing. ACE will be available Sept. 1 and use data from multiple listing services, public records and historical home values to determine collateral risks.
“Since 1994, the government sponsored enterprises have been exempted from appraisal requirements established by Congress on the basis that they would make responsible decisions,” said Appraisal Institute President Jim Amorin, MAI, SRA, AI-GRS. “Last week’s announcement to waive appraisals in blind loan purchase decisions calls this privilege into question, as it will undoubtedly result in a race to the bottom and create more risk for taxpayers.”
Read more about Freddie Mac appraisal alternatives.
ACE Fact Sheet
Fannie Mae Eases Appraisal Requirements on Lower LTV Mortgages
Fannie Mae announced Aug. 18 that lenders can forego appraisals on some loans with low loan-to-value ratios as part a larger program that waives property inspection requirements on lower-LTV mortgages. Fannie Mae said it will continue to require full appraisals on most purchase money mortgages.
“As Congress weighs how to roll up or roll out the conserved enterprises, it must ensure that taxpayers are not exposed to irresponsible decision making and unnecessary risk taking,” said Appraisal Institute President Jim Amorin, MAI, SRA, AI-GRS.
Read more about the Fannie Mae program.
Fannie Mae Property Inspection Waiver Program website