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FHFA Seeking Comments on Appraisal Process Overhaul

Appraisal policies may (or may not) change, but the industry’s federal oversight administration put out a request for comments about current home appraisal practices.

WASHINGTON – Could the appraisal process be headed for an update? The Federal Housing Finance Agency (FHFA) – the regulator to mortgage financing giants Fannie Mae and Freddie Mac – is requesting public input on policies and practices regarding the home appraisal process.

FHFA is currently weighing a series of proposals, including one on increasing the valuation options for loans that are backed by Fannie and Freddie.

“Modernizing the appraisal process has the potential to create a more streamlined and accurate collateral valuation process,” FHFA Director Mark Calabria says in a statement announcing the request for public input. “But if modernization is not properly adopted, it could have negative unintended consequences. … The comments we receive will inform how we will modernize appraisals to improve both loan quality and the origination process.”

FHFA is looking at a few proposals, such as:

  • Increasing the use of appraisal waivers, where an automated valuation method uses existing data to determine value instead of a traditional appraisal.
  • “Hybrid appraisals,” in which a third-party goes to a home to collect necessary information for an offsite appraiser who then completes the valuation.
  • Desktop and exterior-only appraisals, which the agency used during the pandemic to protect the health and safety of appraisers.

Critics have expressed concerns over the different valuation products, however. For example, policies that allow appraisers to do exterior-only or desktop valuations may not catch issues with the condition of the property. There’s also concern among some in the industry that waiving appraisals for certain priced homes puts unnecessary risk into the secondary market. Also, automated valuations are based on previous appraisal data; that, according to some critics, could cause problems with valuations down the road if new data isn’t brought in.

“If those appraisals are replaced with waivers, it would be logical to assume there will be less data to drive” the models in the future, Tom O’Grady, CEO of Pro Teck Valuation Intelligence, a property data and valuation firm, told MarketWatch. If a property isn’t appraised in-person, changes over time also could go unnoticed.

“That could have a dramatic effect on the overall market value of the home,” O’Grady says.

Proponents of changes say it could offer time and cost savings to consumers. Some proponents also point to a shortage of appraisals in the industry and an uptick in mortgage demand from home purchases and refinances over the past year. That shortage has sometimes caused delays in the appraisal process and delays in closings. The number of appraisers has dropped by more than 10% nationwide between 2014 and 2018, according to the Appraisal Institute.

FHFA is collecting public feedback on the appraisal process at FHFA.gov.

Source: “Federal Regulators Want to Overhaul Home Appraisals—Here’s How That Could Hurt Both Buyers and Sellers,” MarketWatch (Jan. 7, 2021)

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