Stating it wants to make the “home valuation process more efficient and accurate,” Fannie Mae on Wednesday released its March Selling Guide with updates that include “moving away from implying that an appraisal is a default requirement” for valuing a property.
The president of an appraisal management company called the announcement “a win for the entire industry.”
In a statement, Fannie Mae said the Selling Guide update was “part of valuation modernization,” which involves a “transition to a range of options to establish a property’s market value.”
As stated in the guide, “Valuation modernization involves leveraging technologies, data, and analytics to enhance the management of collateral risk, making the process more efficient for lenders, borrowers, appraisers, and secondary-market investors.”
The government-sponsored enterprise said that valuation modernization will help lenders, appraisers, and risk investors “manage collateral risk more effectively, while also benefiting consumers via greater appraisal accuracy, lower costs, and increased speed of loan decisioning.”
The valuation modernization includes introducing the following:
- Value acceptance: This will be used in place of the term “appraisal waiver.” Fannie Mae said the term better reflects “the actual process of using data and technology to accept the lender-provided value.” The GSE added that it will use the term ”for a period of time and will eventually move to ‘value acceptance’ after the market absorbs this change.”
- Value acceptance + property data: This is a new option that “utilizes property data collection by a third party, who conducts interior and exterior data collection on the subject property,” Fannie Mae said. It added that, to ensure consumers are protected, a lender must verify and be able to demonstrate that data collectors are vetted through an annual background check; professionally trained; and possess the essential knowledge to competently perform the property data collection. Fannie Mae said property data collection is used by the lender to confirm property eligibility, and an appraisal is not required. This option does require submission of the data to Fannie Mae’s Property Data API, based on a new data standard and delivery of Special Feature Code 774.
- Hybrid appraisals: These are based on interior and exterior property data collection by a vetted and trained third-party that is provided to an appraiser to inform the appraisal. They are permitted for certain one-unit transactions where value acceptance + property data was initially started, but changes in loan characteristics results in the transaction not being eligible for that option.
- Alternative methods for the Appraisal Update and/or Completion Report (Form 1004D): These include a borrower/builder attestation letter to verify completion of construction, and a borrower attestation letter to confirm completion of repairs for existing construction in lieu of Form 1004D. The policy further describes required exhibits and controls.
Mark Walser, president of Incenter Appraisal Management — an independent appraisal management company (AMC) based in Charlotte, N.C. — expressed excitement about the updates announced by Fannie Mae.
“To me, the announcement is actually a win for the entire industry,” he said in an interview with NMP. “When Fannie Mae introduces these types of modernization options, … it provides the industry a blueprint for how and when those types of products will be used.”
Incenter Appraisal Management works on both sides of the appraisal industry, providing a network of 10,000 professional appraisers for in-person inspections but also providing technology for remote appraisals.
Walser was especially interested in Fannie Mae’s update for alternative methods for the 1004D, because his company offers RemoteVal, virtual inspection software that makes remote appraisals easier.
“When you’ve got a home that was appraised subject to repairs, now you need to have those repairs done,” he said. “Then what usually happens is lenders get around to ordering that 1004D completion [for an appraiser] to verify the repairs are done, and they're doing that often just days before the loan has to close.”
That can make it difficult to schedule an in-person visit by an appraiser, Walser said.
“That problem can now be solved in a matter of hours, really, because with virtual technology like we have, our appraisers can now [with Fannie Mae’s update] do a 1004D using RemoteVal,” he said. “So we can turn those reports around really fast. That’s a great welcome win for everybody.”
He added that the changes will help “make the cost for appraisals a lot more attainable for many, many borrowers.”
Wasler also said that the changes may not have happened as quickly if not for the COVID-19 pandemic. “I think it might have taken a little bit longer,” he said. “I think we were on the path anyway, but the pandemic changed mindsets. The pandemic didn’t just shut people down, it kind of forced the issue to where you had to figure out alternative ways to do things.”
In addition to the property valuation changes, Fannie Mae’s updates to the Selling Guide also:
- Provided additional guidance on the use of sweat equity and nonprofit program providers;
- Revised timelines and expectations for lenders’ prefunding and post-closing quality control reviews;
- Required the use of Condo Project Manager for projects when a lender Full Review is required; and
- Made other miscellaneous updates.
