FHFA Seeks Industry Input on Potential Changes in Appraisals
Written By: Joel Palmer, Op-Ed Writer
The Federal Housing Finance Agency (FHFA) is asking for input on a several appraisal-related policies, practices, and processes.
The agency’s Request for Input (RFI) issued last week covers the following four areas:
Appraisal modernization
The Uniform Appraisal Dataset (UAD) and the design of appraisal forms
Automated Valuation Models (AVMs) and appraisal waivers
Valuation differences by borrower and neighborhood ethnic makeup
“Modernizing the appraisal process has the potential to create a more streamlined and accurate collateral valuation process. But if modernization is not properly adopted, it could have negative unintended consequences," said FHFA Director Mark Calabria.
“Today's RFI will improve FHFA's understanding of how the Enterprises can improve the appraisal process while at the same time ensuring they don't take on unintended or inappropriate levels of risk. The comments we receive will inform how we will modernize appraisals to improve both loan quality and the origination process."
For appraisal modernization, FHFA is seeking input regarding a hybrid appraisal proposal by Fannie Mae and Freddie Mac.
Under the proposal, one entity would inspect the subject property, collect key data points and report to the lender for submission to the automated underwriting system (AUS) and corresponding collateral tool. If the AUS determines further analysis is needed, the data collected would be provided to the appraiser for a desktop appraisal. This approach would be designed to “address the gap between an appraisal waiver and a traditional appraisal.”
In the RFI, FHFA wrote that it’s interested in input regarding the advisability of this approach, as well as the types of technology that could be used.
The feedback requested for the Uniform Appraisal Dataset (UAD) and the design of appraisal forms relates to an initiative announced in 2018 to redesign and update UAD and the residential appraisal forms.
The primary aim was to align the UAD with the industry-standard Mortgage Industry Standards Maintenance Organization (MISMO) Reference Model Version 3.X since the current Version 2.6 is no longer supported.
Another goal of the initiative is to assess whether new data are needed to strengthen risk management, and if current data should be retired or revised. A third aim is to ensure all property types are included in the expanded dataset.
“FHFA is seeking public input on any additional updates or ideas from the industry on how the future data and output report(s) could help provide the flexibility and ease of use needed to support all property types and scope of work (including COVID-19 appraisal flexibilities) and ensure that the industry does not need to mix and match data and forms to support temporary policies or unique scenarios.”
The agency’s RFI is also seeking input on Automated Valuation Models (AVMs) and appraisal waivers. Specifically, FHFA wants input on the need for the enterprises to offer appraisal waivers and how to ensure safety and soundness should waivers be offered. FHFA is also seeking input on policies and controls to minimize the occurrence of gaming and data manipulation through multiple AUS and collateral tool submissions.
Finally, the RFI seeks to address recent studies and media scrutiny of “significant disparities in valuations for properties in minority neighborhoods, despite substantial efforts by the appraisal community to improve appraisal and valuation methodologies.” FHFA said it wants to understand “the extent of disparities in value determinations for minority borrowers and for minority neighborhoods.”
FHFA invites feedback on the questions in the RFI no later than February 26, 2021.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
