Saying it needs to modernize the way it values properties, Fannie Mae announced significant changes Wednesday to the appraisal process for single-family mortgages it buys on the secondary market.
The changes, which took effect immediately, generally echo similar shifts fellow mortgage-buyer Freddie Mac announced months earlier.
“Valuation modernization helps 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 government-owned company said in its announcement.
“We are moving away from implying that an appraisal is a default requirement” towards a world where it relies much more heavily on data and valuation technology, it added.
Going forward, mortgage companies, credit unions and banks will have three options to demonstrate the value of a property that’s being mortgaged for a loan they plan to sell on to Fannie Mae:
Value acceptance: “Value acceptance” replicates the company’s current appraisal waiver process, where Fannie Mae takes the lender’s claim about how much the property is worth at face value, based largely on Fannie Mae’s own, proprietary automatic valuation model.
Value acceptance + property data: This approach uses a “professionally trained” third party to examines a home’s interior and exterior to collect data on the property for the lender “to confirm property eligibility,” even when Fannie Mae accepts the value the lender has assigned to the property without requiring an appraisal. The lender will still have to submit the data gathered to Fannie Mae’s Property Data API.
Hybrid appraisals: “Hybrid appraisals” will be based on data about a property’s interior and exterior, supplied by a trained third party who’s been vetted by the bank. This third party will then turn the data gathered in the course of its inspection over to an appraiser who will then analyze it similar to a desktop appraisal. Fannie Mae says it will only require this option if a lender has begun the second type of valuation process, “but changes in loan characteristics results in the transaction not being eligible for that option.“
