
Preparing for Regulation Changes
As we approach the rollout of revised appraisal waiver regulations starting in early 2025, it’s essential to prioritize effective staff training and strong quality control practices within the industry.
On October 28, 2024, major organizations such as Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency (FHFA) announced the upcoming changes, which will impact purchase transactions.
These adjustments reflect the ongoing success of appraisal waivers, offering quicker and more cost-effective solutions for a variety of borrowers, including first-time buyers and those from lower-income backgrounds.
The new regulations will encompass both conventional appraisal waivers and those that require property inspections.
They aim to leverage verified data from qualified professionals.
A notable change includes raising the loan-to-value (LTV) ratio limit for home purchase appraisal waivers from 80% to 90%, while inspection-based waivers will see an increase to 97%.
Training and Compliance Strategies
In the new landscape, Fannie Mae will rebrand its appraisal waivers as “Value Acceptance.” This framework will influence both primary residences and second homes.
Within this model, lenders will accept values as determined by Desktop Underwriter® submissions.
Additionally, the Value Acceptance + Property Data option allows for a streamlined approach; it requires a single on-site visit for a visual assessment of the property’s interior and exterior.
To facilitate this, lenders can turn to Fannie Mae’s directory to connect with authorized data collectors.
Meanwhile, Freddie Mac will continue offering appraisal waivers through the Automated Collateral Evaluation (ACE) system, which is available for applications submitted via Loan Product Advisor®.
For refinances, lenders must provide either the sales contract price or the estimated value, which ACE then uses to assess the appropriateness of the input.
In some cases, an ACE + Property Data Report (PDR) may be needed to replace traditional appraisals, requiring trained personnel to conduct inspections and provide photographic evidence.
Providers can be located through the collateral valuation dashboard.
To adapt to these imminent regulatory shifts, Fannie Mae has published a guide titled “Valuation Acceptance + Property Data Readiness,” complete with checklists to assist lenders in their transitions.
A vital first step is to adjust Loan Origination Systems (LOS) to ensure they can order, track, and receive property data effectively from valuation service providers.
Lenders must verify that their systems are set up to handle the necessary automated underwriting message codes pertinent to property data collection.
Quality Control Measures
It is crucial for lenders to provide thorough training for their teams, including loan originators, processors, and valuation specialists, on the updated appraisal waiver regulations and various permissible valuation approaches.
These employees will be responsible for ensuring the accuracy and timeliness of the property information submitted by borrowers or agents.
Misinformation can risk appraisal waiver eligibility.
Additionally, if new information arises that may disqualify a transaction from receiving an appraisal waiver, lenders must request a traditional appraisal.
In situations where updated data mandates a hybrid appraisal report, staff should closely examine the automated underwriting feedback.
Clear communication about potential appraisal costs must also be relayed to borrowers, ensuring compliance with the regulations surrounding the “change of circumstance” process linked to the Loan Estimate (LE).
- Differentiating between valuation acceptance (appraisal waivers) and value acceptance + property data.
- Steps for ordering property data collections for qualifying scenarios.
- Identifying when hybrid appraisals become necessary.
- Best practices for recognizing and addressing repair-related items.
- Timelines for property data reviews by processors, underwriters, and quality control analysts.
Fannie Mae emphasizes the need for lenders to establish robust policies to ensure that property data collectors operate independently.
These policies should extend to any involved third parties, ensuring compliance with standards that promote the objectivity and impartiality of the data collection process.
Lenders must confirm that their service provider network can supply necessary property data collections and alternative options, such as hybrid appraisals.
Freddie Mac has set forth guidance regarding property data collections, stressing the importance of quality control.
Sellers must incorporate a systematic review of Property Data Reports (PDRs) into their quality control sampling.
Furthermore, samples from hybrid appraisals should also be subjected to similar reviews.
To maintain compliance, quality control policies should include a variety of essential practices:
- Regular background checks on property data collectors, including criminal history assessments.
- Comprehensive training protocols to ensure thorough preparation of PDRs by data collectors.
- Enforcement of service standards and codes of conduct for all parties involved in the data collection process.
- Ongoing performance evaluations and documentation to address any recurring issues faced by property data collectors.
- Opportunities for continued training in correlation with significant updates to property data collection methodologies.
This article is authored by Anna, an experienced writer specializing in fair lending compliance.
The perspectives presented here may not necessarily align with those of HousingWire’s editorial team or its ownership.
Source: Housingwire