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With a green light from their federal regulator and a side-eye from appraisers, mortgage giants Fannie Mae and Freddie Mac are gearing up to expand programs that rely on automated valuation models instead of appraisals to allow participation by homebuyers putting less than 20 percent down.
Fannie and Freddie estimate that the appraisal waiver programs — previously only available on mortgages with loan-to-value ratios of up to 80 percent — have already saved borrowers more than $4 billion in appraisal costs.
In addition to saving borrowers the expense of hiring an appraiser, the programs have enabled a number of lenders to offer same-day mortgage approvals with automated verification of assets, income and employment.
Sonu Mittal
“We have been working to create new technology features that simplify the mortgage process and reduce costs for both borrowers and lenders,” Freddie Mac executive Sonu Mittal said in a statement.
“Despite the very challenging housing environment, for the past six consecutive quarters more than half of the loans Freddie Mac purchased have been to first-time homebuyers. The innovations we are announcing today are vital to building on this record and helping remove obstacles facing prospective homebuyers.”
Freddie Mac said Monday that it plans to make mortgages with loan-to-value ratios (LTVs) of up to 90 percent eligible for automated collateral evaluation (“ACE“), up from 80 percent today.
When automated valuations are supported by property data reports (“ACE + PDR“), LTVs can go all the way up to the program limits for the product type. That means some low-income borrowers who qualify for Freddie Mac’s Home Possible loan program will be able to put down as little as 3 percent on a home purchase and not have to pay for an appraisal.
Fannie Mae said Monday it will make similar adjustments in the first quarter of 2025 to its “Value Acceptance” and “Value Acceptance + Property Data” appraisal waiver programs.
Fannie Mae estimates the use of automated valuations — in some cases in conjunction with inspections that fall short of full-blown appraisals — have saved borrowers more than $2.5 billion since early 2020.
Freddie Mac says its ACE program has saved borrowers an estimated $1.63 billion in appraisal fees, and that the default rate on 3.26 million ACE loans made from May 2017 through June 2023 was lower than the rate for loans made with appraisals.
“ACE reduces the number of appraisals required, but a significant majority of loans will still require an appraisal” — including all loans on properties valued at $1 million or more, Freddie Mac says in a website FAQ. “ACE allows appraisers to focus more of their efforts on complex properties.”
But The Appraisal Foundation, which sets standards and qualifications for real estate appraisers, warned that the expansion of Fannie and Freddie’s appraisal waiver programs poses risks to consumers and the marketplace.
Kelly Davids
“Appraisals that are conducted by credentialed appraisers in accordance with the rigorous standards and ethical guidelines of the Uniform Standards of Professional Appraisal Practice (USPAP) offer critical safeguards for consumers and the broader economy by ensuring credible results in real estate transactions,” Foundation President Kelly Davids said in a statement to Inman.
“The rise of appraisal waivers brings an increasingly higher level of risk for individual homeowners and buyers as well as the marketplace. Moving away from safety and soundness safeguards like USPAP and Real Property Appraiser Qualification Criteria heightens risk which has led to the type of economic disasters we have seen in the past.”
The Appraisal Institute, a professional association of real estate appraisers, weighed in with similar concerns, saying the expansion of the program “could be devastating for the mortgage market” if a substantial portion of loans with 97 percent LTVs are granted waivers.
Sandra Adomatis
“What is troubling is the fact that the mortgage market does not rationally use appraisal waivers,” Appraisal Institute President Sandra Adomatis said in a statement.
About 40 percent of purchase mortgages with LTVs of 76 percent to 80 percent were granted appraisal waivers in July, triple the proportion of loans with LTVs of 71 percent to 75 percent, Adomatis said, citing research by the American Enterprise Institute (AEI).
Fannie and Freddie’s regulator, the Federal Housing Finance Agency (FHFA), said it signed off on the expansion of the appraisal waiver programs “after careful consideration and analysis,” and that Fannie and Freddie will be required to institute appropriate risk management controls.
Naa Awaa Tagoe
“To be clear, the expanded eligibility of appraisal waivers does not constitute an expanded credit box, but rather will allow more first-time homebuyers, and particularly low- and moderate-income first-time homebuyers, to recognize the benefits associated with appraisal waivers,” FHFA Deputy Director Naa Awaa Tagoe said Monday at the Mortgage Bankers Association’s annual convention.
The FHFA also announced Monday that it’s now including appraisal data from the Federal Housing Administration (FHA) in its Uniform Appraisal Dataset (UAD), an appraisal database derived from more than 68 million appraisal records.
Sandra Thompson
“Publishing appraisal data that goes beyond loans backed by Fannie Mae and Freddie Mac provides a more complete picture of home valuation trends and reinforces our commitment to accuracy, transparency, and fairness,” FHFA Director Sandra Thompson said in a statement.
“Offering the public access to appraisal data for FHA-insured loans will bolster policymakers’ efforts to identify and address potential inaccuracy, bias, and discrimination in the broader mortgage market.”
Editor’s note: This story was updated to include comments by Appraisal Institute President Sandra Adomatis.
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