Assessment readiness steps emphasize staff training and quality control

Expanded appraisal exemption rules will take effect on purchase transactions beginning in the first quarter of 2025. On October 28, 2024, announcements were made by Fannie Mae and Freddie Mac, as well as the Federal Agency for Housing Financing (FHFA) stating that the policy action “builds on the longstanding success of appraisal waivers, which have allowed more borrowers – especially first-time and low- to moderate-income borrowers – to benefit from cost savings and shorter closing times.”

The new rules apply to both tax exemptions And exemptions based on inspectionsusing real estate data collected by a trained and vetted professional. The maximum Loan-to-Value (LTV) for appraisal waivers on home purchases will increase from 80% to 90%, and the LTVs for appraisal waivers based on inspection will increase from 80% to 97%.

Fannie Mae Valuation exemptions are now known as Value acceptanceand the 2025 changes apply to both the purchase of a primary residence and the purchase of a second home. Value acceptance means the lender accepts the value indicated in the Desktop Underwriter® offer. Value acceptance + real estate data is an inspection-based appraisal exemption, and property data collection consists of a visual observation of the interior and exterior areas of the subject property. Only one visit to the property is required to complete this process. Lenders can search for a licensed data collector in the geographic area from Fannie Mae’s list of service providers.

Freddie Mac Valuation exemptions are available through the Automated Collateral Evaluation (ACE) option for applications submitted through Loan Product Advisor.® Lenders must provide the sales contract price or appraised value of the property for refinances, and the ACE algorithm determines the acceptability of the value (or sales price) as a basis for closing the loan. LPA feedback may indicate the requirement of one ACE+PDRinstead of a traditional valuation, consisting of an Automated Collateral Evaluation (ACE) and a Property Data Report (PDR). The PDR information is collected physically on site by a trained property data collector, including photographs. Lenders can find a provider on the collateral valuation dashboard.

LOS configuration

Fannie Mae’s Appraisal Acceptance + Property Data Readiness Lender Source includes a number of detailed checklists, outlining the steps lenders can implement to be ready for 2025. A first key step is configuring the Loan Origination Systems (LOS) for ordering, tracking and receiving real estate data collections from appraisal service providers. Lenders should ensure that the LOS system is modified to include the appropriate automated underwriting message codes and identifiers applicable to real estate data collection.

Staff training

Lenders should ensure that originators, processors and appraisal staff receive training on appraisal waivers and other acceptable appraisal methods. Staff should take additional steps to confirm that the property information provided by the borrower (or broker, builder, etc.) is accurate and current. According to the Companies, data that cannot be validated may impact the acceptance of any type of assessment waiver.

Lenders are required to request a traditional appraisal based on additional information or facts later received about the property, which would make the transaction ineligible for a waiver. Based on new information received or other factors, automated underwriting feedback may indicate the requirement for a hybrid appraisal report (Fannie Mae Form 1004 Hybrid or Freddie Mac Form 70D). It is important that staff notify borrowers of any appraisal fees, and ensure compliance with the Loan Appraisal (LE) reissue requirement due to a “change in circumstances.”

According to Fannie Mae’s Readiness Guide, employee training should include the topics listed below.

• Differences between appraisal acceptance (appraisal exemption) versus value acceptance + real estate data.
• How and when they can order the collection of real estate data for an eligible file.
• How and when a hybrid appraisal may need to be requested.
• Identify and manage repair items.
• How and when processors, underwriters and quality control analysts should review real estate data collections.

Independence requirements for property data collectors

Fannie Mae requires sellers to adopt written policies, procedures, disciplinary rules and training programs to ensure compliance with independence requirements for property data collectors. In addition, Sellers must also ensure that any third parties, including property data collection companies, service providers or correspondent lenders, also comply with the procedures. Fannie Mae publishes accompaniment for lenders, which establishes standards to ensure the independence, objectivity and impartiality of data property collectors and other independent parties throughout the property data collection process. Lenders should confirm that their service provider network can offer property data collections and other options such as hybrid appraisals and field services.

Quality control after financing

Freddie Mac newly issued accompaniment on November 6, 2024, Real estate data collection and seller monitoring. The guidelines emphasize important quality control objectives and state that sellers should include a targeted review of Property Data Reports (PDR) as part of their quality control sampling. Valuations performed through a hybrid process should also be included in the quality control sampling. The QC policies and procedures should include the following steps:

• Require property data collectors to undergo periodic background checks, including criminal background checks;
• Require property data collectors to undergo extensive training on how to prepare an accurate and thorough PDR;
• Require property data collectors to adhere to the same customer service standards or code of conduct that employees and/or contractors of Seller, or its authorized third party, must adhere to;
• Include a process to continuously evaluate real estate data collectors, including monitoring and documenting performance to identify and correct any recurring deficiencies and eliminate the use of chronically underperforming real estate data collectors; And
• Include a process for providing continuing education when necessary (e.g., in the event of significant changes to the UPD, real estate data collection process, etc.)

Anna i has written more than 45 handbooks and educational resources on fair lending compliance.

This column does not necessarily reflect the opinion of HousingWire’s editorial staff and its owners.

To contact the editor responsible for this piece: [email protected].