Banking

FHFA will make desktop home appraisals a permanent option


Home appraisals conducted without the physical presence of an appraiser will be allowed permanently on loans bought by Fannie Mae and Freddie Mac, starting in early 2022.

Sandra Thompson, the acting director of the Federal Housing Finance Agency, announced the change Monday as part of an effort to allow banks and mortgage lenders to use so-called desktop appraisals in lieu of in-person home valuations.

The change makes permanent a provisional measure that Fannie and Freddie instituted during the pandemic.

“What was one of the temporary flexibilities will now become an established option for originating enterprise loans,” Thompson said to thundering applause at a Mortgage Bankers Association conference in San Diego. “Both enterprises will incorporate desktop appraisals into their [selling] guides for many new purchase models starting in 2022.”

In-person appraisals were long considered an integral part of the home buying process, including both on-site inspections and an analysis of comparable sales on similar properties in a neighborhood. The aging appraiser workforce and regulations after the financial crisis that led to a rise of appraisal management companies have gutted the industry, reducing fees for appraisers overall.

As part of the Biden administration efforts to make housing more affordable, Thompson also announced that the government-sponsored enterprises will expand eligibility requirements for Fannie Mae’s RefiNow and Freddie Mac’s Refi Possible.

The GSEs first announced the programs earlier this year to help low and moderate income borrowers access refinancing.

FHFA aims to “significantly increase the population of eligible borrowers,” Thompson said, by expanding the income threshold to include moderate income borrowers with incomes at or below 100% of the area median, up from the previous 80%.

The agency also is modifying other requirements to address “operational frictions” for lenders taking part in the two programs, she said.

“By taking advantage of lower interest rates, borrowers can reduce their share of their income that they have to spend on housing costs,” Thompson said.

Refinancing low and moderate income borrowers “should be an urgent priority,” Thompson said, because many minority borrowers have interest rates of 6% or higher, having missed out on the refi boom.

“We’re seeing significant numbers of lower income and minority borrowers stuck in rates 30% to 60% higher than the current average,” she said.

FHFA is removing some restrictions on the programs for finance and closing costs and removing a previous cap on loans that were more than 10 years old, she said.

In addition, FHFA is putting off until next year changes to its minimum financial eligibility requirements for Fannie and Freddie seller-servicers, Thompson said.

Last year, former FHFA Director Mark Calabria proposed new minimum financial standards for mortgage lenders. The changes were put off due to the pandemic and are further delayed by the need for servicers to focus on helping borrowers exiting forbearance plans.

“Servicer eligibility 2.0 will not be released this year,” she said.

FHFA instead wants servicers focused on helping borrowers who opted to enter forbearance plans during the pandemic and now need loan modifications.

“We need servicers to focus their full attention on helping distressed borrowers transition out of Covid forbearance programs into long-term retention solutions that keep borrowers in their homes.”


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