The mortgage lending community anticipated the recently updated release of the Fannie Mae Single-Family Selling Guide with a mix of excitement and trepidation. While the various modernizations, published this past March, should lead to more streamlined property valuations and mortgage processing, how easily and quickly lenders adopt the new guidelines remains to be seen.
One newly revealed option in Fannie Mae’s appraisal modernization effort is the valuation acceptance + property data alternative that waives the need for a desktop or full appraisal for certain loans. This is Fannie’s equivalent to Freddie Mac’s ACE + PDR (automated collateral evaluation plus property data report). Fannie’s guide also offers alternatives to expedite the 1004D final inspection for completion or repair.
“Lenders are still on the hook for ensuring property eligibility requirements are met before the loan can be sold.”
The valuation acceptance plus property data option allows Fannie’s original value acceptance appraisal waiver to be extended to a broader range of properties. This is because it includes the submission of current property data to bolster valuation confidence and lower risk. Fannie’s property data report will contain photos, an appraiser-grade floor plan of the home, and a questionnaire that details the materials and condition of the property.
This alternative is one step above a pure appraisal waiver and slots below a traditional desktop or hybrid appraisal. By using property data inspectors (a presumably less expensive option than full appraisers), borrowers could save money and more properties could become eligible to receive less than a full appraisal, benefiting lenders and consumers with greater speed and lower costs.
Anticipated workflow
Conceptually, the process works as follows: The loan is submitted to Fannie Mae’s Desktop Underwriter (DU), which determines if it’s eligible for the valuation acceptance plus property data alternative. If it is, a lender orders a property data collection report from an appraisal management company. A property inspector is scheduled to physically visit the property, collect the data and images into a digital format using a handheld device, then submit the information to the vendor. Next, the vendor will submit the inspection data to Fannie Mae, where the lender can access the information to view or print.
To aid adoption of the new guidelines, Fannie Mae published a fact sheet. It contains a representations and warranties chart. At the top of one column are the words “property description,” with an asterisk. The associated disclaimer reads: “The lender remains responsible for the accuracy and completeness of all data that pertains to the property and project (if applicable) that is submitted to DU (other than the property value).”
In other words, the quality and veracity of this new option is the full responsibility of the lender. This means it’s incumbent upon lenders to vet and engage qualified inspectors to capture the required geotagged data and images of the property’s exterior and interior, as well as review the submission data to ensure there are no issues that may affect the sale of the loan to Fannie Mae.
Furthermore, lenders must be able to produce evidence that the property data collectors are professionally trained, comply with fair lending laws, and are able to deliver unbiased and accurate results. They must also perform, or ensure that their providers perform, an annual background check on their data collectors and that a property inspector “has no interest in or ties to the underlying loan origination transaction, participants or subject property.” Ergo, lender operations and vendor managers will need to add property inspector network development and management to their roles and responsibilities, or engage with an appraisal management company that provides these services.
Lenders will also have to prepare for the inevitable exceptions to the process. Specifically, when loan conditions change, the value acceptance waiver may be withdrawn, and processors may have to pivot mid-flight by upgrading to a hybrid or full appraisal. In such cases, they will then need to engage an appraiser and determine whether the information obtained can updated and used in a hybrid appraisal, or whether they will order a full appraisal report.
There may be some instances where an appraiser is unavailable or unwilling to perform a hybrid report using the data, so lenders should also remember that they always have the permanent backstop of being able to order a full appraisal on any loan regardless of the Desktop Underwriter decision they see.
Potential savings
Ostensibly, sending an inspector to collect and submit property data and images via an app will cost less than a professional appraisal. By some estimates, the savings will amount to $100 to $150 per loan for the borrower. The real answer will depend on whether a property ends up requiring a hybrid appraisal upgrade (if a waiver is withdrawn) or a full appraisal.
According to a survey of vendors, inspection fees for a valuation acceptance plus property data report could be as low as $225 or as high as $350. For discussion’s sake, let’s say a lender pays $250 for an inspector to do a site visit to gather the data and images. If the valuation requirement is upgraded to a hybrid or traditional appraisal after the data is collected, the lender must then hire an appraiser to complete the necessary report. This will add another fee, $275 to $350 on average, on top of the $250 paid to the inspector — bringing the total to $525 or more in most cases.
The real impact on costs will be clearer once there’s a better understanding of the percentage of eligible loans that qualify for the valuation acceptance plus property data option versus the percentage that will still require a hybrid, desktop or full appraisal. The initial estimates from various industry experts are that the program will first be applied to an estimated 3% to 10% of loans, centering on single-unit properties for limited refinance and purchase transactions. As the program matures, this estimate scales to substantially higher percentages, including the addition of hybrid appraisal approvals added to property data collection.
As the program matures, the estimate is expected to grow to a much higher percentage of all loan volume in subsequent years. If one assumes that at scale, 40% to 50% of all potential loans could be eligible for these programs, the aggregate savings to borrowers could be significant. Savings for lenders may be more elusive since they will still need to hire and manage the operations, vendor and processing resources needed to support this new alternative.
Risk tolerances
Lenders will also need to examine and evaluate how the valuation acceptance plus property data option affects their own underwriting risk tolerances and processes. Remember, Fannie Mae’s representations and warranties are tied only to value. Lenders are still on the hook for ensuring property eligibility requirements are met before the loan can be sold to the agency.
That’s why underwriters need to have complete confidence in the inspectors who gather the data and images. Strict protocols that verify the accuracy and thoroughness of each inspector’s work should be an imperative.
Normally, if a property needs repairs, the lender asks the appraiser to do a second inspection (often remotely), then uses an appraisal update and completion form to verify that the repairs have been completed. But with the valuation acceptance plus property data option, there is no initial appraisal to update. Instead, a lender may obtain a letter from the borrower attesting that the repairs have been completed, along with photos, signatures of the professionals who performed the work and/or paid contractor invoices.
Borrowers also appear to be required to embed a link to the photos in their attestation letters so that Fannie can access them now or far into the future. If the loan is submitted without proper and verifiable attestation and exhibits, the lender could wind up having underwriting issues with Fannie Mae.
Fannie Mae personnel have indicated that the borrowers themselves will provide all of this information regarding proof of repairs without lender assistance. As with any new process, however, there will be plenty of learning and refining as lenders figure out how to integrate the valuation acceptance plus property data alternative into their processing and underwriting workflows. ●
