The real estate valuation landscape is evolving rapidly, driven by technological advancements and a growing demand for efficiency. Freddie Mac’s automated collateral evaluation plus property data report, commonly referred to as ACE+ PDR, introduced in July 2022, and Fannie Mae’s value acceptance + property data, launched shortly after, are prime examples of this shift.
Both of these options allow waivers for home appraisals under certain circumstances. These tools are part of a broader valuation modernization effort that seeks to offer a spectrum of collateral valuation options, where eligibility is provided by Freddie Mac’s Loan Product Advisor or Fannie Mae’s Desktop Underwriter.
Historical data provides a broad sense of value in homogenous markets, such as subdivisions, but current property characteristics and conditions remain critical to determining a home’s value. For certain loans, an inspection is necessary to assess the condition and ensure the property meets eligibility requirements set by each government-sponsored enterprise (GSE).
Crucial offerings
Freddie and Fannie’s offerings allow inspection-based appraisal waivers that aim to provide a new way to determine the fair market value of a home while effectively managing risk. A crucial part of these new offerings is a physical inspection of the property, however.
These inspections must be performed by trained data collectors who meet the GSEs’ individual requirements, including undergoing a background check (also subject to periodic background checks), in addition to receiving comprehensive training for gathering data onsite, focusing on the property’s current condition.
These valuation tools when effectively and efficiently leveraged by lenders, have the potential to reduce turnaround times and costs, while also managing risk. Each GSE requires the data collection to be reported using the Uniform Property Dataset (UPD), the joint-GSE dataset for inspection-based appraisal waivers, to ensure standardization.
Initial setbacks
Despite the potential benefits, inspection-based appraisal waiver options have yet to achieve widespread adoption. Several factors have contributed to this, including a lack of implementation or in some cases awareness of eligibility for lenders and originators.
Many may be unsure how to identify eligibility for these solutions based on Loan Product Advisor or Desktop Underwriter results. In some cases, early adopters faced setbacks, such as inspections triggering a high volume of upgrades to a traditional appraisal, or delays in rural areas where turn times for inspections were longer.
Moreover, feedback from the mortgage community indicates that traditional appraisal turn times are currently manageable due to lower market volumes. Many lenders are opting to stick with familiar processes, particularly as appraisal timelines have become more predictable in today’s market.
Fortunately, many of the initial issues that accompanied the launch of these solutions have since been resolved. A notable challenge involved mismatches between data sets. For example, a property data report submitted to Freddie Mac was not compatible with Fannie Mae’s property data collection, and vice versa.
Now each GSE requires the use of the Uniform Property Dataset for inspection-based appraisal waivers. Additionally, the frequency of upgrades from the Uniform Property Dataset to traditional appraisals has significantly decreased, easing some of the concerns lenders had early on.
Significant advantages
For lenders, the Freddie Mac and Fannie Mae appraisal waiver tools offer several significant advantages. First, for the loans receiving eligibility in either the GSE’s automated underwriting systems, the value estimate or purchase price is accepted for the origination of the loan.
If the lender chooses to accept the offer, the lender receives relief from representations and warranties related to the value. Second, the cost of a property data report is typically 50% lower than a traditional appraisal, with turnaround times up to 50% faster. Lenders that exercise the offer to use either the Freddie or Fannie options may be able to translate that into faster, cost-effective underwriting.
While a traditional appraisal remains essential in some scenarios, the introduction of these offerings from Fannie and Freddie can help prevent delays. Between 2019 and 2022, appraisal backlogs in certain markets caused turn times to stretch sometimes into weeks. These offerings and other collateral valuation options can mitigate this, allowing appraisers to focus on complex cases.
Meeting demand
Although these offerings won’t be an option for every loan, they remain important solutions in today’s real estate market. As mortgage volumes rise, leveraging the efficiencies offered by inspection-based appraisal waivers will be critical to maintaining smooth operations. With the increasing use of technology by inspection companies and improvements in the collection process, these solutions are only becoming more refined.
By combining data-driven processes with property inspections, lenders can navigate an increasingly competitive mortgage market while improving the client’s experience. As the real estate industry continues to modernize, solutions like these offered by Freddie and Fannie will play an essential role.
