Appraisal Waiver Programs… A Risky Business
ICAP (and 36 other industry groups) signed a Letter To The Committee on Banking, Housing and Urban Affairs Over The New Appraisal Waiver Programs
ICAP along with 36 other industry groups signed a letter to the Committee on Banking, Housing and Urban Affairs to raise concern over the new appraisal waiver programs recently implemented by Freddie Mac and Fannie Mae (the “Government Sponsored Enterprises.”)
The letter states that these programs will create unnecessary and unacceptable risks for taxpayers and homeowners, and they come at a time when markets are at all-time highs – when risk mitigation should be tantamount. The letter calls on the Federal Housing Finance Agency (FHFA) to prevent the Enterprises from implementing the appraisal waiver programs until they can demonstrate the appraisal waiver program:
- is consistent with safe and sound operation of the Enterprises;
- does not bring harm to the consumer, especially the affordable housing sector;
- is properly monitored by FHFA and tested with independent appraisals; and
- integrates proper safeguards to prevent fraud.
The letter recognizes that the Enterprises have, since 1994, been exempted from appraisal requirements established by Congress on the basis that their requirements exceeded those established by Congress and that they would continue to make responsible decisions. These new programs call this privilege into question.
We view these new programs as an “arms race” between Freddie Mac and Fannie Mae on who can increase the most market share, while demonstrating a distinct pullback in terms of safety and soundness. Competition between the Enterprises should not result in a race to the bottom in terms of due diligence ? especially while the agencies remain in conservatorship. It was the same elimination of risk focused underwriting that lead to the Enterprises’ brink of bankruptcy 9 years ago. Unlike an earlier policy change by Fannie Mae which addressed mostly refinances where previous appraisal information is likely available, first purchase transactions by the Enterprises carry higher risk from a property information standpoint. It is standard underwriting practice to obtain a complete interior inspection appraisal for first purchase transactions in order to better understand the potential risk associated with a property’s condition, which is more likely to change between subsequent sales than between refinance transactions. That likelihood is why independent appraisal data, including an inspection, is so important to managing risk and protecting the public trust.