Call to Action Againt Risky Appraisal Waivers
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- Bias in Automated Valuation Models - February 28, 2022
Call Congress about Fannie/Freddie’s Risky Appraisal Waiver Program!
VaCAP has received the following from the Appraisal Institute. Please contact your representative concerning Fannie and Freddie. Appraisers, Appraisal Organizations and NAR are all uniting to stop this. Make your voice be heard. Contact your representatives today.
FYI — An action alert has been set up for appraisers to call their members of Congress relative to the GSE appraisal waiver issue. Click here to find the contact information of your member of Congress.
Please let me know if you need assistance or have any questions.
Director of Government and External Relations
440 First Street, NW, Suite 880
Washington, DC 20001
Appraisal Institute Action Alert: Call Congress about Fannie/Freddie’s Risky Appraisal Waiver Program
Freddie Mac & Fannie Mae have embarked on programs that waive appraisal requirements in first purchase and refinance transactions, using propriety models and generally unreliable data from MLSs and public records for collateral risk decision making. According to Fannie & Freddie, this is being done to lower costs and shorten closing time for consumers. While Fannie Mae has indicated the appraisal waivers will represent only 5 percent of their loan portfolio, Freddie Mac has thus far being unwilling to provide estimates, indicating that as much as one-third of their portfolio may be offered appraisal waivers. These programs will create unnecessary and unacceptable risks for taxpayers and homeowners, and they come at a time when markets are at all-times – when risk mitigation should be tantamount.
Congress is once again turning housing finance reform, and as they deliberate, they should hear from appraisers on why appraisal waivers are a bad idea and a risk to taxpayers.
Please click here to insert your zip code to retrieve the contact info for your Members of Congress.
Talking points for your call:
- THE ISSUE: As the House Financial Services/Senate Banking Committee considers housing finance reform, I am calling to raise concern with Freddie Mac & Fannie Mae’s new appraisal waiver programs, which will create unnecessary risks for taxpayers.
- Since 1994, the government sponsored enterprises have been exempted from appraisal requirements established by Congress on the basis that they would make responsible decisions. These programs call this privilege into question.
- THE CONCERN: This is essentially an arms race between Freddie Mac and Fannie Mae on who can do the least amount of care. Competition between Freddie Mac and Fannie Mae should not result in a race to the bottom on due diligence, especially while the agencies remain in conservatorship.
- Unlike an earlier policy change which addressed mostly just refinances, first-purchase loans carry higher risk from a property information standpoint. It is standard practice to obtain a complete interior inspection appraisal for mortgage transactions in order to better understand property conditions, which are more likely to change between purchase transactions than between refinance transactions. That likelihood is why appraisal data, including an inspection, is so important to managing risk.
- This is not the first time appraisal waiver have been advanced by the enterprises. Similar actions were taken by the GSEs in the early to mid-2000s, and the resulting decline in risk management by mortgage lenders was disastrous for the economy.
- It has taken many years for the mortgage finance sector to recover, but progress has been made, in large part, because fundamental risk-management activities like appraisal have been reinforced by mortgage lenders. Reducing appraisal requirements sends the wrong signal to mortgage loan sellers about the importance of fundamental risk-management practices.
- ACTION REQUESTED: For these reasons, I ask you to call on the Federal Housing Finance Agency to prevent the Enterprises from implementing the appraisal waiver programs until it can demonstrate that they are consistent with safe and sound operation of the Enterprises.
- Also, as Congress develops housing finance reform legislation, I ask that any legislation ensures that the Enterprises’ appraisal requirements enhances their safe and sound operation so long as the Enterprises remain in conservatorship or otherwise present potential risks to taxpayers and homeowners.