Appraisal Waiver Programs… A Risky Business

Appraisal Waiver Programs Risky for Taxpayers and HomeownersICAP (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:

  1.  is consistent with safe and sound operation of the Enterprises;
  2. does not bring harm to the consumer, especially the affordable housing sector;
  3. is properly monitored by FHFA and tested with independent appraisals; and
  4. 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.

ICAP Board
ICAP Board

ICAP Board

ICAP works to promote the appraisal profession and its image to the general public and to users of appraisal services. ICAP initiates discussion and analysis of issues affecting professional appraisers and monitors political action with the intent to influence legislation, regulation and public opinion toward the appraisal profession.

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4 Responses

  1. Avatar EJ Brown says:

    Get ready for list prices and seller paid concessions to go through the roof.

  2. Great work ICAP and others. AGA will be sending similar correspondence from a slightly different but conceptually concurring perspective.

    MBA is now pressing the VA to adopt similar policies including PIWs for the same old (false) reasons. Appraiser shortage meme being promoted to falsely claiming appraisal related delays result in Veterans being deprived of financing opportunities.

    Why they make it sound downright unpatriotic to be opposed to PIWs!

    No mention about the reassurance and protection against over payment a vet receives from having a competently performed appraisal. Nor do they address the fact that in both conventional financing and guaranteed VA financing that appraisals are not even ordered until all approvals and background checks are completed and the loan is placed with specific investors.

    MBA, ABA, and NHBA if you really want to speed up the escrow and funding process THEN ORDER THE APPRAISAL IN THE BEGINNING instead of the last three days before funding is scheduled!

    By the way, are you folks returning fees already paid by veterans and others for appraisals when credit comes back negatively and you never order the appraisal?

    …or do you just pocket the money?

  3. Avatar Ralph says:

    This Grinds my Gears! Whenever the lending industry complains about the so called appraiser shortage & time it takes to complete the appraisal, they NEVER ONCE mention that the AMC’s spend spend 1-2 weeks price shopping for the cheapest, then they place all the blame on the appraiser for any delay.  This business model is their ultimate demise!

  4. Avatar Carl says:

    It’s good to finally see many appraisal organizations uniting and pushing one agenda. Thank you ICAP and others!


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Appraisal Waiver Programs… A Risky Business

by ICAP Board time to read: 2 min