ASA Concerned About the Expansion of FNMA Appraisal Waiver Program
In response to the Federal Housing Finance Agency’s (FHFA) decision to allow Fannie Mae to expand its appraisal waiver program, the American Society of Appraisers (ASA) has released an op-ed by ASA’s Strategic Partnership Officer, John D. Russell, JD, criticizing this move. ASA believes that by expanding the appraisal waiver program and relying on data and models for mortgage lending instead of human interaction, Fannie Mae is leaving behind two very important aspects: safety and soundness as well as consumer protection. The fear is that overvaluation may occur due to a reliance on models which always try to chase value upwards but struggle in markets where real estate prices are either flat or declining. Furthermore, with “value acceptance” there will be no warranty or reprieve for Fannie Mae when markets turn downward.
Russel expresses concern about potential overvaluation due to lack of appraisals, noting that such a situation would put taxpayers “holding the bag” if loans are made and sold based on inaccurate information. Furthermore, he argues that models and data collectors cannot replace experienced appraisers who can provide accurate valuations with their expertise; thus relying solely on technology may lead to repeating mistakes from two decades ago which caused significant financial losses for many homeowners as well as lenders.
Russell argues that agents and brokers have a direct financial incentive to see deals consummated for the highest possible selling price due to percentage-based commissions. Home inspections are unreliable at best and more buyers are waiving them in order to sweeten offers and speed up closing timelines. Mortgage originators also want quick transactions in order to capture as much margin as possible per loan through their lending pipelines. The only remaining safeguard left for homebuyers is an appraiser who can provide an objective opinion on the property’s value from a professional perspective, which no other party has reason or incentive do so.
In closing, he offers advice on how appraisers can find new clients by working directly with buyers who are interested in knowing the value of their home, exploring non-lending work opportunities and upgrade their credentials seeking a designation to grow professionally while navigating these changes brought about by automated systems like Fannie Mae’s appraisal waiver program.
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