FHFA RFI on Hybrids, Waivers, AVMS, Racism
The FHFA is requesting input on appraisal related policies, practices and processes. We encourage everyone to submit comments. The Request for Input (RFI) is open to comment until February 26, 2021.
The input received in response to the RFI will be used by FHFA to determine the necessary modifications needed to ensure Fannie Mae and Freddie Mac (the Enterprises) operate in a safe and sound manner.
“Modernizing the appraisal process has the potential to create a more streamlined and accurate collateral valuation process. But if modernization is not properly adopted, it could have negative unintended consequences,” said Director Mark Calabria. “Today’s RFI will improve FHFA’s understanding of how the Enterprises can improve the appraisal process while at the same time ensuring they don’t take on unintended or inappropriate levels of risk. The comments we receive will inform how we will modernize appraisals to improve both loan quality and the origination process.”
The RFI covers four areas related to appraisals:
- Appraisal modernization;
- The Uniform Appraisal Dataset (UAD) and the design of appraisal forms;
- Automated Valuation Models (AVMs) and appraisal waivers; and
- Valuation differences by borrower and neighborhood ethnic makeup.
FHFA invites feedback on all the questions in the RFI within 60 days of the publication of this document, no later than February 26, 2021.
Relevant sections from the PDF document below
Hybrid appraisals could create several opportunities for appraisers and appraiser trainees, while addressing some of the pain points such as appraiser shortages in rural and high-volume areas and assisting training for new appraisers. These opportunities include increasing coverage for rural markets that could reduce time and costs for lenders and borrowers. They may also provide appraiser trainees the practical experience to obtain full licensure more quickly and give appraisers the ability to specialize in offering alternative valuation options. Potential also exists to reduce appraisal bias resulting from omission errors at inspection to simplify the valuation by separating the inspection process from the valuation process…
COVID-19 Appraisal Flexibilities The response to the COVID-19 national emergency demonstrates how a more flexible appraisal process can assist the flow of liquidity to the housing market. Although real estate appraisers were generally deemed as an essential workforce under COVID-19 restrictions, some borrowers and appraisers were unwilling to allow or perform full interior property inspections due to health reasons. On March 23, 2020, the Enterprises released guidance8 on appraisal flexibilities that provided a process for appraisers and borrowers to interact and appraisals to be completed… Appraisal flexibilities include desktop appraisals and exterior-only appraisals for certain loan types.
Updating Uniform Appraisal Data Set and Redesigning Appraisal Forms Updating the UAD could provide for new ways of streamlining review processes and reduce the overall process cycle time which is often extended by the need for lenders or AMCs to seek clarifying revisions from appraisers. Redesigning the appraisal reports will move key information from commentary and text sections to discrete data points and offer opportunities for increased innovation with data mining, flags to help mitigate risk, machine-readable data, and automated workflow processes that assign appraisal or quality control reviews based on complexity or type.
Automated Valuation Models (AVMs) and Appraisal Waivers Benefits of appraisal waivers for both the lending industry and borrowers have been described in studies and reports. For example, the Urban Institute recently published an article on the Enterprises appraisal waiver volume and associated impact on the industry and the borrower.12 The Urban Institute concluded that waiving appraisals in the COVID-19 environment removed an obstacle to refinancing, and enabled refinance transactions to lower the monthly costs for more borrowers, while representing a low risk to the Enterprises. Removing an appraisal on a lower risk loan origination may save the lender several days of loan manufacturing time. It saves the borrower the associated cost of an appraisal and allows the borrower to close a loan more quickly…
Valuation Differences by Borrower and Neighborhood Race Recent articles indicate concerns with undervaluation of residential property in minority communities.13,14 An article in the New York Times detailed experiences of several minority borrowers where traditional appraisals valued their homes well below neighborhood comparable properties. The article further commented that when minority borrowers removed ethnically identifiable items from the household, it resulted in higher appraised values. A 2018 Brookings Institute study found systematically lower median listing prices in majority black zip codes… Appraiser interviews showed that some take racial and ethnic composition of the neighborhood into consideration when selecting comparable homes, even when there are comparable homes located closer to the subject property. 17 The availability of different methodologies for selecting comparable properties, in other words, means that appraisers have discretion to select comparable properties “on the basis of neighborhood racial demographics.” 18… Studies also show that there may remain significant disparities in valuations for properties in minority neighborhoods, despite substantial efforts by the appraisal community to improve appraisal and valuation methodologies… To better understand the potential for differences in appraised values based on ethnicity or race, FHFA is seeking input on the extent of disparities in value determinations for minority borrowers and for minority neighborhoods.
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Thanks for the heads up!
“found in appraiser interviews that some take racial and ethnic composition of the neighborhood into consideration when selecting comparable homes”.
Forgive me but I find this difficult to believe. Where is the transcripts of these so called interviews?
School districts have always had an influence, and in densely developed areas it is not uncommon to find a builders suppling homes in adjacent homes in different Districts. School districts function with tax monies and administration, secondarily with the population. Georgia may be different than California, New York from Kansas.
Local Lenders used to know the difference and when they sold the loan the new investor had recourse, Who needed and appraiser. The international investor has to look to other means, Like a government guarantee!
Who did you vote for?
Abena Horton, legal counsel for Black Knight, an automated valuation software company, was one party of the mixed race couple claiming racism in their appraisal. She went on national television and social media and lied to the American public. She had a valued interest in disparaging the traditional appraisers in order to promote AVM’s and her companies bifurcated appraisal software. She is no different than Jesse Smollet and should be held accountable for her actions. While I do not doubt that there are instances where race is unnecessarily brought into an appraisal situation, it is by no means prevalent, nor is the process broken. The damage Abena Horton and her actions have brought to our profession are immeasurable!
Black Knight is the bottom of the barrel AMC.
Who actually finds value in affordable housing? Some entity whom stands to profit from larger loans has identified a market segment which they could more readily tap into with government injection. The plan to do so is being crafted. If you can’t break into a market segment by merit or due to some other economical or social barrier, simply lobby, and in turn legislate your way into that market.
There are the familiar buzzwords again, ‘streamlined collateral valuation process’. This photo courtesy of Mr Millers website from some time ago.
How do they feel about appraisers bragging volume when they to the inspection , send the info overseas to cheap labor , get the report back to review and sign. Those people overseas have no formal training nor can get any appraiser license. Just noted on report as a contributor. Legal? Ethical? I’ve asked on some forums and never got any answer. Is this common?