MBA Letter to FHFA Offers Recommendations on Appraisal Policies
The Mortgage Bankers Association, in a Feb. 26 letter to the Federal Housing Finance Agency, offered a set of recommendations aimed at promoting and modernizing the appraisal process.
The letter comes in response to a FHFA Request for Information regarding appraisal-related policies, practices and processes. MBA President & CEO Robert Broeksmit, CMB, said MBA supports “responsible integration of various approaches that improve the efficiency and accuracy of appraisal data collection and evaluation.”
“As the mortgage finance industry continues to grapple with the effects of an aging appraiser population and longer turnaround times on appraisal findings, greater demand has been placed on identifying ways to automate aspects of the valuation process, while supporting the development of approaches that offer fair and unbiased results,” Broeksmit said.
The letter said such an initiative requires close examination of the current appraisal process; the role of Automated Valuation Models (AVMs) and appraisal waivers in the housing market; opportunities to increase transparency and accessibility of property valuation data; and potential deficiencies within the appraisal infrastructure that may fail to detect, or perhaps even increase the risk of, racial bias.
MBA offered the following recommendations:
—Appraisal Process Improvements. While MBA supports ongoing development of AVMs and other tools, it stresses the need for appraisers and lenders to provide some level of oversight and due diligence to preserve the overall quality of the data referenced in future valuations. “Any process improvements adopted by the industry must be comprehensive and employ a holistic view of appraisals that spans across origination, servicing and loss mitigation activities,” MBA said.
To that end, MBA said FHFA must ensure that any advancements in technology proposed by Fannie Mae and Freddie Mac allow lenders, regardless of business model or size, to implement process improvements that do not inadvertently offer benefits to some while disadvantaging others.
—Role of AVMs in the Valuation Process. MBA said the real estate industry could benefit from expanding responsible use of AVMs, along with developing industry standards and guidelines. “With the vast array of AVMs in the mortgage market, developing standards for their utilization would provide a framework for responsibly advancing the product,” MBA said. “When used appropriately, AVMs can speed up the valuation and loan manufacturing timelines and significantly lower costs. Embracing process enhancements will benefit mortgage stakeholders and better allow consumers to achieve their homeownership goals.”
—Impact of Appraisal Waivers. MBA cautioned that appraisal waivers, if not implemented properly, may create an unlevel playing field among lenders, noting current appraisal waiver requirements differ between Fannie Mae and Freddie Mac, which create inconsistencies among institutions that rely on different Automated Underwriting Systems for their findings. MBA recommended FHFA ensure that Fannie Mae and Freddie Mac use a transparent set of factors to determine when appraisal waivers are issued. “This transparency will provide market participants with clarity regarding the criteria used by the Enterprises within the waiver process and help FHFA prevent a perceived advantage among AUS decision engines,” MBA said.
—Uniform Appraisal Dataset Modernization. MBA noted FHFA and the Enterprises currently are exploring significant changes to the Uniform Appraisal Dataset (UAD) and corresponding forms. “MBA supports updates to the UAD that result in more efficient processes, lower costs and greater accuracy in property valuations,” the letter said; but MBA cautioned that more information is needed from the GSEs as to their possible “substantial changes” to the UAD. “Such an expansion of the UAD is likely to result in high initial implementation costs for the lending community, which could result in higher appraisal costs for borrowers,” MBA said.
As such, MBA recommended Fannie Mae and Freddie Mac provide the mortgage finance community with more details regarding the expected benefits of these changes, as well as develop small-scale, cost-effective pilot projects involving a representative mix of primary market lenders and vendors to assess the value of these changes and narrow the end-state data expansion to those fields that have demonstrated value in improving appraisal accuracy and reliability. MBA also recommended the Enterprises and FHFA consider limited implementation or additional pilot-testing of the revised UAD before it takes effect —”a step that would allow for appropriate refinements prior to full execution.”
—Public Accessibility of Enterprise Collateral Data. MBA urged FHFA and the Enterprises greater access to the Enterprises’ collateral data, saying it would provide market participants with “far more detailed information on property-level valuations than they can collect or obtain today…Increased access to this data would be consistent with the Enterprises’ charters as well as FHFA’s statutory responsibility to provide public access to Enterprise mortgage data. A more transparent approach to this data also would improve risk analysis and modeling by Enterprise counterparties, thereby strengthening the Enterprises from a safety-and-soundness perspective.”
—Protecting Against Racial Bias in the Appraisal Process. MBA recommended FHFA instruct the Enterprises to implement waiver requirements in a manner that minimizes the potential for any adverse impact on minority borrowers. MBA further recommends FHFA consider supporting the Enterprises’ incorporation of virtual evaluation tools, when feasible, to reduce the potential for bias during collection and analysis of property data. “These tools hold great potential to help avert intentional or unintentional consideration of borrower race or ethnicity (and potentially other inappropriate factors) when valuing a property,” MBA said.
