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Fannie/Freddie Desktop Appraisals?

A win, or a risk to our industry?

Dektop Appraisals
Chief Operations Officer, Atlantic Bay Mortgage

Jan. 19, 2022, Fannie Mae released its new Desktop Appraisal Option through DU. Freddie Mac has announced it will follow. Since then, the industry has weighed in. Some are excited about this new option, but most are skeptical of the risk. Let’s start with what exactly does this mean.

Loan casefiles, as of March 19, may receive the Desktop Appraisal Option. Lenders must ensure the file meets the following requirements to be eligible:

  • includes a complete subject property address;
  • is a purchase transaction;
  • the loan is secured by a one-unit principal residence;
  • the LTV ratio is less than or equal to 90%, and
  • the loan casefile receives an Approve/Eligible recommendation.

If those requirements are met, the lender could order a desktop appraisal. Keep in mind that the lender and the borrower always have the option to order a traditional appraisal or execute on an appraisal waiver, if offered. If you choose to move forward with the desktop appraisal, it must be on Form 1004 Desktop.

Acting FHFA Director Sandra Thompson announced the coming of this program at the MBA National Conference last October. This was in effort to help solve multiple issues our industry was facing, including but not limited to, the ability to get appraisal orders accepted, timeliness of appraisal completion, limited acceptance rates for rural areas, etc. Lenders across the nation were very relieved to hear a solution was on the horizon. The appraisal process and timing delays were a significant pain point over the last couple of years. This is all great news, right? Well, that’s the sticky point. Let’s dive into the requirements and liability for lenders and appraisers.

There are requirements appraisers must meet when completing this form. They must conduct analysis and develop opinion of value with the inclusion of the following:

  • Use Form 1004 Desktop.
  • No physical inspection of the subject property; data may be provided by various parties (buyer/seller agent, homeowner, builder, appraiser files, etc.) and through secondary data sources (public records, MLS, internet, etc.).
  • Must include floor plan with interior walls.
  • The appraiser must have sufficient information to develop a credible report.
  • Data provided by the parties with a financial interest in the sale or financing of the subject property must be verified by a disinterested source.

Let’s look at the third bullet: must include floor plan with interior walls. Now reference bullet No. 5: must be verified by a disinterested source. So how does one do that? Well, here is the trouble with these requirements. The appraiser is liable for all of the data, but will be relying on other sources to provide it. The good news is that we are in the era of fintech. There are companies out there that claim (I say that because I have not demo’d them personally) that they have the solution to this hurdle. One of them being “RemoteVal.” They claim to have developed technology that will allow them to virtually develop an interior floor plan. If those tech solutions do deliver the data appraisers need to meet that requirement, this becomes a no-brainer, right? Well not exactly. Below I will list the risks I have been made aware of from our industry partners:

  • Fannie Mae’s rules surrounding ordering multiple appraisals still stand. If you are dissatisfied with the results of the desktop appraisal, you cannot just order a new appraisal without ensuring you meet the requirements of their policy.
  • Some appraisers are claiming the form is very cumbersome and may not be worth the minimal cost savings in relation to the amount of additional work that needs to be completed. In turn, unsure they will accept these orders.
  • Some appraisers note that their E&O policies are discouraging them from performing these appraisals.
  • If Fannie Mae is dissatisfied with the data provided on the report, they have the right to require a repurchase. (Think back to ’05 & ’06 and I’ll just leave that there).
  • The appraisers and lenders are liable for all of the information that they receive from third-party sources. The appraisers are also required to ensure they do not make any extraordinary assumptions.
  • The third-party data in the remote areas is slim to none. Where do they obtain this data?
  • Will appraisers truly pick comps that are “like properties and neighborhoods?”

So, is this a win for our industry? Jury is still out. I, personally, am a huge fan of the adoption of tech in our industry. I constantly say if Amazon can put groceries in my refrigerator, then anything is possible! I do think there are a lot of areas in the process of a loan application that can be streamlined by the advancements in fintech. So, potentially, what we are hearing may be the natural skeptics when fintech revolutionizes your sector of the process. Or, potentially, this does carry unintentional risk that has not been resolved. My advice to each company is to complete a full-risk analysis for yourself and make the decisions and polices that meet your risk appetite.

If we can solve for the risk issues surrounding this option, this will be a huge win for our industry. Just ensure you, as the lender, fully understand the requirements before moving forward.

This article was originally published in the Mortgage Women Magazine March 2022 issue.
About the author
Chief Operations Officer, Atlantic Bay Mortgage
Published on
Mar 31, 2022
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