The Office of Inspector General found in a recent audit that the Federal Housing Finance Agency did not adequately document desktop appraisal reports. They said this oversight hinders clarity on the effectiveness of the desktop appraisal program.
Between Oct. 18, 2021, and March 31, 2023, the OIG conducted an audit focusing on FHFA’s supervision of Fannie Mae’s and Freddie Mac’s use of desktop appraisals. Policy analysts traditionally examine these quarterly appraisal reports to pinpoint deficiencies or areas that need improvement.
The report said due to this lack of documentation, the FHFA might be unable to detect trends or significant issues concerning mortgage desktop appraisals, and such blind spots could potentially jeopardize the financial safety and stability of the government-sponsored enterprises (GSEs).
One reason cited for the documentation oversight is the relatively low volume of desktop appraisal reports, as they represent “less than 1% of the Enterprises’ total loan volume."
The FHFA’s Office of Housing and Regulatory Policy (OHRP), which operates within the Division of Housing Mission and Goals (DHMG), is responsible for overseeing the GSEs’ policies, including those related to desktop appraisals.
OHRP is currently in the process of creating a dashboard that will feature desktop appraisal reports. Once it's up and running, OHRP intends to document its reviews of these reports, updating its review process accordingly. However, the OIG report pointed out, "Until the dashboard is deployed, OHRP does not have an interim plan to document results of all the desktop appraisal report reviews."
To address these concerns, the OIG made two key recommendations:
- The FHFA should mandate OHRP staff to consistently document their reviews of quarterly desktop appraisal reports, following internal control standards and OHRP internal guidelines.
- Desktop appraisal report reviews should be immediately added to the OHRP Monitoring and Surveillance List.
The FHFA concurred with the OIG's recommendations. It committed to enhancing reporting requirements for these appraisal reports by June 2024 and confirmed the addition of desktop appraisal reports to the OHRP's Monitoring and Surveillance List.
