The Impacts of Fannie’s Appraisal Decision

On March 1, 2023, Fannie Mae published its Selling Guide announcement SEL-2023-02 to provide details about its new thinking on collateral valuation for home loan lenders. Naturally, the news was received with great interest from both lenders and their appraiser partners.

Fannie introduced the concept of “value acceptance” in March and said that it would consider this new concept in conjunction with the term “appraisal waiver” to “better reflect the actual process of using data and technology to accept the lender-provide value.”

“We are moving away from implying that an appraisal is a default requirement,” the company said. Fannie said it would update its Desktop Underwriter automated underwriting tool to reflect the change by April 15, 2023.

Both Fannie Mae and Freddie Mac have been moving toward higher acceptance of hybrid appraisal products for some time. While this is bound to have some serious impact on the industry’s cadre of professional fee appraisers, it won’t have a big impact on lenders, at least not from a technology perspective.

Built in appraisal management flexibility

The reason we don’t expect Fannie’s most recent collateral valuation-related announcement to have a big impact on lenders is that the next generation loan origination technology most of them are currently using already makes it easy to manage their lending business in accordance with their strategies.

This is true for all the lender’s functions, from the Point of Sale through to underwriting, loan processing -- including the appraisal management function -- to closing, quality control and funding. What’s more, today’s modern software allows lenders the flexibility to make adjustments to their workflows in any part of their business, if they want to do things differently.

It’s not yet clear what impact Fannie’s new collateral valuation position will have on the lenders that sell their production to the GSE. After all, they have their own risk mitigation guidelines and may continue to order full appraisals if it keeps their secondary market options open.

Alternatively, they may begin to move further toward hybrid appraisals, desktop appraisals or simply target deals where they are more certain to receive an appraisal waiver from Fannie Mae.

In any event, lenders will still be relying on their loan origination technology to take whatever collateral valuation data they choose to use and get it into the LOS, accurately, quickly and without exposing the other data they have collection to risk. Today’s next generation LOSs, including MCP, will continue to make that easy for them.

Longer term impacts of this move

In the long term, this move will impact real estate appraisers, perhaps driving them to expand their businesses into other areas.

It may also impact some lenders who find that their current origination technology doesn’t give them the flexibility to alter their business as they wish within the investors new guidelines. LOSs that try to lock the lender into certain third party service providers, for instance, limit the lender’s ability to react to industry changes like this to the extent they might wish. Finally, the fact that a major investor is willing to help lenders cut 7 to 10 days out of their origination process by evaluating the collateral differently will have a marked positive impact on borrowers and business referral partners who are judging lenders by how quickly they can process and close the loan.

By Joe Camerieri, EVP, Sales & Strategy at Mortgage Cadence 

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