Desktop appraisals will become an option for some agency-backed loans submitted after March 19.
To be eligible for a desktop appraisal, according to Fannie Mae, the loan must be a purchase transaction, secured by a one-unit principal residence and have a loan-to-value ratio of no more than 90%. The option is not available for second homes, investment properties, cash-out refinances, construction loans, multi-unit properties, renovation loans, condos, co-ops or manufactured homes.
In addition to those specific exclusions, a desktop appraisal may not be used if Fannie Mae’s automated underwriting system, Desktop Underwriter, flags it as “ineligible.”
The mortgage industry has been awaiting the official start date for desktop appraisals since Federal Housing Finance Agency Acting Director Sandra Thompson announced plans to allow them at an industry conference in October.
Desktop appraisals — which rely on property tax records and past sales, without a physical inspection — were one among a series of flexibilities the FHFA introduced in March 2020 to keep the housing market humming despite social distancing measures and lockdowns.
Lenders leapt at the opportunity to conduct appraisals remotely, especially in the northeastern part of the country. By April, more than 15% of loans sold to the government-sponsored enterprises used desktop appraisals. That share diminished over time, and the flexibilities finally lapsed in May 2021.
But in December 2020, after nearly a year of allowing appraisal flexibilities, FHFA pointed out the potential benefits to allowing appraisal flexibilities on a permanent basis in a request for information.
Hybrid appraisals, where one person inspects the property, collects data and reports it to the lender, could address “pain points such as appraiser shortages in rural and high-volume areas,” the agency wrote. FHFA suggested that hybrid appraisals could also speed up the appraisal process and reduce costs.
Mortgage lenders have also tried to find ways to speed the appraisal process. Last year, wholesale lender United Wholesale Mortgage said it would not require its brokers to go through an appraisal management company.
In addition to making appraisals more efficient, the FHFA also said that separating the inspection process from the valuation process could “reduce appraisal bias resulting from omission errors.”
Addressing appraisal bias is a top priority of the Biden administration, which last year directed a multi-agency task force to tackle the issue. The task force is expected to issue its policy recommendations early this year.