Appraisals and ValuationsRegulatory

Fannie Mae: Prohibited/subjective language in appraisal reports has declined

The GSE began a process in 2021 to “improve appraisal commentary with facts, not feelings”

Fannie Mae this month issued a recent progress report on its ongoing effort to scan appraisal reports for “prohibited or subjective language,” updating stakeholders on a process that began in 2021 to rid appraisal reports and valuation decisions of verbiage that could be construed as contributing to appraisal bias.

In February, Fannie Mae issued a Selling Guide update describing unacceptable appraising practices, offering that prohibited language includes the “development of a valuation conclusion based […] on the sex, race, color, religion, disability, national origin, familial status, or including a reference to any protected class[…].” The same update described “subjective language” as the “use of unsupported assumptions, interjections of personal opinion, or perceptions.”

A stated goal of the policy is to “help lenders and appraisers stay safe as it concerns their obligation to comply with fair lending laws and with the Uniform Standards of Professional Appraisal Practice,” according to the update.

Fannie Mae went on to call the implementation of the policy a “success story” based on its data. Beginning in 2021, Fannie Mae began scanning appraisal reports it received for instances of prohibited or subjective language as described in its Selling Guide updates, saying that letters were sent to “more than 1,500 appraisers” to alert them of violations, similar to instances of potential bias found by the Federal Housing Finance Agency (FHFA) that year.

“About 79% of the appraisers who received a letter in 2021 had no new findings in 2022,” Fannie Mae said. “In 2023, the fraction with no new findings increased to 93%. Similarly, 91% of appraisers who received a letter in 2022 had no new findings in 2023.”

The overall occurrence rate for these violations has gone down, Fannie Mae said. In 2021, the occurrence rate stood at 0.15% and by 2023 it had declined to 0.03%, according to Fannie Mae data.

“These statistics highlight the remarkable progress appraisers have made in becoming more objective in their thinking and writing, and in eliminating consideration of protected class,” the GSE said in the update.

These efforts were also expanded last year to include “language that may infer consideration of protected class along with additional cases of subjectivity or unsupported assumptions,” which led to the issuing of more than 1,900 additional letters. Unlike the aforementioned letters, however, they were only educational in nature and were not issued to inform appraisers of violations.

“[T]he feedback received [from these letters] has been mostly positive,” Fannie Mae said. “We congratulate appraisers for adopting new ways of thinking and writing to eliminate unsupported assumptions and consideration of protected class, and we look forward to even more progress in the future.”

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