Appraisals and Valuations

FHFA failed to document desktop appraisal reviews, OIG says

Failure to document makes assessing the effectiveness of desktop appraisals a challenge, the report found

The Federal Housing Finance Agency (FHFA) failed to adequately document desktop appraisal reports, which clouds data on the effectiveness of the desktop appraisal program, according to a report published by the FHFA Office of the Inspector General (OIG).

The OIG conducted an audit of FHFA’s oversight of Fannie Mae’s and Freddie Mac’s use of desktop appraisals between Oct. 18, 2021, and March 31, 2023.

Although policy analysts typically review quarterly desktop appraisal reports to identify deficiencies or areas of improvement, they don’t typically document the results.

However, this audit is notable because the documentation lapse means the FHFA can’t identify trends or serious issues with mortgage desktop appraisals that could impact the GSE’s financial safety and soundness, the report revealed.

Due to low volume, a formal review process has not been implemented for desktop appraisal reports, as these appraisals make up “less than one percent of the Enterprises’ total loan volume,” according to the report.

“FHFA’s Office of Housing and Regulatory Policy (OHRP), within the Division of Housing Mission and Goals (DHMG), oversees the Enterprises’ policies and certain policy development and implementation activities, such as desktop appraisals,” the report explained.

Currently, OHRP is developing a dashboard that will include desktop appraisal reports, but the implementation has not occurred yet. Once it has, OHRP’s review of the dashboard and the contained desktop appraisal reports will be documented alongside an updated OHRP review process document.

“Until the dashboard is deployed, OHRP does not have an interim plan to document results of all the desktop appraisal report reviews,” the OIG report said.

The FHFA OIG made two recommendations to the agency: “[r]equire OHRP staff to document reviews of quarterly desktop appraisal reports in accordance with internal control standards and OHRP internal guidance;” and “[i]mmediately place desktop appraisal report reviews on the OHRP Monitoring and Surveillance List.”

FHFA agreed with these recommendations and included corrective action in its response in which it will implement more stringent reporting requirements for these reports by June 2024; and said it “has added desktop appraisal reports to OHRP’s Monitoring and Surveillance List.”

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