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FHFA sets extensions and expirations on loan flexibilities

Alternative appraisals get the green light for another month

The Federal Housing Finance Agency (FHFA) announced on Wednesday that due to “low usage” it is no longer extending expirations on certain temporary loan origination flexibilities for Fannie Mae and Freddie Mac. The regulator is also advancing permanent changes to be made in the appraisal space.

Temporary flexibilities related to employment verification, condominium project reviews, and expanded power of attorney are being allowed to expire as scheduled on April 30, 2021, the FHFA said. The government agency also said it plans to retire all temporary selling flexibilities on May 31, 2021.

During the Mortgage Bankers Association’s spring conference on Tuesday, FHFA Director Mark Calabria hinted that the power of attorney, verification requirements and condo project reviews would be wrapping, however, more likely “this summer.”

“Throughout the COVID-19 pandemic, FHFA has actively monitored the pandemic’s impact on mortgage market participants’ use of the temporary selling policies,” the FHFA said in a release. “Low usage of the flexibilities make the temporary flexibilities no longer mandatory to ensure efficient market function.”

While some flexibilities are meeting their end, the FHFA said it will extend alternative appraisals on purchase and rate-term refinance loans out another month until May 31, 2021.

In the 30-minute question-and-answer session with Kristy Fercho, MBA’s chair-elect and executive vice president and head of home lending at Wells Fargo, Calabria said his expectations are that by mid-summer, the FHFA would end the flexibilities on collateral valuations unless circumstances force another extension.

According to Calabria, the request for input (RFI) on hybrid appraisals sent in December by the agency will help the FHFA determine which changes, if any, can be made permanent. Within the RFI, the FHFA sought insight on the appraisal policies, practices and processes of Fannie and Freddie, especially as it relates to the GSEs’ appraisal modernization efforts.

At the onset of the pandemic in March 2020, the FHFA began easing standards on property appraisals that allowed drive-by and desktop valuations in certain circumstances. Because of their popularity and success, the agency began considering implementing hybrid, or bifurcated, appraisals that enlist a third-party – typically an appraiser trainee, home inspector or real estate agent – to collect the data for a lender and certified appraiser once past the automated underwriting system.

According to the FHFA, hybrid appraisals would increase coverage for rural markets and high-volume areas where time becomes a greater issue. Hybrid appraisals have also been cited by some as a less biased option in the appraisal space, which has grappled with accusations of racial bias for some time.

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