Property valuation is a critical part of the mortgage loan process. Traditionally, determining how much a house was worth required a certified appraiser who manually produced a valuation based on their knowledge of the local market and comparative sales of similar properties. These appraisers physically walked the property with clipboard, camera and measuring tape in hand, documenting the specific features of the house. By the late 1990s, lenders could use automated valuation models (AVMs) or get an appraisal waiver for refinance loans, but the traditional appraisal was still required for most purchase loans.
In 2010, the Federal Housing Finance Agency, which supervises Fannie Mae and Freddie Mac, the government sponsored enterprises (GSEs) that buy most of the mortgage loans originated in the U.S., began to modernize the appraisal process, creating the Uniform Appraisal Dataset (UAD). The UAD provides consistent data standards for the loans the GSEs purchase, and the UAD set the stage for further automation of the valuation process.
The GSEs started working on a UAD update in 2018, but the COVID-19 pandemic provided the real catalyst for using alternate appraisal methods. Ultra-low mortgage rates fueled housing demand, but appraisers faced restrictions (and objections from home sellers) on visiting properties in person. As a result, the GSEs approved short-term appraisal flexibilities in 2020, including expanded use of appraisal waivers and desktop appraisals — a valuation done by appraisers based on data from property tax records and Multiple Listings Services (MLSs).
In 2021, the FHFA made desktop appraisals a permanent option for lenders and continued to grant a large number of appraisal waivers. In 2023, Fannie Mae went one step further and updated their Selling Guide to increase the options for property valuations. These changes signal a fundamental shift in the valuation space where traditional appraisals are no longer the default choice. While the new valuation options present challenges for lenders, Appraisal Management Companies (AMCs) and appraisers, they also create opportunities for each of these groups.
This white paper will detail the new valuation guidelines and how lenders, AMCs and appraisers are adapting to the new valuation environment.
- Publisher: Jaro
- Date: May 2023
