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60 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST GOVERNMENT Fannie Mae Examines Appraisal Inequality In breaking down 1.8 million appraisals over 2019-2020, the GSE investigates divergent appraisal values among Black and white borrowers. F annie Mae has released a Working Paper titled, "Appraising the Appraisal," examining divergent ap- praisal values for Black and white borrowers when refinancing their home. According to an analysis of 1.8 million appraisals in 2019 and 2020 by Jake Williamson, Fannie Mae's SVP of Collateral Risk Management, and Mark Palim, Fannie Mae's VP and Deputy Chief Economist. Major findings of the Paper include: • Black borrowers refinancing their home on average received a slightly lower appraisal value relative to automated valua- tion models (AVMs). • Homes owned by white borrowers were more frequently overvalued than homes owned by Black borrowers. • Six states, including Georgia, Louisiana, South Carolina, North Carolina, Mississippi, and Alabama, accounted for nearly 50% of the overvalued homes of white owners in majority-Black neighborhoods. • The frequency of "undervaluation" did not have a notable racial pattern. "While most studies have focused their research at the neigh- borhood or census tract level, Fannie Mae targeted its appraisal research to isolate valuation differences at the property and bor- rower level, along with further analyses that focused on the racial composition of neighborhoods," said the Working Paper. In neighborhoods with a high concentration of Black home- owners, white-owned properties were overvalued 10 percentage points more frequently than Black-owned properties. This differ- ence in frequency of overvaluations along race may well be due to factors other than racial bias in appraisals, such as gentrification. The concentration of overvalued white-owned homes in majority-Black neighborhoods also had a distinct geographic element. Nearly half (49.2%) of the overvalued, white-owned properties in majority-Black neighborhoods were concentrated in the southeast in Georgia, Louisiana, South Carolina, North Carolina, Mississippi, and Alabama. These six states con- tained 40.5% of white borrowers in the sample who reside in majority-Black neighborhoods. The Working Paper suggests several ways in which the is- sue of appraisal inequality can be rectified, including: • Increasing the use of alternative-scope property valuation approaches • Building on existing safeguards to detect valuation errors • Continuing to modernize the valuation approach for home loans through advancements in technology • Fostering diversity in the appraiser workforce through endeavors such as the Appraiser Diversity Initiative, spon- sored by the Appraisal Institute, Fannie Mae, Freddie Mac, and the National Urban League • Enhancing the tools appraisers use to validate their opinions Freddie Mac: Despite Rate Hike, Housing Market Stability Ahead? Home purchase mortgage originations are anticipated to grow from $1.9 trillion in 2021 to $2.1 trillion in 2022, and $2.2 trillion in 2023, according to a new Freddie Mac forecast. F reddie Mac has predicted that the single-family housing market will remain stable in 2022, although mortgage rates are expected to increase. A new Quarterly Forecast released by Chief Economist Sam Khater estimates that rising rates will lead to moderation in homebuyer demand, slightly slowing down home price growth. "As mortgage rates rise, we do expect some moderation in hous- ing demand, causing house price growth to temper. However, the combination of a large number of entry-level homebuyers facing a shortage of entry-level inventory of homes for sale should keep the housing market competitive," Khater said. "In 2022, we expect purchase originations to grow from $1.9 trillion in 2021, to $2.1 trillion in 2022, while refinance activity is anticipated to decrease from $2.7 trillion in 2021 to $1.2 trillion in 2022." Specific findings include: • The average 30-year fixed-rate mortgage (FRM) is expected to hit 3.6% in 2022 and 3.9% in 2023. In 2021, the 30-year FRM aver- aged 3.0%. • House price growth is expected to be 6.2% in 2022, slowing to 2.5% in 2023. House price growth was 15.9% in 2021. • Home sales are expected to be 6.9 million in 2022, increasing to 7.0 million in 2023. Home sales were 6.9 million in 2021. • Home purchase mortgage origi- nations are expected to increase from 1.9 trillion in 2021 to $2.1 trillion in 2022 and $2.2 trillion in 2023. • Refinance originations are expected to continue to soften, declining from $2.7 trillion in 2021 to $1.2 trillion in 2022 and $930 billion in 2023. • Overall, annual mortgage origination levels are expected to be $3.3 trillion in 2022 and $3.1 trillion 2023, down from $4.7 trillion in 2021. The labor market has contin- ued to recover from the ef- fects of the pandemic, with the unemployment rate hitting 3.9% in December 2021. To date, job openings remain high at 10.6 mil- lion, nonfarm payrolls are down 3.6 million from the pre-pandemic levels, showing there is still room for improvement in employment. The Forecast notes that demand for housing continues to remain stable, due to low mortgage rates and a large pool of first-time homebuyers.

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