TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/1490083
16 | M R EP O RT FEATURE The Science of Appraisals Fannie Mae's Jake Williamson and Appraisal Institute President Craig Steinley share their perspective with MReport about how the industry is working to improve the appraisal process in 2023. By Eric C. Peck T he property valuation process, specifically appraisals and automated valuation model (AVM) algorithms, has come under attack of late as discussions around potential bias and/or discrimination in housing markets have come into the spotlight. Coming out of the pandemic and the housing boom it brought along with it, appraiser demand was at an all-time high. Millions jumped aboard record-low mortgage rates for purchase loans or refis, but a dilem- ma emerged. How could the mortgage clos- ing process be effectively performed if states began to enact social distancing mandates? How could an appraiser effectively perform their role, a function vital to the homebuying process, amid new rules and regulations? The U.S. Department of Housing & Urban Development (HUD) issued Mortgagee Letter 2020-05, applicable to FHA Single-Family Title II Forward and Reverse Mortgage Programs, where the appraiser was able to amend the scope of work to perform an Exterior-Only (viewing from the street) or Desktop-Only appraisal. Mortgagee Letter 2020-05 allowed the appraiser to rely on supplemental information from other reliable sources, such as Multiple Listing Service (MLS), and Tax Assessor's Property Record to prepare an appraisal report. The appraiser was also able to rely on information from an interested party to the transaction (borrower, real estate agent, property contact, etc.) with clear appraisal report disclosure when addi- tional verification was not feasible. (Note: this only applied to FHA loans, not to Fannie Mae or Freddie Mac loans. Fannie Mae issued Lender Letter LL-2020-04, Impact of COVID-19 on Appraisals, in March 2020 and with multiple later updates, to pro- vide temporary policy flexibilities allowing exterior-only inspection appraisals or desktop appraisals on many loans sold to Fannie.) Mortgagee Letter 2020-14 (ML 2020-14) was later issued to extend the regulations set forth by ML 2020-05, followed by additional extensions for appraisers with ML 2020-20, ML 2020-47, and ML 2021-06. However, as the industry adjusted and the housing market boomed, concerns about appraisal bias became a hot-button topic. The 2019 Survey of Consumer Finances found that white families on average held $983,400 in wealth, compared to $142,500 for Black and $165,500 for Latino families, respec- tively. For most Americans, the largest driver of wealth is their home, making unbiased home valuations critical. A recent study by the Federal Housing