A loan officer’s ultimate guide to appraisal modernization

In what is perhaps the most traditional sector of housing, change has arrived.

However, a year after the GSEs announced new appraisal modernization solutions, as they’re more widely adopted, questions arise. How do the solutions work? Why do we need them? Who is eligible to take advantage of them? And as a loan officer (LO), why should I care?

We’re here to answer those questions, specifically with you in mind, LOs.

A look into GSE appraisal modernization efforts

The GSEs have each offered appraisal waivers on eligible loans for several years. Last year, Freddie Mac launched another solution that allows a trained property data collector to visit the home and gather images, measurements and property characteristics. More recently, Fannie Mae launched a similar solution.

The solutions, ACE+ PDR (automated collateral evaluation plus property data report) by Freddie Mac and Value Acceptance + Property Data by Fannie Mae, were designed to increase efficiencies for all stakeholders and lower costs in comparison to traditional appraisals, while maintaining the high risk mitigation standards employed by the GSEs. The two solutions vary, so the following section is designed to be your primer on both: how they work, what property data collection is and the differences between the two solutions.  

What is property data collection?

The key to either solution being effective is property data collection. Property data collection consists of a complete interior and exterior inspection of the subject property. A trained and vetted third party can perform the data collection. Requirements from both GSEs include data points describing the property characteristics, a floor plan and high-quality photos.

After a loan is deemed eligible for either solution, the lender requests property data collection from a service provider, such as an appraisal management company (AMC), which then assigns the data collector. The data collection may be different depending on the service provider the lender chooses. While all data collectors are held to similar minimum requirements, some may be equipped with enhanced technology to capture data. 

For example, Class Valuation, one of the nation’s largest AMCs, provides its data collectors with imagery technology that creates a digital twin of the property. This ensures that, even if revisions to the property data collected are needed, no one will have to return to the property for additional data. For an LO working to get the loan to the finish line, this can be a huge time saver. 

How the solutions work

For those already familiar with other GSE appraisal alternatives, the new solutions’ names shouldn’t strike you as brand new. Both solutions were launched as follow-ups to existing appraisal waiver solutions.

The original appraisal waiver solutions were launched in August 2017. Freddie Mac announced automated collateral evaluation (ACE) as a new solution and Fannie Mae followed not long after with the introduction of Property Inspection Waivers (later renamed Value Acceptance). Both options were met with varied responses by the industry at large, but rose to prominence during the COVID-19 pandemic.

Fast forward to 2022 and Freddie Mac announced the availability of ACE+ PDR for cash-out refinance and certain “no cash-out” refinance mortgages.

In its March 2022 Single-Family Seller/Servicer Guide (Guide) Bulletin, Freddie Mac stated, “[ACE+ PDR] will allow Sellers and Borrowers to continue to benefit from originating loans without an appraisal while mitigating risks and ensuring we purchase Mortgages secured by properties in acceptable condition.”

Again, Fannie Mae followed suit, launching Value Acceptance + Property Data in April 2023. In its selling guide announcement, Fannie Mae wrote, “We are on a journey of continuous improvement to make the home valuation process more efficient and accurate. As such, we are transitioning to a range of options to establish a property’s market value, with the option matching the risk of the collateral and the loan transaction.”

That’s a wrap on the history lesson; now it’s time to dive into how both solutions work.

Fannie Mae’s Value Acceptance + Property Data program and Freddie Mac’s ACE+ PDR waive the traditional appraisal requirements for qualifying loans. These solutions are designed to mitigate property condition and eligibility risk while expediting the loan approval process and saving time and money for both the borrower and the lender.

While there is some variation between Fannie Mae’s and Freddie Mac’s offerings, the overall processes are similar.

For Fannie Mae’s Value Acceptance + Property Data, there are three main steps: 1) the lender receives value acceptance + property data offer from Desktop Underwriter (DU); 2) the lender arranges for property data collection; and 3) the lender or service provider submits the results to Fannie Mae’s Property Data API.

Freddie Mac’s ACE+ PDR uses a similar workflow. The solution was originally limited to refinances, but effective August 2, 2023, ACE+ PDR was expanded to include eligible purchase transactions. For eligible loans, lenders will be offered the option to obtain a PDR, where property information is physically collected on-site by trained property data collectors using the Freddie Mac PDR dataset. Required data includes a floor plan with dimensions calculations, and interior and exterior photos as outlined by Freddie Mac.

It’s worth noting that in some limited instances, loans originally utilizing Value Acceptance + Property Data or ACE+ PDR solutions may need to upgrade to a hybrid appraisal. For Freddie Mac, examples of this include last-minute changes to the borrower’s DTI or the review of the PDR revealing that the subject property is not eligible due to certain characteristics or conditions, such as adverse site conditions or external factors or mixed-use property. For Fannie Mae, the only way a loan loses eligibility is if there are certain changes in credit characteristics in DU that would cause the risk of the loan to change. 

What does this mean for LOs and why adaptation is vital

As an LO, you’ve probably heard it a million times in the past few months: In today’s market, enhancing the borrower experience is paramount. When the whole industry was drinking from a fire hose from 2020 through early 2022, LOs were doing their best to keep from drowning in volume. But volume dried up as mortgage rates continued to increase, crossing the 5% threshold in April 2022 (sounds nice now, doesn’t it?).

As a result, LOs went from juggling refinances to doing everything they could to win in a cold market. The winning recipe for most? Customer experience. Providing top-notch customer experience not only helps in the short-term by aiding in referral volume, but it sets LOs up for success when their new borrowers, currently locked in the 6s and 7s, want to refi in the future. But you already know this. What you’re probably wondering is, “What does this have to do with appraisal modernization?”

The answer is simple: Using modern collateral valuation solutions results in both cost and time savings for the borrower. Historically, traditional property appraisals have consumed significant amounts of time, contributing to delays in loan processing and frustrating both borrowers and lenders. According to a report by Collateral Analytics, traditional appraisals take an average of eight to ten days to complete. Conversely, alternatives to traditional appraisals, particularly those utilizing property data collection, cut that time in half. For example, Class Valuation has seen average turn times of two to three days when taking advantage of the GSEs’ inspection-based appraisal waiver solutions.

The time saved through inspection-based appraisal waiver solutions translates directly into improved efficiency for LOs. This efficiency enhances the overall lending process, allowing LOs to accelerate their workflow and reduce the time it takes to close deals. Modernized collateral valuation methods streamline the process, freeing up valuable resources for LOs to focus on other aspects of their work, such as building client relationships and providing personalized financial advice. Additionally, the reduction in appraisal time directly contributes to faster loan approvals, ultimately leading to higher borrower satisfaction and increased business opportunities for LOs.

But understanding the options and processes of these new inspection-based appraisal waiver solutions is just as important as utilizing them. Borrowers are more likely to appreciate the speed and efficiency of an LO who can promptly guide them through the lending journey. In a highly competitive lending landscape, the ability to offer and explain new services can set LOs apart. Explaining who property data collectors are and what they’re doing in your borrower’s house, for example, will go a long way in defining their comfort level in the valuation stage.

Finally, it’s vital to be equipped with the right tools and providers to carry out modern collateral valuation solutions. In line with the GSEs’ efforts to offer inspection-based appraisal waiver options, Class Valuation recently unveiled Property Data Advantage as part of its Property Fingerprint data collection technology suite. Property Data Advantage is a flexible data collection and delivery solution that enables lenders to take part in both Fannie Mae’s Value Acceptance + Property Data solution and Freddie Mac’s ACE+ PDR through one simple order process. 

Along with the seamless delivery of required data for all loans using property data collection with Property Data Advantage, Class Valuation’s property data collections include a 3D scan as captured through their INvision Capture app. These 3D scans supply access to detailed photos, interactive virtual tours, computer-generated floor plans and 3D models — allowing lenders to revisit the property at any time post-inspection to answer questions or supply updated property photos upon need. For LOs, this can result in massive time savings if revisions are needed.

Equipped with knowledge and understanding of the GSEs’ efforts to offer inspection-based appraisal waivers, the right tools and the right partners, LOs can gain the competitive edge they need in today’s slower market. And when the market inevitably heats up again, you can be two steps ahead of everyone else.

To learn more about Property Data Advantage and how it can benefit your borrowers, click here.