Government-sponsored enterprise Fannie Mae this week released new updates to its appraiser independence requirements (AIR), and also established new property data independence requirements (PDCIR) simultaneously.
Fannie Mae published a new frequently asked questions (FAQ) document related to AIR this week.
Lenders typically use appraisal management companies (AMCs) to transfer the compliance burden associated with AIR. AIR is designed to “safeguard the independence, objectivity, and impartiality of appraisers and other Independent Parties throughout the valuation process for 1 to 4-unit residential properties,” according to Fannie Mae.
The policies help determine proper conduct regarding the independence of the appraisal entity during the mortgage origination process. The changes announced on Wednesday aim to accomplish three tasks, Fannie Mae said in its latest Selling Guide update.
The first is “to clarify that mortgage brokers, LOs production staff are not allowed to order appraisals” or to even be involved in the collateral valuation process at all. The AIR update now lists these entities as “restricted parties.”
The second task is to clarify that appraisers, AMCs and appraisal firms “all fall under the same protections and are referred to as ‘independent parties,’” according to Fannie Mae. The final task is to “improve readability and clarity through reorganization of the content and other improvements.”
The Selling Guide also details the intent of PDCIR, which is “to address property data collector independence requirements similar to those in AIR for Fannie Mae and Freddie Mac loans,” the document said. “The PDCIR is effective for loans with application dates on and after Nov. 1, 2023.”
Brian Zitin, CEO of valuation software company Reggora, said the new requirements “will have important implications for nearly every major retail, wholesale and brokerage ordering appraisals — especially when it comes to how they are interacting with AMCs.”
He added: “It was already established and well understood that various sales-related staff should have no influence over the selection of an individual appraiser,” Zitin told HousingWire. “That’s why, for the many lenders managing a panel of appraisers directly, a separate appraisal desk that has reporting lines independent of loan production, is responsible for the selection of a given appraiser on an order, whether it be by utilizing an automated algorithm enabled by the appraisal technology provider (such as Reggora) or by manually selecting the appraiser.”
However, one of the major changes brought about by these policy revisions is that the AMC will be “treated in a similar manner to an appraiser in this regard,” Zitin said. “Meaning, anyone on sales staff — LOs, Branch managers, mortgage brokers or even processors who are partially paid based on loan volume — cannot directly order with a specific AMC or appraiser.”
Among some lenders today, it is a common practice for LOs, branches or mortgage brokers to have designated or preferred AMCs and can order them directly, but this new AIR policy change “makes clear that this is not an allowable practice,” Zitin said.
This leads to two primary takeaways that Zitin observes: that the usage of modern appraisal management platforms will become “more of a necessity in order for lenders to stay in compliance;” and that AMCs’ “viability will be based on appraisal quality and service versus their ability to build relationships.”
Fannie Mae made waves in March when it included more options for property valuations, saying that they are “moving away from implying that an appraisal is a default requirement.” Those options include value acceptance (formerly appraisal waivers), value acceptance plus property data and hybrid appraisals. Fannie Mae approved six vendors for its controversial new valuation initiative a few days later.