Late last year, the Federal Housing Finance Agency (FHFA) updated several Fannie Mae and Freddie Mac policies to save borrowers money and make the process more efficient for lenders.
The agency says that these changes, which include expanded appraisal waiver options and new program enhancement, are part of its commitment to fostering a more accessible and streamlined home mortgage process.
Faster, cheaper mortgages through expanded GSE programs
The first set of policy updates pertain to appraisal waivers. Effective this year, the maximum loan-to-value (LTV) ratio of purchase loans eligible for appraisal waivers increased from 80% to 90%. For “inspection-based” appraisal waivers, where property data is collected without a professional opinion of the home’s value, the maximum LTV ratio of purchase loans eligible will increase from 80% to 97%.
As part of this expansion, the FHFA is now including appraisal data from applications for FHA-insured loans—which allow LTVs up to 96.5%—into its “uniform appraisal dataset.” If a government-sponsored enterprise (GSE) waives an appraisal on a purchase loan, it will rely on information in the uniform appraisal dataset.
Fannie Mae and Freddie Mac leadership have expressed their support for the changes. In an October 2024 press release, Jake Williamson, Fannie Mae’s senior vice president of single-family collateral and quality risk management, noted that the adjustments are part of an ongoing effort to enhance the home valuation process for lenders, appraisers and secondary mortgage market participants.
Williamson stated, “Responsibly increasing the eligibility for valuation options that leverage data- and technology-driven approaches can also help reduce costs for borrowers.”
Similarly, Sonu Mittal, Freddie Mac’s senior vice president and head of single-family acquisitions, said in another October 2024 press release that the advancements should also make the process easier and less expensive for lenders. “We will continue to hone these efforts as we look for new ways to improve housing affordability for all,” he stated.
Strengthening quality control
The GSEs’ expanded program not only enables more borrowers to save money by not having to pay for appraisals; it also expedites the home mortgage closing process, says Ron Haynie, senior vice president of housing finance policy for ICBA.
He notes that community banks benefit from the expanded efficiencies, and their risks are lessened with the GSEs’ automated underwriting systems.
“They have this enormous database of properties that they have financed over the years,” Haynie says, “and so they’re able to go in and, through use of technology, determine whether the value of the property supports the loan request.” He adds that the expanded program is especially beneficial in rural and small-town markets, where there may be few appraisers available.
It also helps remove more of the subjectivity around appraisals and potential discrimination—which ICBA and community banks are opposed to in any form, says Tim Roy, vice president of housing finance policy for ICBA.
“All of this was very up front and center during the previous administration, and I think [the FHFA] acted in earnest to make some changes to the uniform appraisal dataset to address some of these challenges,” Roy says.
It’s important to note that expanded appraisal waivers are not automatic. The GSEs will weigh additional risk factors that might be pertinent, such as recent catastrophic weather events that could have affected appraisal values in the FHFA’s uniform appraisal dataset.
A community bank mortgage loan officer can also choose to obtain an appraisal if they suspect the property value of a home has changed in any way, Haynie says. A borrower can also request an appraisal if they believe the seller’s price is too high for the actual value of the home.
New options for lenders
The FHFA updates include expanded eligibility for Freddie Mac’s performing loan repurchase alternative pilot. Under this pilot, all approved lenders can now opt in to the fee-based alternative annually. Instead of having to repurchase performing loans with significant origination defects, lenders may be subject to a fee as a percentage of the total unpaid principal balance sold to Freddie Mac.
For lenders that do not participate in the pilot, Freddie Mac will offer a “fee only” option, for which the fee is charged on the defective loan only, in lieu of a repurchase.
“The goal of the pilot is to incentivize high-quality loan originations, reduce the financial and operational impacts of performing loan repurchases, and compensate Freddie Mac for credit risk if a loan defaults after the 36-month representations and warrants relief period,” the GSE explains in the Repurchase Alternative FAQs on its website.
The last policy change pertains to advance notice of certain GSE pricing increases. For loans delivered through the mortgage-backed security swap channel, the GSEs will provide 60 days advance notice of increases to their base guarantee fees greater than 1 basis point.
Community bankers can stay informed about further regulatory updates by reading NewsWatch Today or visiting icba.org/advocacy
