The Federal Housing Finance Agency (FHFA) is considering implementing hybrid appraisals that enlist a third party – typically an appraiser trainee, home inspector or real estate agent – to collect the data for a lender and certified appraiser once past the automated underwriting system. Doing so would help increase appraisal coverage for rural areas as well as high volume areas.

Hybrid appraisals are generally completed faster and cheaper than standard appraisals, however there are additional complications that can arise as a third party would be subject to uniform standards set at the state and federal levels for appraisers. Due to this complication, the FHFA has provided a ‘Request for Input’ (RFI) from industry stakeholders through February 26, 2021. The RFI is asking for input on the benefits and pitfalls of hybrid appraisals, updating the Uniform Appraisal Dataset (UAD) and an increased use of appraisal waivers.

The FHFA suggests in its RFI that increased use of appraisal waivers could help lenders shave time off the loan manufacturing process, but waivers can also increase the risk of higher-than-expected prepayment speeds on mortgage securities, inaccuracies of input data and potential gaming by lenders. The FHFA is also requesting comment on further updating the UAD, a process that began in 2018 to redesign
its appraisal reports so they would be streamlined to other Enterprise data forms.

During the onset of the pandemic, FHFA eased appraisal standards and encouraged lenders to accept appraisal waivers when the loan was eligible for one. Due to the relaxed standards, there was a 14% increase in appraisal waiver use during that period which led to a large increase in refinance volume across the industry that was aided by extremely low interest rates.

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by Andrew Augustyniak, Peoples Mortgage Co