One of the biggest bottlenecks in the mortgage process right now is the appraisal. In some markets it is taking over 3 weeks on average to obtain an appraisal and at times even longer. The appraisal industry has been contracting and has not been able to keep up with the recent mortgage boom. If you have patience and time on your side, that may not be an issue. However, most transactions are time sensitive – a contracted closing date or a contractor waiting to start a renovation. Thankfully there is something that is helping alleviate the pressure on the appraisal industry in general and on some specific transactions – Appraisal Waivers.
Enter the Appraisal Waiver.
In 2011, Fannie Mae and Freddie Mac started a joint project for collecting appraisal data electronically. That project was the Uniform Collateral Data Portal (UCDP). The appraisers began providing not only the PDF but also XML format (a data file) with every appraisal on a home. The data files are submitted to the UCDP where they are compiled in a database. Over the following 6 years the UCDP compiled enough data to be able to establish a valuation model for properties and a risk model for appraisals. At the end of 2016 Fannie Mae began offering appraisal waivers when there was sufficient data to determine the value. Though Fannie Mae led the way, Freddie Mac was quick to offer appraisal waivers as well under the name Automated Collateral Evaluation (ACE). In addition, lenders selling to the GSEs need to run the appraisal data through Fannie Mae’s Collateral Underwriter or Freddie Mac’s Loan Collateral Advisor and receive a risk score.
How do I know if a property is eligible?
There are several factors that are considered when determining if a property is eligible for an appraisal waiver. The major factors that are considered are the loan purpose, property type and LTV/CLTV. See the eligibility matrix below for specifics. In addition, per Fannie Mae you are much more likely to receive an appraisal waiver if there was an acceptable appraisal completed on the property more than 6 months and less than 6 years prior to the current transaction.
Eligibility Matrix
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Transaction Types
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Fannie Mae Appraisal Waivers
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Freddie Mac ACE
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Loan Types
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Purchase
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Primary Residence
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Up to 80% LTV/CLTV
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Up to 80% LTV/CLTV
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Secondary Residence
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Up to 80% LTV/CLTV
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Up to 80% LTV/CLTV
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Cash-out refinances
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Primary Residence
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Up to 70% LTV/CLTV
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Ineligible
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Secondary residence or investment property
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Up to 60% LTV/CLTV
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Ineligible
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Limited cash-out refinances
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Primary or secondary residence
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Up to 90% LTV/CLTV
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Up to 80% LTV/CLTV
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Investment property
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Up to 75% LTV/CLTV
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Ineligible
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No cash-out refinances
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Same as limited cash-out refinances
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Up to 80% LTV/CLTV
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Relief refinances
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Ineligible
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Ineligible
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Construction conversion and renovation
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Ineligible
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Ineligible
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Property Types
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Properties with estimated values of $1M or greater
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Ineligible
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Ineligible
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Single-family 1-unit properties
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Eligible
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Eligible
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Condominiums
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Eligible
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Eligible
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2- to 4-unit properties
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Ineligible
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Ineligible
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Manufactured homes and co-ops
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Ineligible
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Ineligible
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Properties with resale restrictions
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Ineligible
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Ineligible
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What else do you need to know?
There is one exception to the eligibility matrix above - homes in rural high-needs areas. The borrowers must also be low to moderate income borrowers. If the borrower meets these two requirements, then LTV ratios up to 97% and CLTV ratios up to 105% (with a Community Second) are acceptable and eligible for an appraisal waiver. Even though there is an appraisal waiver on these transactions, the lender is still required to obtain a property inspection and warrant that the property is safe and structurally sound.
If you pay attention to the message that you receive in Desktop Underwriter (DU) or Loan Product Advisor (LPA) you will notice that your eligibility message does not assign a value to the property. Instead, what the eligibility message states is whether the value submitted is accepted. As a result, the estimated value of the property may have an impact on receiving an appraisal waiver.
The availability of data on the eligibility rate of submissions to DU and DO is limited. However, the FHFA prepared a White Paper evaluating the waivers in 2018. They reported that in January 2018 3.7% or submissions to LPA were eligible for an ACE and in March 2018 10% of purchase transactions submitted to DU were eligible for and appraisal waiver.
More in depth and specific information is available on the GSE’s sites. To find out more about these offerings see the links below:
https://www.fanniemae.com/appraisalwaivers
https://sf.freddiemac.com/tools-learning/loan-advisor/our-solutions/ace-automated-collateral-evaluation
https://www.fhfaoig.gov/sites/default/files/WPR-2018-006.pdf
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Greg Pilling
Mortgage Loan Originator, NMLS# 873570
Teachers Credit Union
gpilling@tcunet.com
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