The Federal Housing Finance Agency has opted to make desktop appraisals permanent, having first introduced them as a temporary measure in March 2020.
Desktop appraisals, as the name suggests, are an appraisal of a home’s value that’s done entirely at the appraiser’s desk. So there’s no traveling to the home, no inspection, no measuring. Rather, the appraiser relies on data from third party sources such as the multiple listing service, tax records, comparables, Google maps and other public records.
They were introduced amid the coronavirus pandemic as an emergency measure designed to keep the mortgage industry up and running at a time when everyone was forced to lock down and socially distance. And they’ve been so successful that the FHFA says it’ll keep using them permanently.
The FHFA’s acting director Sandra Thompson made the announcement at the Mortgage Bankers Association Annual Convention and Expo in San Diego this week, saying Fannie Mae and Freddie Mac will allow remote appraisals for purchase loans on a permanent basis in early 2022.
According to Thompson, desktop appraisals are the perfect tonic for a lot of friction in the existing appraisal process, which can slow down mortgage applications significantly. She said the problems are especially bad in rural areas, where it can be difficult to find an appraiser who’s willing to spend all day driving out to see a property.
The temporary rules allowing desktop appraisals expired earlier this year so they haven’t been done for several months. But Thompson said the FHFA had decided to allow desktop appraisals permanently based on feedback received from the earlier experiment.
“This can help each appraiser complete more loans in a day, and it can also help rural communities more readily obtain a necessary appraisal when the borrower is purchasing a property,” she said. “This certainty should allow lenders, borrowers, and appraisers alike to take advantage of the efficiency gains that desktop appraisals can provide.”
In a second announcement, Thompson said Fannie Mae and Freddie Mac will expand the eligibility requirements for their respective refinance programs aimed at low-income borrowers.
The programs, RefiNow and RefiPossible, will see their income thresholds raised from 80% of the area’s median income to 100%. In addition, the government sponsored enterprises will remove a 10-year seasoning cap that prevented more recent homebuyers from taking advantage of the programs.
According to Thompson, the idea is to help make refinance easier for lenders to offer to more borrowers by boosting eligibility and addressing some of the operational frictions of the programs. She noted that take up of the programs to date has been quite lower than expected. For instance, Thompson said the share of refinance loans given to borrowers below 100% of the area median income had dropped in almost all parts of the U.S.
Low-income borrowers have suffered due to tightened restrictions on credit during the refinancing boom that occurred during the pandemic. The RefiNow and RefiPossible programs were announced by Fannie Mae and Freddie Mac in response to reports that the so-called “refi boom” had only benefited wealthier borrowers.
“[Low-income borrowers] risk being left on the sidelines during a generational opportunity to lock in more sustainable monthly payments,” Thompson said. “And these are often the very people who could most benefit from adding breathing room to their budget.”
Thompson admitted that even with the loosened requirements, not everyone i be able to qualify for refinance.
“But that alone doesn’t explain the gaps we are seeing in refinances to creditworthy enterprise borrowers,” she said. “And we know from experience with HARP and with programs for lower income and minority borrowers that those with smaller balances tend to get left behind when it comes to refinancing opportunities.”