The Appraisal Institute has criticized the Federal Housing Finance Agency’s (FHFA) updates to several appraisal policies for the government-sponsored enterprises (GSEs) Fannie Mae (OTCQB: FNMA) and Freddie Mac (OTCBQ: FMCC).
In a press statement, Appraisal Institute President Sandra Adomatis said the FHFA’s decision will create more problems than solutions.
“Under the decision, the riskiest loans that can be purchased by Fannie Mae and Freddie Mac will now be eligible for appraisal waivers and other alternative valuation products,” Adomatis stated. “What is troubling is the fact that the mortgage market does not rationally use appraisal waivers according to the most recent statistics. Specifically, the highest percentage of appraisal waivers are used with loans that carry the greatest collateral risk.”
The FHFA’s policy changes expand eligibility for appraisal waivers and inspection-based appraisal waivers, with the maximum LTV ratio of purchase loans eligible for appraisal waivers increasing from 80% to 90% and the maximum LTV ratio of purchase loans eligible for inspection-based appraisal waivers will increase from 80% to 97%.
Adomatis added that 40% of purchase loans between 76% and 80% loan-to-value (LTV) received an appraisal waiver in July. She warned the FHFA’s actions “could be devastating for the mortgage market if such behavior carried forward to loans with the greatest collateral risk at 97% LTV, as higher LTV rates have already been identified as a strong predictor of foreclosure.”
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