FHFA to allow alternative appraisal methods on purchases up to 97% LTV 

The Federal Housing Finance Agency has expanded the eligibility for alternative appraisal methods on purchase loans by increasing the maximum loan-to-value (LTV) requirement. The announcement was made on Monday during the Mortgage Bankers Association (MBA) Annual Convention & Expo in Denver, Colorado.

The maximum LTV ratio will increase from 80% to 90% for appraisal waivers and from 80% to 97% for inspection-based appraisal waivers, consistent with standard guide eligibility guidelines. 

“To be clear, the expanded eligibility of appraisal waivers does not constitute an expansion of a credit box, but rather it will allow more first-time home buyers, and particularly low- and moderate-income first-time homebuyers, to recognize the benefits associated with appraisal waivers,” Naa Awaa Tagoe, deputy director of the division of housing mission and goals at the FHFA, said on stage.

Following the announcement, Freddie Mac said it was updating its automated collateral evaluation (ACE), which it claims has saved borrowers $1.63 billion in appraisal fees by using proprietary models, historical data, and public records. Requirements and the effective date will be available in the upcoming single-family seller/servicer guide bulletin.

Meanwhile, Fannie Mae announced that changes to the value acceptance programs will begin in the first quarter of 2025. It says that using appraisal alternatives has saved mortgage borrowers more than $2.5 billion since early 2020.

On the appraisal front, the FHFA has also included appraisal data from the Federal Housing Administration (FHA) as part of the Uniform Appraisal Dataset (UAD ) releases. The UAD is a database derived from more than 68 million appraisal records. Previously, only data from Fannie Mae and Freddie Mac were available.

“The data which we have released at both the aggregate and appraisal levels allow stakeholders to analyze and understand the full valuation of price trends, including the problem of appraisal bias. And we all know that the more data we have, the better we can pinpoint a problem and identify solutions,” Tagoe said.

HUD head Adrianne Todman said the agency was taking “a major step forward, working with our partners at FHFA to make public data that is both current and comprehensive on home appraisals.”

In a statement, FHFA Director Sandra Thompson added, “Today’s announcements highlight actions that will better ensure the Enterprises are reliable sources of liquidity for lenders of all sizes and types, which in turn will promote access to sustainable credit for consumers.”

Thompson added: “FHFA is committed to supporting current and aspiring homeowners, as well as renters, who face persistent affordability challenges in the housing market.”