On Oct. 28, the Federal Housing Finance Agency (FHFA) announced updates to several Fannie Mae and Freddie Mac policies that are intended to enhance efficiency and promote cost savings in the single-family mortgage market.

“Today’s (Oct. 28) 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,” FHFA Director Sandra Thompson said in a press release. “FHFA is committed to supporting current and aspiring homeowners, as well as renters, who face persistent affordability challenges in the housing market.”

These policy updates, announced at the Mortgage Bankers Association Annual Convention & Expo in Denver, cover four key policy areas:

• Expanded eligibility for appraisal waivers on purchase loans: In support of FHFA’s ongoing appraisal modernization efforts, the Enterprises will expand eligibility for appraisal waivers and inspection-based appraisal waivers, which leverage property data collected by a trained and vetted professional. This policy builds on the long-running success of appraisal waivers by allowing more borrowers, particularly first-time and low- to moderate-income borrowers, to benefit from cost savings and reduced closing times. The maximum loan-to-value (LTV) ratio of purchase loans eligible for appraisal waivers will increase from 80 percent to 90 percent, and the maximum LTV ratio of purchase loans eligible for inspection-based appraisal waivers will increase from 80 percent to 97 percent, consistent with standard guide eligibility requirements. The Enterprises will institute appropriate risk management controls to ensure this update is implemented in a manner consistent with their safety and soundness.
• Expanded Uniform Appraisal Dataset (UAD) to include Federal Housing Administration (FHA) data: In partnership with the Department of Housing and Urban Development, FHFA will significantly expand the UAD to include appraisal data from applications for FHA-insured loans.
• Expanded eligibility for Freddie Mac performing loan repurchase alternative pilot: Following the launch of a targeted pilot program to offer lenders a fee-based alternative to repurchase requests for performing loans with defects, Freddie Mac will expand this pilot to all approved lenders. Under this expansion, lenders will be able to opt in to the fee-based repurchase alternative annually. Additionally, for lenders that do not participate in the pilot, Freddie Mac will offer a “fee only” option, for which the fee is charged on the defective loan only, in lieu of a repurchase. This offering will better align the repurchase alternative offerings across the Enterprises, according to the FHFA.
• Advance notice of certain Enterprise pricing increases: For loans delivered through the mortgage-backed security swap channel, the Enterprises will provide 60 days advance notice of increases to their base guarantee fees greater than 1 basis point. This policy will ensure the Enterprises have flexibility to appropriately manage their business operations while also providing lenders with more certainty when pricing loans.

“In today’s challenging housing market, Freddie Mac is committed to enhancing our processes and reducing costs,” Sonu Mittal, senior vice president and head of single-family acquisitions at Freddie Mac, said in the release. “Today’s announcements are part of making good on our commitment to be part of the solution and build upon the progress we already made with lenders and industry partners over the past year. We know lenders will continue doing their part to keep improving loan quality.”

Jake Williamson, senior vice president of single-family collateral and quality risk management at Fannie Mae, spoke to the GSE’s commitment to clarifying requirements and promoting efficient processes as it relates to home valuation.

“Fannie Mae is on a journey of continuous improvement to make the home valuation process more effective, efficient, and impartial for lenders, appraisers, and secondary mortgage market participants while maintaining Fannie Mae’s safety and soundness,” Williamson said. “Responsibly increasing the eligibility for valuation options that leverage data- and technology-driven approaches can also help reduce costs for borrowers.”

Appraisal Institute (AI) President Sandra Adomatis, via AI’s LinkedIn page, shared her thoughts on the FHFA’s decision to eliminate appraisal requirements for eligible purchase loans by Fannie Mae and Freddie Mac.

“The Federal Housing Finance Agency’s decision to accept appraisal waivers for loans that carry the greatest collateral risk flies in the face of fundamental safety and soundness standards. Congress established those protections to help prevent financial bailouts and mortgage foreclosures," she stated. "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. 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. As loan-to-value (LTV) rates increase, the percentage of appraisal waivers decreases until loans get closer to the existing 80 percent LTV eligibility limit,” Adomatis added. “Strangely, approximately 40 percent of purchase loans between 76-to-80 percent LTV received an appraisal waiver in July 2024, triple the amount of the nearest LTV risk category of 71-to-75 percent, LTV, according to AEI Housing Center. We fear the results could be devastating for the mortgage market if such behavior carried forward to loans with the greatest collateral risk at 97 percent of LTV, as higher LTV rates have already been identified as a strong predictor of foreclosure. We strongly urge FHFA to reconsider this stance and reestablish fundamental safety and soundness protections inherent with real estate appraisals.”