The Federal Housing Finance Agency’s (FHFA) recent decision to expand appraisal waivers for high loan-to-value (LTV) loans by Fannie Mae and Freddie Mac has raised concerns within the appraisal industry, which prompted a letter to FHFA Director Sandra Thompson from the Appraisal Institute (AI), American Society of Appraisers (ASA), American Society of Farm Managers and Rural Appraisers (ASFMRA), the Massachusetts Board of Real Estate Appraisers (MBREA), the National Association of Appraisers (NAA) and the National Society of Real Estate Appraisers (NSREA).

In its Nov. 8 letter, the organizations expressed their “deep disappointment and significant concerns” regarding the FHFA’s recent decision, announced on Oct. 28, to expand eligibility for appraisal waivers on purchase loans by increasing the maximum LTV ratio to 97 percent.

“This policy change disregards key consumer protections, threatens progress in diversifying the appraisal profession, and exposes the enterprises you oversee to substantial financial risk,” the letter stated. “Allowing appraisal waivers, particularly without property inspections, for loans with up to 97 percent LTV means that borrowers could finance nearly the entire cost of a home without truly knowing the property’s value, exposing consumers to an alarming risk of financial loss, especially in a market downturn.”

The appraisal organizations also noted in the letter that a modest 5-percent drop in home values would leave these homeowners underwater, with mortgage balances exceeding their property’s worth. The risk intensifies if the initial “value” estimate underlying the waiver was overinflated, further compromising the borrower’s financial stability. The new policy starkly undermines efforts to attract a fresh, diverse generation to the appraisal profession, they added.

“By raising the maximum LTV to 97 percent for appraisal waivers, the FHFA effectively diminishes the earning potential for residential appraisers, making it harder for current and prospective professionals to see a viable, rewarding future in this field,” the organizations wrote. “This shift toward expanded appraisal waivers sends a disheartening message that appraisal work is undervalued and offers limited financial security.

“As a result, this policy risks deterring new talent from entering the profession precisely when the industry needs to build a more resilient, diverse workforce for the future. The absence of any accounting for this foreseeable outcome by FHFA and the GSEs is deeply troubling,” the organizations went on to say. “Granting appraisal waivers for high LTV loans, especially those with 97 percent LTV, introduces serious and unnecessary risk into the mortgage market. High LTV ratios are well-known predictors of foreclosure, and continued reliance on waivers in these cases could result in disastrous consequences for both borrowers and the stability of our financial system.”

And while AI, ASA, ASFMRA, MBREA, NAA and the NSREA   acknowledges that some transactions may not require traditional appraisals, effective risk management demands proactive oversight from the FHFA.

The organizations are “gravely” concerned the current waiver policy could lead to a “race to the bottom” in risk standards, they wrote.

“Now more than ever, we urge greater transparency and a clear commitment to risk-based decision-making in this critical area. It is troubling that such a critical policy change has been made without a public comment period, depriving stakeholders of the opportunity to voice their concerns,” the letter stated. “Engaging the public and relevant industry participants is essential for informed policymaking, particularly when the decisions made can have far-reaching implications for the stability of the mortgage.

“The FHFA's decision-making process must reflect the principles of accountability and transparency, especially during its conservatorship,” the organizations further stated. “The absence of public discourse on such a consequential policy shift not only undermines stakeholder trust but also raises concerns about the agency's commitment to maintaining stability in the housing finance system. Purchasing a home is one of the most consequential financial decisions a consumer can make, and FHFA’s endorsement of appraisal waivers undermines this process by bypassing a credible, objective valuation.”

In doing so, the undersigned stated that the FHFA is failing to uphold its responsibility to safeguard both consumers and the broader housing market and urges the FHFA to reconsider this policy to preserve the integrity and stability of the housing finance system.