The Federal Housing Finance Agency (FHFA) Office of the Inspector General (OIG) issued an audit report (AUD-2024-001) on Oct. 25 noting the FHFA did not document reviews of desktop appraisal reports. According to FHFA, the purpose of desktop appraisals is to support appraisal modernization, promote the health and safety of appraisers and borrowers, reduce potential costs for borrowers, and address appraiser capacity concerns, the OIG report said.

FHFA reported that modernizing the appraisal process can create a more streamlined and accurate property valuation process.

Between March 2020 and May 2021, FHFA directed the Enterprises to introduce temporary appraisal flexibilities, including desktop appraisals, to help minimize market disruptions and ensure access to credit in response to the challenges presented by the Coronavirus public health emergency, the report stated. 

On Oct. 18, 2021, FHFA announced plans to restore desktop appraisal flexibility for certain new purchase loans, thereby aiming to overcome barriers to affordable and sustainable homeownership and to reduce inefficiencies in the mortgage process. 

In December 2021, FHFA approved Freddie Mac and Fannie Mae’s use of desktop appraisals, and in March 2022, Fannie Mae included desktop appraisal requirements in its Selling Guide while Freddie Mac included similar requirements in its Seller/Servicer Guide. 

The Enterprises’ Selling and Seller/Servicer Guides specify the underwriting standards, eligibility guidelines, and policies and procedures related to sales of mortgages to the Enterprises.  Starting in July 2022, FHFA required the Enterprises to submit quarterly desktop appraisal reports.

FHFA’s Office of Housing and Regulatory Policy (OHRP), within the Division of Housing Mission and Goals (DHMG), oversees the Enterprises’ policies and certain policy development and implementation activities, such as desktop appraisals. 

The OHRP Review Process is a document that outlines specific procedures for its oversight of certain Enterprise reports.

“We performed this audit to assess FHFA’s oversight of the Enterprises’ use of desktop appraisals from Oct. 18, 2021, through March 31, 2023,” the OIG report stated. “We found that OHRP did not document reviews of the desktop appraisal reports in accordance with internal control standards.  According to OHRP officials, policy analysts review quarterly desktop appraisal reports to assess for immediate concerns or need for policy changes, but results are not documented.” 

An OHRP official further explained that a formal review process for desktop appraisal reports has not been implemented and documented in part due to low volume.  According to the Enterprises’ data, desktop appraisals represent less than 1 percent of the Enterprises’ total loan volume.  Additionally, OHRP is developing a dashboard that will include desktop appraisal reports. 

Once implemented, OHRP’s reviews of the dashboard, including review of the desktop appraisal reports reflected therein, will be documented in accordance with an updated version of the OHRP Review Process document.  Until the dashboard is deployed, OHRP does not have an interim plan to document results of all the desktop appraisal report reviews. 

Without such documentation, OHRP management may be challenged in identifying trends, concerns, or emerging issues related to desktop appraisals that could affect the Enterprises’ safety and soundness.

“We made two recommendations in this report to address our finding,” the report stated. “In a written management response, FHFA agreed with our recommendations.”

This report was prepared by Andrea Smith, audit director; Pamela Williams, audit manager; Christopher Mattocks, auditor-in-charge; Eleanor Kang, auditor; and Michael Schumann, auditor; with assistance from Abdil Salah, assistant inspector general for audits. 

This report has been distributed to Congress, the Office of Management and Budget, and others.