Fannie Mae’s “Value Acceptance + Property Data” Program: What Lenders Need to Know
Fannie Mae now accepts two new valuation products on eligible properties: property data collection (aka property data reports) and hybrid appraisals.
This is another step towards appraisal modernization (Freddie Mac made a similar step in 2022, they accept property data reports on eligible properties) and we couldn’t be more excited. We’ve been anticipating this announcement since Reggora’s inception; it’s a clear opportunity for lenders to further reduce cycle times, differentiate their experience and decrease origination costs.
They made three key valuation updates to their selling guide on Wednesday, March 1st in order to implement these new products, and one valuation update related to property condition requirements.
A summary of Fannie Mae’s selling guide updates related to valuation
Here is what you need to know:
- They now accept property data collections and hybrid appraisals
- An “appraisal waiver” is now referred to as “value acceptance”
- If a lender is using a property data collection and needs to confirm completion of repairs or alterations they have two new options (in lieu of Form 1004D): 1) Submit a borrower/builder attestation letter to verify completion of construction, OR 2) A borrower attestation letter to confirm completion of repairs for existing construction
- 1004Ds can also be completed by the appraiser virtually in many cases
- They will not purchase a loan with a condition rating of C6. However, instead of denying the purchase outright like they have previously, they will purchase the loan if the original appraisal is made subject to repairs resulting in a minimum condition rating of C5. Once repairs are made, the lender needs to obtain a 1004D confirming the repairs were completed.
These changes are effective immediately. Lenders will begin to receive offers for these new valuation products from Desktop Underwriter® (DU) beginning on April 15th 2023. If the property is eligible, DU® will issue a “value acceptance + property data” offer to the lender, the lender will have the property data collection completed and the lender will submit the results through Fannie Mae’s API.
In a subset of these transactions, where “value acceptance + property data” was initially started, but changes in loan characteristics resulted in the transaction not being eligible for that option, Fannie Mae will require a hybrid appraisal to be completed. This is where an appraiser uses the property data collection, instead of physically inspecting the property themselves, to complete an appraisal.
Now let’s dig into the key takeaways for mortgage lenders (if you’re on the go and would prefer to listen/watch these takeaways, I posted a video for you on LinkedIn here).
New products on the DU® valuation waterfall to supplement appraisal waivers
Previously, when you submitted a loan to DU®, you had two options: an appraisal waiver or a full appraisal. Now you effectively have five.
The primary new product Fannie Mae just rolled out is called “value acceptance + property data”. This is where someone inspects the property, provides you with property data meeting Fannie’s criteria, you submit the data and you’re done. There’s no need for a licensed appraiser to create a traditional report. If the loan conditions change during origination, DU is re-run and “value acceptance + property data” is no longer accepted, Fannie will require you to complete a hybrid appraisal. This is where property data from the inspection is sent to a licensed appraiser and the appraiser uses it to create an appraisal.
This is very similar to the valuation waterfall that Freddie Mac offers.
At Freddie, an appraisal waiver is referred to as “ACE”. Instead of a “waiver + inspection”, Freddie uses the term “ACE+ Property Data Report” (ACE+ PDR). Freddie’s ACE+ PDR is very similar to Fannie’s “value acceptance + property data” and can also be upgraded in some instances to a hybrid appraisal.
Each agency uses slightly different names, and has slightly different eligibility requirements, but generally offer the same spectrum of new valuation products.
Fannie’s products are available on purchases & refi’s; Freddie’s are only available on refi’s
While both programs are similar, there are a number of key differences across eligibility criteria. The primary difference is that Fannie’s products are eligible for some purchases and refinances, while Freddie's are only available on certain refinances.
But there’s of course more to it than that.
Our Head of Appraisal Compliance, Ken Dicks, put together a comprehensive side-by-side to help you quickly understand each program:
Lenders are responsible for QC on these new products
When a lender is given the go ahead by DU to use property data in lieu of a traditional appraisal, the lender is required to perform QC on the property data they receive from a vendor.
If the data reveals one or more of the conditions listed above that require a hybrid appraisal to be completed (see the criteria listed under “Hybrids”), it is the lender’s responsibility to escalate that with the agency they’re delivering the loan to. If they do not escalate it and have a hybrid appraisal completed, the lender may face repurchase risk.
So, lenders that want to adopt these new products will likely need to adjust their QC process and technology to do so. If you’re interested in adopting these products, and have questions about the technology and process requirements, please contact us. We’re happy to help walk you through the requirements in detail.
Here is a helpful representation and warranties summary directly from the selling guide:
Data doesn’t have to be collected by an appraiser
One of the advantages of these new valuation products is that they do not rely on the industry’s limited pool of licensed appraisers. Capacity constraints became almost unbearable during the Covid boom and, naturally, the agencies want to help prevent that from happening again.
However, property data collectors must fulfill certain requirements set by the GSE’s. Specifically, lenders must verify and be able to demonstrate that data collectors are:
- vetted through an annual background check,
- professionally trained, and
- they possess the essential knowledge to competently complete the property data collection
It’s going to be very difficult for a lender to manage this internally. Lenders would need to:
- Recruit a new workforce of property data collectors
- Create a training program
- Create a background check program
- All while managing their existing vendor network & compliance requirements
This means that even for lenders managing a panel directly, there’s a clear need to partner with an organization that can handle this. Reggora supports these products today. If you’re interested in an appraisal modernization program at your organization, please don’t hesitate to contact us.
1004D’s can be done virtually
For your transactions where the vendor is completing a 1004D, the appraiser doesn’t need to go back to the property to verify repairs. As an example, the appraiser could FaceTime the borrower or the broker to confirm the repairs were completed. The appraiser just needs to include one or more “visually verifiable exhibits,” like photos, and link to these exhibits in the form. Please note photos provided by others cannot be the sole source of verification, and the 1004D certification still requires the appraiser to, at a minimum, view the exterior of the property.
While this update was overshadowed by the new valuation product news, it should also help speed up the application process by saving the appraisers time by effectively coordinating the “viewing” of the items called for in the original appraisal to be completed.
Get started with Appraisal Modernization today
There have been quite a few changes in the last year and we’re excited to help the industry take advantage of them. Reggora already supports these products today. Contact us to learn how lenders like you are leveraging them and we’ll help you get on a practical, proven path to appraisal modernization.
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