Appraisal Alternatives


Fannie Mae and Freddie Mac (Conventional loans) and HUD (FHA loans) will allow Exterior Drive-By Appraisals and Desktop Appraisals.  During this COVID-19 national emergency, in many cases, lenders are unable to obtain an appraisal based on a full interior and exterior inspection of the subject property. In response, they are allowing temporary flexibilities to the appraisal requirements.

Citing the extraordinary circumstances that the country is facing with the ongoing spread of the coronavirus, the Federal Housing Finance Agency announced Monday that it is directing Fannie Mae and Freddie Mac to ease their standards for both property appraisals and verification of employment.

The moves are part of a growing effort to “facilitate liquidity in the mortgage market during the coronavirus national emergency,” the FHFA said in an announcement.

According to the FHFA, Fannie Mae and Freddie Mac will use “appraisal alternatives to reduce the need for appraisers to inspect the interior of a home for eligible mortgages.” The issue of appraisers needing to inspect homes as part of the mortgage process has been a mounting concern as the virus has continued to spread throughout the nation.

Considering that new research shows that the virus can live for “several hours to days in aerosols and on surfaces,” appraisers entering homes to inspect may lead to increased spread of the virus. Beyond that, cities and even entire states are going into lockdowns, thereby prohibiting appraisers from traveling to houses to inspect them.

As a result, the FHFA has directed the GSEs to begin using both drive-by appraisals and desktop appraisals in certain circumstances to ensure that the mortgage process is not held up due to appraisal issues. “Effective immediately, we are allowing temporary flexibilities to our appraisal inspection and reporting requirements,” Fannie Mae said in an announcement sent to lenders Monday morning.

“We will accept an alternative to the traditional appraisal required under Selling Guide Chapter B4-1, Appraisal Requirements, when an interior inspection is not feasible because of COVID-19 concerns,” Fannie Mae continued. “We will allow either a desktop appraisal or an exterior-only inspection appraisal in lieu of the interior and exterior inspection appraisal (i.e., traditional appraisal).”

It should be noted that the change to the GSEs’ appraisal policies mostly affects purchase mortgages. For a more detailed breakdown of the policies, click here.

According to the bulletin, the preferred appraisal method is still the traditional appraisal. If that is not available, the GSEs prefer a desktop appraisal, where the appraiser doesn’t inspect the property or comparable sales. Instead, the appraiser relies on public records, multiple listing service information, and other third-party data sources to identify the property characteristics.

If a traditional or desktop appraisal is unable to be performed, an exterior-only inspection is allowed in certain circumstances. In all cases, the use of appraisal alternatives is available only on certain loans. See the graphic below for details on what loans are eligible for an appraisal alternative.

( Article March 23, 2020, 11:54 am By Ben Lane)