Appraisers Welcome Decline in GSE Appraisal Waivers

One veteran Denver appraiser, who requested anonymity, couldn't be happier about the sharp drop in appraisal waivers being granted by Fannie Mae and Freddie Mac highlighted in new data from the American Enterprise Institute's Housing Center. "It's music to my ears," the appraiser said. "Waivers may have been efficient for lenders, but they were undercutting the integrity of the home valuation process."

For years, the two mortgage giants allowed certain loans to originate without a traditional in-person appraisal, instead using data-driven models to estimate property values. At their peak in early 2021, appraisal waivers were being granted on nearly 40% of loans purchased by the GSEs, according to data provided by the American Enterprise Institute.

However, the analysis reveals these waivers plummeted to just 12% of loans in December 2023 as Fannie and Freddie applied stricter standards and rolled out new hybrid appraisal offerings like Value Acceptance + Property Data (VA+PD).

"Waivers were a terrible shortcut," argued the appraiser, who has been in the industry for over 20 years. "You can't beat comprehensive eyes-on analysis from an experienced professional who understands unique property characteristics and nuances of location, quality, and condition." They worried the agencies' automated valuation models may have been inaccurate, especially during the pandemic housing boom.

The appraiser welcomes the renewed demand for conventional appraisals due to the waning of waivers. "To be honest, the appraisal industry has suffered lately due to the downturn in mortgage applications," they said. "A lot of experienced appraisers have been without work or left the field entirely within the past two years."

With waivers now accounting for just 12% of GSE loans as of December 2023, the appraiser anticipates their firm could look to restaffing once rates decline. "We've had to let good appraisers go in recent years due to lack of work. But now I think we'll be hiring again to handle the increased volume from more mandatory appraisals."

The appraiser sees the rebounding workload as a positive for the industry's health and workforce after a period of disruption. "With their being less work than typical, appraisers were overly displaced by the waivers. The increased workload from fewer waivers means more job opportunities to bring back experienced appraisers."

The appraisal process isn't perfect and sometimes gets criticized for subjectivity. However, the veteran appraiser believes it remains superior to algorithms when valuing a complex asset like a home. "There's just no good substitute for skilled human judgment."

Even the GSEs' data indicates additional risk controls are being layered on top of their AVMs. Loans receiving waivers generally had lower expected default rates compared to similar loans requiring appraisals within the same LTV tier.

"That tells me the models alone weren't stringent enough to weed out riskier loans," said the appraiser. They see the return to widespread appraisal requirements as a prudent move to protect home buyers, lenders, and the mortgage market in general.

For consumers, it likely means higher upfront fees and longer closing periods if demand for appraisals surges. But the appraiser feels it's a worthwhile trade-off: "Overvaluing properties and putting people in homes they can't afford benefits nobody in the long run."

While appraisal waivers were pitched as a time and cost-saving innovation, their erosion suggests real estate fundamentals and quality control still require professional human expertise that AI models can't fully replace.