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FHFA extends relaxed appraisal, lending standards

The Federal Housing Finance Agency (FHFA) announced on Thursday that it has again extended relaxed lending and appraisal standards for both Fannie Mae and Freddie Mac.


The COVID-19-related flexibilities surrounding alternative verifications of employment and appraisals were originally set to expire on March 31, 2021. However, the government agency is now pushing that back to at least April 30, 2021.

According to the FHFA, the extended flexibilities include:

  • Alternative appraisals on purchase and rate term refinance loans;

  • Alternative methods for documenting income and verifying employment before loan closing; and

  • Expanding the use of power of attorney to assist with loan closings.

At the onset of the pandemic in March, the FHFA began directing both the GSE’s to ease their standards for property appraisals and verification of employment given the “extraordinary circumstances.”


Fannie Mae noted at the time that many lenders were unable to obtain an appraisal based on a full interior and exterior inspection of the subject property as the virus continued to spread.


In turn, the FHFA instructed the GSEs to begin using both drive-by appraisals and desktop appraisals in certain circumstances to ensure that the mortgage process was not held up due to appraisal issues.


In a statement issued on Feb. 19, the Appraisal Foundation’s Appraisal Standards Board Chair Wayne Miller said “pressing issues” have arisen in appraisals over the past year, ranging from concerns about fair housing matters to how to conduct a socially distanced property inspection in the midst of COVID-19.


Those alternative appraisals may become long-term solutions. The FHFA released a Request for Input (RFI) that highlighted the benefits and problems with hybrid appraisals. They updated the Uniform Appraisal Dataset (UAD) and approved an increased use of appraisal waivers. As a result of their initial push in March, the Urban Institute reported a 14% increase overall in appraisal waivers, which led to an increase in refinance activity.


Hybrid appraisals have been cited by some as a less biased option in the appraisal space, which has grappled with accusations of racial bias.


Beyond that, the FHFA noted that employment verification was becoming increasingly more difficult as many businesses had either shut down entirely or were running with limited crews. To that end, the GSEs will accept alternative forms of employment verification, including a recent paystub, to ensure lending can continue.


Specifically, the FHFA states that “in the event lenders cannot obtain verbal verification of the borrower’s employment before loan closing, the Enterprises will allow lenders to obtain verification via an e-mail from the employer, a recent year-to-date paystub from the borrower, or a bank statement showing a recent payroll deposit.”


The FHFA said it will continue to monitor the coronavirus situation and update policies as needed, though much of it will depend on the dispersing of an effective vaccine. As of March 11, the CDC reported close to 95.7 million vaccines have been administered.


By Alex Roha

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