FHFA announces updates to appraisal, repurchase rules

The Federal Housing Finance Agency is updating rules governing appraisals to expand waiver access to more buyers. 

Citing success it had seen in current initiatives, the agency said it would change rules governing purchase loans insured by government-sponsored enterprises Fannie Mae and Freddie Mac. Maximum loan-to-value ratio eligible for full appraisal waivers will grow from 80% to 90%. For inspection-based waivers, LTV ratio increases from 80% to 97%. 

“This update represents a sensible step forward in the enterprises’ efforts to promote efficiencies in loan cycle times and cost savings in the broader mortgage market,” said FHFA deputy director Naa Awaa Tagoe at the Mortgage Bankers Association’s annual conference in Denver on Monday. 

The FHFA underscored that the rule change also came with appropriate risk management controls.

“To be clear, the expanded eligibility of appraisal waivers does not constitute an expanded credit box, but rather will allow more first-time homebuyers, and particularly low- and moderate-income first-time homebuyers, to recognize the benefits associated with appraisal waivers,” Tagoe continued.

Also set to receive an update is the uniform appraisal dataset, which will include information collected from Federal Housing Administration-backed loans. Previously, FHFA had only used appraisal data that had been submitted to Fannie Mae and Freddie Mac.

“Accurate home valuations are vital to all segments of the housing market, so this is both a fair lending and a safety and soundness issue,” Nagoe said. 

The appraisal updates came on a day when policy developments aimed at helping lenders address expenses took the spotlight at the conference. Elsewhere in her prepared remarks Nagoe announced that a pilot program introduced by Freddie Mac that offers a fee-based penalty in lieu of mandatory repurchases of defective loans would be opened up to include all approved lenders. Positive feedback from participating businesses led to the decision to expand the pilot, which Freddie Mac announced in late 2023.

Under the program, lenders have the opportunity to opt into fee-based alternatives each year. Businesses choosing not to enroll in a year-round program will still be able to select a fee-only penalty charged to a defective loan when they appear, rather than incur a full repurchase. 

“The broader availability of this fee-based repurchase alternative will allow Freddie Mac to better incentivize high-quality underwriting and ensure appropriate remedies for performing loans with defects,” she said. 

In other news from the conference, the surging costs of homeowners insurance will continue to  be a hot-button issue for advocacy following Hurricanes Helene and Milton. New MBA chair Laura Escobar said insurance concerns would be among her focuses during her tenure in an earlier speech on Monday, while acting director of the U.S. Department of Housing and Urban Development, Adrianne Todman also brought up the subject.

“I know the HUD team has already looked at ways that we can review our insurance requirements to make sure that we are doing the very best to meet what people’s needs are and what they can afford,” Todman said in noting the frequency she receives questions about rising costs. 

“We’re trying to find ways to make sure that our operating costs and the operating subsidies that we provide are adapting to increased house insurance premiums.”