Written By: Joel Palmer, Op-Ed Writer
Freddie Mac is making condominium purchases and refinances available for an automated appraisal waiver, joining fellow GSE Fannie Mae, which started the practice more than a year ago.
Freddie Mac made the announcement last week. Its automated collateral evaluation (ACE) will accept eligible condo loans beginning Monday, July 16.
David Lowman, executive vice president of Freddie Mac’s Single-Family business, said the move is the result of increasing interest in condo loans, especially among first-time homebuyers.
“ACE for condos will help increase the efficiency of the mortgage origination process, offer greater certainty and help save our clients, and their customers, time and money.” said Lowman.“We’re consistently innovating and improving our Loan Advisor Suite to meet the needs of our lenders, today’s borrower and the borrower of the future.”
Freddie and Fannie introduced automated appraisal systems in late 2016. What started as a way to expedite the appraisal process on refinances was quickly updated last year to include new home purchases.
Freddie Mac’s automated collateral evaluation (ACE) assesses the need for a traditional appraisal by leveraging proprietary models and using data from multiple listing services and public records as well as historical home values to determine collateral risks.
Lenders must submit loan data through Loan Product Advisor to determine if a property is eligible for ACE. Freddie said that lenders receive real-time risk assessment feedback and information about the loans.
Fannie Mae’s property inspection waiver (PIW) is an offer to waive the appraisal for eligible transactions. PIW offers are issued through Desktop Underwriter using Fannie Mae’s database of more than 26 million appraisal reports in combination with proprietary analytics from its Collateral Underwriter program.
Whereas Fannie allowed eligible condo loans on PIW from its outset, Freddie did not on ACE.
Despite Freddie’s assertion that condo loans are gaining in popularity, they continue to be among the least purchased properties. Roughly 1 percent of all purchases in 2017 were condominiums, according to the National Association of Realtors. They tend to be most popular with older buyers, with 14 percent of homebuyers over 50 purchases opting for condos.
As with all properties submitted through ACE, mortgage processors and underwriters must submit condo loan data through Loan Product Advisor, Freddie’s automated underwriting system.
According to Freddie Mac’s announcement, "If ACE determines that the estimated value or purchase price of the home provided by the lender is acceptable, the lender may receive immediate representation and warranty relief related to the value, condition and marketability of the property upon delivery of the loan to Freddie Mac. However, lenders and borrowers always have the choice to either proceed with an ACE appraisal waiver or obtain a traditional appraisal.”
The announcement comes on the heels of several changes in the use of alternative valuation products. One was a recent report that Fannie Mae will be testing hybrid appraisals, which stated that the GSE will be asking appraisers during a pilot project to use a combination of local market data and a home inspection report to determine a property’s value during mortgage underwriting and processing.
Also, the recently passed Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155), contained a provision that waives the requirement for appraisals in defined rural areas under certain circumstances.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.