In today’s mortgage landscape, appraisals are a critical component of the loan origination process. To stay competitive, lenders need to adopt a comprehensive approach to collateral management that reduces risk and provides value to their customers and partners in the mortgage ecosystem. Scot Rose from Class Valuation explores current trends and offers strategies to help lenders thrive in 2025.
The current state of appraisal waivers
Since Fannie Mae’s introduction of appraisal waivers in December 2016 and Freddie Mac’s in June 2017, appraisal waivers—formerly known as Property Inspection Waivers (PIWs)—have become standard in the industry. The process is straightforward: when a lender submits a loan to the GSE’s automated underwriting systems (AUS), either Fannie Mae’s Desktop Underwriter (DU) or Freddie Mac’s Loan Product Advisor (LPA), the submitted property’s estimated value or sales price is automatically considered as the basis for an appraisal waiver. If granted, the waiver provides collateral representation and warranty relief, reducing downstream lender risk and eliminating the need for a traditional appraisal.
Industry research highlights significant benefits to stakeholders: appraisal waivers not only deliver relief from collateral risk but also speed up loan closures by 7-10 days and save borrowers $500-$700 in fees. Over 9.1 million loans have been closed with appraisal waivers since 2017, saving consumers over $4 billion.1
Despite these advantages, some borrowers still request traditional appraisals, even when a waiver is offered. In those cases, the process can lead to outcome uncertainties and delays. Turn times for traditional appraisals average 5-6 days, and instances of potential value discrepancies are becoming more frequent. For example, if Fannie Mae’s Collateral Underwriter (CU) gives a score higher than 2.5, the loan loses collateral representation and warranty relief directly impacting the lender’s risk. Clarifications, revisions, or reconsideration requests from borrowers can also extend this process, delaying the loan closing significantly.
As the benefits of appraisal waivers are increasingly recognized, they have seen near-complete adoption in the agency market. As of October 2024, 97.9% of GSE direct sellers (1,826 out of 1,865) have delivered loans with appraisal waivers. These waivers are even gaining acceptance in the private-label securities market for non-agency residential mortgage-backed securities (RMBS).2
The introduction of property data-based appraisal waivers and UPD
A recent evolution in the appraisal waiver space is the introduction of property data-based appraisal waivers. Freddie Mac launched ACE+ PDR2 on July 17, 2022, while Fannie Mae introduced Value Acceptance plus Property Data3 on April 15, 2023.
Property data-based appraisal waivers work similarly to standard waivers, providing collateral representation and warranty relief. However, they require an additional step: the completion of a Universal Property Data (UPD) report, which is submitted to the GSEs by the property data collection vendor.
The UPD is an interior and exterior property data collection conducted by a trained professional, recording 120 standardized property attributes, 40-60 photographs, and generation of an ANSI-compliant floor plan. Some vendors also include a 3D virtual tour. These data collections provide GSEs with reliable property information that supports risk management at scale.
Since 2022, over 60,0004 loans have been delivered using property data-based appraisal waivers. When included in earlier pilot programs, over 300,000 property data collections have been completed nationwide5. With UPDs typically ranging $350-$400 less than a traditional appraisal and completed within 2-3 days, they offer both speed and cost savings to consumers.
Despite a slower start compared to standard appraisal waivers, UPD-based waivers are gaining momentum. As of October 2024, 32% of GSE direct sellers (589 out of 1,865)4 have delivered loans with property data-based waivers. Tech-forward lenders who prioritize automation and innovation have been the early adopters, and the ones benefiting from these efficiencies and additional risk mitigation.2
Best practices for adopting UPD-based appraisal waivers
To successfully implement UPD-based appraisal waivers, lenders should follow these best practices:
- Executive management sponsorship – Ensure buy-in from leadership, emphasizing the strategic value of these programs.
- Lender-wide policy – Establish a company-wide policy to accept property data-based waiver offers whenever available.
- Comprehensive communication plan – Educate and promote the benefits of the program to loan officers, mortgage brokers, real estate agents, and other key stakeholders.
- Dual AUS strategy – Use both Fannie Mae’s and Freddie Mac’s AUS to maximize opportunities for UPD-based waivers.
- Automation in LOS/AMS – Enable your Loan Origination System (LOS) or Appraisal Management System (AMS) to automatically accept UPD based – appraisal waivers.
- Vendor selection – Partner with vendors who can manage the UPD mobile application, technology, GSE integrations, and scaled property data collection networks.
- Prioritize 3D tours – Use vendors offering 3D virtual tours to improve UPD quality, benefiting appraisers, underwriters, and reviewers.
The future of UPD and hybrid appraisals
UPD is central to the future of appraisal modernization. It enables consistent, standardized, reliable collection of property characteristics such as images, data, floor plans, and gross living area (GLA), providing a robust foundation for risk management and large-scale analysis by GSEs.
The next phase of appraisal modernization is hybrid appraisals, anticipated to be incorporated into the GSE selling guides as early as mid 2025. Hybrid appraisals combine a UPD with an appraiser’s professional valuation. The process starts with a UPD collection, which is then submitted to the GSEs and provided to an appraiser to complete the hybrid appraisal. Like property data-based appraisal waivers, these appraisals are understood to be accepted by both GSEs.
The potential for hybrid appraisals to be utilized more broadly significantly expands the opportunity to reduce friction in the appraisal process, expand capacity and anchor the highest and best use of the appraiser – being their distinctive ability to analyze data and render an opinion of value. UPDs will become a standard part of appraisals, further modernizing the appraisal process.
Hybrid appraisals are not new or unique. They have been utilized for varying needs for many years and have been extensively tested in GSE pilot programs since 2017, with over 200,000 completed to date.5 These appraisals show similar delinquency rates to traditional appraisals indicating no new inherent risk but offer faster processing times, reduced costs, and improved capacity—key benefits as the appraiser workforce continues to shrink. Furthermore, the enhanced dataset captured with UPD gives more transparency and greater insight into the property’s characteristics and the separation provides an additional degree of independence and objectivity by the appraiser.
UPDs and hybrid appraisals are poised to become the standard, reshaping how lenders manage collateral risk and meet consumer demands in the years to come.
References
- An Overview of Enterprise Appraisal Waivers
- https://www.fhfaoig.gov/Content/Files/WPR-2018-006.pdf
- Freddie Mac ACE+ PDR FAQ
- https://sf.freddiemac.com/faqs/ace-pdr-faq
- Fannie Mae Value Acceptance + Property Data
- https://singlefamily.fanniemae.com/media/33581/display
- Recursion and MtgeFi
- Advancing Collateral Valuation: A Data-Driven Approach with Standardized Property Data Collection
- https://www.fanniemae.com/research-and-insights/perspectives/advancing-collateral-valuation
