Coronavirus is changing home appraisals — and some borrowers don’t need them at all

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The appraisal, that staple of the mortgage process, is changing fast during the coronavirus pandemic.

In rare instances, appraisers are donning haz-mat suits to walk through pricey properties. In some cases, homeowners are connecting by Zoom or FaceTime to give tours to appraisers who no longer are walking through homes.

And for an increasing number of borrowers, mortgage giants Fannie Mae and Freddie Mac are skipping appraisals altogether. While the big mortgage enterprises, which back most home loans in the U.S., don’t spell out exactly who qualifies, the agencies in recent weeks have quietly expanded appraisal waivers. The free pass seems to be reserved for properties with lower loan-to-value ratios and no other red flags.

Richard Pisnoy, a co-founder and principal at Silver Fin Capital, a mortgage broker in Great Neck, New York, has seen a marked increase in mortgage waivers since the coronavirus began spreading. In the past, perhaps only 10 percent of borrowers qualified for appraisal waivers. Now, Pisnoy estimates, about a third of borrowers are allowed to skip the pre-closing valuation.

“The waivers are really a nice thing,” Pisnoy says.

Who qualifies for an appraisal waiver?

If there’s no appraisal, the borrower doesn’t have to pay the appraisal fee. The amount varies, but $450 to $600 is the typical cost of an appraisal. What’s more, the borrower need not schedule an appraisal, or worry about the possibility that the estimated value of the home comes in too low.

“I don’t think homeowners are going to be unhappy about it,” says Guy Cecala, publisher of Inside Mortgage Finance. “The appraisal industry is not wild about it, because it’s a reduction in business.”

Mortgage experts say there seems to be no hard-and-fast rule about who qualifies for an appraisal waiver — or at least no clear guidelines that Fannie Mae and Freddie Mac reveal publicly.

While credit scores and borrower’s assets might be a factor, loan-to-value (LTV) ratio seems to be the most important variable. Pisnoy says he sometimes urges borrowers to reduce the size of the loan by a few thousand dollars, with the goal of reducing the LTV ratio and therefore qualifying for an appraisal waiver.

Homeowners borrowing less than 70 percent of a property’s value — $280,000 on a house worth $400,000, for instance — have the best chance of scoring a free pass, Cecala says: “That’s kind of the universal threshold for a lender feeling very comfortable with a property.”

Properties that are more difficult to value — such as older homes and those in mixed-use neighborhoods — typically don’t get appraisal waivers, says Rocke Andrews, owner of Lending Arizona in Tucson and president of the National Association of Mortgage Brokers.

“It also depends on whether the property is in their database and how consistent it is with the other houses in the neighborhood,” Andrews says.

Spokesmen from Fannie Mae and Freddie Mac and their regulator, the Federal Housing Finance Agency, declined to say whether the mortgage giants had expanded the availability of appraisal waivers.

In another coronavirus change, pandemic-inspired rules let lenders release mortgage funds before an appraisal is completed.

Fewer in-person home tours

For mortgages that still require appraisals, the process is changing, and sometimes dramatically so. Pisnoy says one of his clients was refinancing a jumbo loan in the Hamptons, and the lender insisted on an in-person appraisal. The borrower, a deep-pocketed financier who feared getting sick, made his own demand: The appraiser needed to wear a full protective suit. The appraiser agreed, and the deal went through, Pisnoy says.

With social distancing the rule, appraisers are sticking with exterior appraisals or even “desktop” valuations that don’t require a visit to the property. Wells Fargo, for instance, says it has stopped ordering interior appraisals for all properties save newly built homes that have never been occupied.

“We took the step to basically do exterior-only, drive-by appraisals. For the most part, it’s an appraiser doing a full evaluation but not going in the home,” Michael DeVito, executive vice president at Wells Fargo Home Lending, told real estate coach Brian Buffini in an April interview posted on Buffini’s website.

Pennsylvania and Vermont have barred appraisers from going inside houses, says Bill Garber, director of government and external relations at the Appraisal Institute, a trade association. In some cases, Garber says, homeowners are firing up Zoom to give appraisers virtual tours of their homes.

“The more information, the better as an appraiser,” Garber says. “If you can’t see something but you’re being asked to value it, it creates a bit of a conundrum.”

While a video walk-through isn’t the same as an in-person visit, it can give some peace of mind to appraisers who worry that optimistic valuations might lead to legal issues down the road.

“There’s a difference between believing something is correct and knowing something is correct,” Garber says. “If you’re going to sign your name to this thing, you’re going to have spend more time on research.”

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