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A home appraiser willing to enter a stranger’s house during the coronavirus pandemic has become a rare commodity in Massachusetts.
COVID-19 fears among appraisers and homeowners are threatening to partially derail a surge in refinancings in Massachusetts at a time when many residents may be looking for ways to save.
At issue are secondary mortgage market standards set by Fannie Mae and Freddie Mac that require appraisers to tour the inside of homes being refinanced. Both GSEs issued temporary guidelines in March that allow purchase mortgages to be transacted and then sold on the secondary market without an in-person appraisal. Those same guidelines do not give the same lenience to refis.
“My appraisers would call me up, day after day, saying ‘I don’t feel comfortable going into a property anymore,’” said Rich Goulet, president of Belmont-based The Appraisers Group. “Who can blame them?”
Many of Goulet’s staff were afraid they might unknowingly contract the virus or spread it as they visited homes throughout the day, he said. And with masks, gloves and other personal protective equipment in infamously short supply, appraisers were largely unable to get their own safety gear.
“The last couple of days, I haven’t had anyone in my office, other than me, who was willing to do interior inspections,” he said in an April 3 interview.
No Relief for Refis
As the coronavirus bore down on the American economy, the Federal Reserve cut its benchmark interest rate to between 1 and 1.25 percent on March 3, setting off a chain reaction that sent the average interest rate on a 30-year, fixed-rate mortgage to 3.29 percent, the lowest it had ever been since Freddie Mac began tracking that figure in 1971.
Homeowners across Massachusetts and America flooded lenders with refi applications in response. The Mortgage Bankers Association’s national survey showed refi applications were up 479 percent year-over-year for the week ending March 11, 402 percent for the following week and 195 percent for the week after that. In total, Massachusetts lenders originated 31,043 non-purchase mortgages in March, 92 percent more than March 2019 and 59 percent more than March 2018, according to The Warren Group, publisher of Banker & Tradesman.
Just as lenders started to move these applications through their pipeline, however, Fannie Mae issued new requirements March 23 and updated again March 31, Goulet said, “turned the entire mortgage industry upside-down.”
Tucked into a letter that confirmed the institution would still buy purchase mortgages if a home was only given an exterior appraisal or an appraisal that relied on public data sources like town property records, called a “desktop appraisal,” was a notification Fannie would not be extending the same flexibility to any cash-out refinances or any regular refis being sold on the secondary market that Fannie didn’t already own.
“There was absolutely no concern for the health and safety of the appraisers,” said Goulet, a past president of the Massachusetts Board of Real Estate Appraisers.
Fannie Mae referred questions to its overseer, the Federal Housing Administration, which did not respond to requests for comment as of Banker & Tradesman’s deadline.
Industry standards set by Fannie Mae are congesting local lenders’ pipelines of loan refinancings at a time when they face pressure from competing crises. Photo courtesy of Fannie Mae
30 Percent Fallout Rate
The move, many familiar with the mortgage market say, means that most refi loans still require an appraiser to go into the home in question. A letter from the Massachusetts Mortgage Bankers Association to the Federal Housing Finance Agency on April 9 estimated the situation impacts up to 80 percent of loans in local lenders’ pipelines.
“We are very disappointed and it’s causing a lot of issue along with everything else going on,” said Cape Cod Five Senior Vice President and Chief Residential and Consumer Lending Officer David Brennan.
With so few appraisers now wiling to go into homes, Brenan said, Cape Cod Five expects to need up to 60 days to work through its current pipeline of refis. That puts pressure on staff, he said, who are already stretched trying comply with more stringent income verification guidelines for all mortgages, trying to stand up the Small Business Administration’s emergency Paycheck Protection Program loans and helping current borrowers seeking loan modifications because they have lost jobs or seen income drop dramatically.
Worse, he said, the bank could see up to 20 percent or 30 percent of the refi customers in its pipeline quit.
“We’re trying to reach out to customers in the pipeline so they understand the additional roadblocks and hurdles to their loan,” Brennan said. “We’re just sitting here thinking ‘This is a person we could economically help out at a time where they could use it.’”
Tech Solutions Meet Resistance
With other parts of the real estate industry rapidly adopting technologies that allow work to continue at a time of social distancing, Fannie Mae’s reluctance to embrace similar measures on an emergency basis frustrates both Goulet and Brennan.
Sophisticated, commercially available software exists that can walk a refi customer through the process of filming or photographing their home’s interior while logging their exact position to prevent fraud, Goulet said, citing Appraisal Firewall’s Verisite product as an example.
“The chances of that guy, while we’re [standing outside], running out the door to his neighbor’s house to take pictures of the $50,000 kitchen he just built are slim to none,” he said.
Fannie Mae and Freddie Mac have both rejected any technological solution, Goulet and others said.
With hundreds of thousands of loans worth hundreds of thousands of dollars each at stake, however, few are holding out hope either GSE will budge on its underwriting rules when a home’s value isn’t being set by an independent buyer and seller.
“I guess what I’m struggling with is, what is the alternative,” said Leader Bank Senior Vice President Jay Tuli. “To expect the buyer to take out a loan where the buyer is going to take $200,000 out of a property and have Fannie buy that [loan] without an appraiser going in and seeing the quality of the kitchen?”
