The Department of Veterans Affairs allows desktop appraisals when borrowers put 20 percent down, but nearly 90 percent of VA-backed loans are made to homebuyers who put nothing down.

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Homebuyers seeking mortgages backed by the Department of Veterans Affairs could soon find that the approval process is less of a hassle, as legislation that would require the VA to update its appraisal requirements makes its way through Congress.

HR 7735, the Improving Access to the VA Home Loan Benefit Act of 2022, was one of eight noncontroversial bills passed by the U.S. House of Representatives Wednesday in a single resolution.

Like a companion bill introduced in the Senate in May, SB 4208, HR 7735 would require the VA to “update regulations, requirements, and guidance related to appraisals” for VA loans and provide lenders with more guidance on when they can submit desktop appraisals that don’t require an appraiser to visit a property in person.

Bob Broeksmit

“The bill will encourage important reforms to the agency’s requirements regarding when an appraisal is necessary, how appraisals are conducted, and who is eligible to conduct an appraisal,” Mortgage Bankers Association President Bob Broeksmit said in a statement, lauding House passage of HR 7735. “This legislation is an important first step towards broad modernization of VA appraisal processes and could make veterans’ home purchase offers more viable in today’s competitive housing market.”

Rising interest rates have made government-backed FHA, VA and USDA loans popular with homebuyers who have little money saved up for a down payment.

VA loans, which are available to active duty service members, veterans and their survivors, accounted for nearly 12 percent of purchase loan applications during the week ending Sept. 9 and 11 percent of purchase loan requests by dollar volume, according to the MBA’s latest lender survey. That’s a slightly bigger market share than FHA loans, which accounted for 11.4 percent of purchase loan applications and 7.5 percent of purchase loan requests by dollar volume.

The Department of Veterans Affairs recently took some steps to clarify when an appraisal is required for VA-guaranteed loans and when it will accept alternative valuation methods, such as desktop appraisals.

In a July 27 lender bulletin, the VA said it would accept desktop appraisals when homebuyers are putting at least 20 percent down. But nearly 90 percent of VA-backed loans are made to homebuyers who put nothing down.

To keep the traditional appraisal process from jamming up the system, the VA said it will also accept desktop appraisals if a purchase transaction remains unassigned in its system for more than 7 business days.

Although the VA waives appraisals altogether for homeowners who refinance their mortgages to get lower interest rates, a traditional appraisal is still required when homeowners apply for cash-out refinancing.

MBA Vice Chairman Mark Jones, who is also the CEO of Amerifirst Home Mortgage, a VA lender, testified on behalf of the MBA in support of HR 7735 at a May 18 hearing conducted by the House Veterans Affairs Subcommittee on Economic Opportunity.

Jones said passage of HR 7735 would prompt the VA to clarify when appraisals are necessary, spell out how they’re conducted and review who is eligible to conduct appraisals. The legislation would also require the VA to “address several additional key areas for improvement including when minimum property requirements, property waivers and increased use of technology and hybrid appraisals should be permitted,” he said.

Mark A. Jones

“Lenders, appraisers, sellers, Realtors, and most importantly, VA buyers will all benefit this common sense legislation that can help make housing markets more accessible and affordable to servicemembers,” Jones said. “As consideration of HR 7735 progresses, the MBA urges the members of this subcommittee to go further and consider directing the VA to not only modernize and streamline its current processes, but also align them with those of the FHA and the housing government-sponsored enterprises Fannie Mae and Freddie Mac to the greatest extent possible.”

Fannie and Freddie’s federal regulator, the Federal Housing Finance Agency (FHFA), started allowing desktop appraisals to be used for purchase loans as an emergency measure at the outset of the pandemic when in-person home inspections were considered a health risk. Previously used mostly for home equity loans and by loan servicers and investors, desktop appraisals rely primarily on tax records and data from multiple listing services (MLSs).

After reviewing data collected on the performance of loans approved through desktop appraisal, FHFA announced in October that it would allow Fannie and Freddie to expand the use of desktop appraisals for purchase loans.

Some Department of Housing and Urban Development officials view desktop appraisals as a potential tool for addressing racial bias in the appraisal process.

“Desktop appraisals allow an appraiser to conduct an appraisal remotely, without a physical inspection of the property, which could limit the potential for racial or ethnic bias to impact the valuation,” HUD said in a March report outlining steps being taken to address appraisal bias. “FHFA’s decision was the result of a thorough review of data collected from use of the loan flexibilities, as well as input received from its [request for information] and a public listening session on appraisal-related policies, practices, and processes.”

At the outset of the pandemic, HUD allowed desktop appraisals for most FHA purchase loans, but rescinded the policy in October 2020, saying the option to conduct exterior appraisals made desktop-only appraisals unnecessary for limiting face-to-face contact.

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Email Matt Carter

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