Freddie Mac is committed to promoting equity and sustainable homeownership. It's part of our mission. As such, we're required to adhere to all fair housing guidelines, which prohibit the consideration of a borrower’s race, color, national origin, religion, sex, familial status or disability when they apply for a residential mortgage loan.

Our efforts toward fulfilling the mission extend throughout our business – including into our risk management activities. To minimize collateral and fair housing risk, we regularly examine appraisal reports to help identify patterns of inconsistency, inaccuracies and/or noncompliance with fair lending guidelines. We also require lenders to ensure appraisal reports don't include certain subjective language in accordance with our Single-Family Seller/Servicer Guide (Guide) requirements.

We're working to help appraisers create more objective appraisals and root out subjective wording so lenders can better meet our Guide requirements. To do so, we'll soon be increasing our appraisal quality management activities to include outreach to appraisers and technology enhancements that can identify the language in appraisal reports and prevent their submission.

Scott Reuter, Single-Family Chief Appraiser, answers some questions about why it's important that appraisers review their current report writing and develop processes to ensure they are as objective – and fact-based – as possible.

Q: There's been a lot of discussion recently about avoiding certain words and phrases in appraisal reports as a best practice. Why is this so important?

A: An appraiser’s opinion of value should be based on facts and objective analyses. The use of certain words and phrases can unintentionally undermine the credibility of an appraisal report.

Much of the problematic language we're seeing in reports is not helpful and is simply not necessary to develop an accurate valuation. For example, it's difficult to determine the meaning of subjective terms like “desirable” or “attractive.” These terms are meaningless to the development of an appraisal report. If there are characteristics, features or area amenities that potential buyers would find of value, appraisers can describe the facts around those elements.

Q: Can you give some real-life examples of how an appraiser can describe and identify certain features of a subject neighborhood?

A: Appraisers should be as objective as possible in their report writing – again, just stick to the facts and avoid subjective descriptions. For example, instead of saying a subject property is “convenient to” or “within walking distance of” a local school, it would be more factual to say: “an elementary school is located .10 mile from the subject.” This gives the reader the facts and eliminates the perception that the appraiser is offering an opinion about convenience or walkability that may not apply to all potential homeowners. Guide Section 5603.4 provides unacceptable appraisal practices and offers some examples of subjective terms. Here are just a few and how they could potentially be handled more objectively:

Subjective Language

Potential Objective Approach

Within walking distance of a school

Cite actual distance

Within an easy drive

Cite actual distance
Desirable neighborhood Provide data on mean selling prices and days on market

 

Q: Any tips or suggestions for appraisers to help them identify issues and correct them?

A: Appraisers should be careful when using information from third-party sources in their reports. If an appraiser imports data, comments or narrative from third-party sources, or copies and pastes online descriptions of neighborhoods, they should carefully review that information. A common example of this is the use of Multiple Listing Service (MLS) listing and sale information, which may include agent comments. Appraisers should carefully review all information from third-party sources before including it in their reports to ensure it doesn’t include unacceptable language.

As a practical step, I suggest appraisers take some time to review language embedded in any templates they may use to help bring efficiency to the report-writing process. If they miss a term that’s saved in one of their templates, it could cause an ongoing problem.

Q: How can lenders help to spot unacceptable language?

A: Lenders that sell loans to Freddie Mac are responsible for ensuring the appraisals they deliver comply with our requirements, including that they don’t use unacceptable language as described in Guide Section 5603.4.

Although we’re screening for the use of these words and phrases and are making efforts to help ensure appraisers are aware of our Guide requirements, Sellers remain responsible for ensuring compliance. Appraisers who continue to exhibit patterns or trends of using unacceptable language will begin receiving direct communication from Freddie Mac, and we ultimately plan to implement system updates to prevent the submission of such reports. We’ll also continue to expand our appraisal quality monitoring when it makes sense to help appraisers more effectively do their work and help our lenders meet our requirements – with the aim of using the most credible, compliant appraisal reports to help inform collateral risk.

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