Q&A: New Date for Unacceptable Appraisal Practices Fatal Messages
In June, we added new feedback messages to Loan Collateral Advisor® to alert users when an appraisal report submitted to the Uniform Collateral Data Portal® (UCDP®) contains subjective and/or potentially biased words or phrases. These messages are an important aid in rooting out this language from appraisal reports.
Currently, all feedback messages have a Warning severity. We’ve seen great results since the implementation of the Warning messages and the instances of the words and phrases that are triggering these messages are declining. We’re continuing to analyze the results. To provide more time for this analysis and to allow the positive momentum to continue, we’re moving the date on which the messages for certain words and phrases will transition from Warning to Fatal. The new date is January 26, 2024. At that time, any appraisal report that receives a Fatal message cannot be successfully submitted to UCDP.
We want to answer questions we’ve received since our original announcement and help alleviate concerns about the implementation of Fatal messages.
Q: Why are you implementing these feedback messages?
A: Feedback messages are an important aid in rooting out subjective and/or discriminatory language from appraisal reports, and thus offer an opportunity to promote a more equitable process. Feedback messages can identify language that may be discriminatory or unnecessary for the development of an opinion of value and/or could undermine the credibility of the appraisal report. These feedback messages are intended to assist lenders in their compliance with the requirements contained in Single-Family Seller/Servicer Guide (Guide) Section 5603.4.
Q: What kinds of words and phrases will trigger these messages?
A: Feedback messages will be delivered for commonly used prohibited, subjective or potentially biased words or phrases. We have identified three categories of concern: words that are subjective in nature; words where the context matters and should be used with caution; and words that should be avoided altogether because they’re unnecessary and/or potentially biased.
Here are some examples:
| Category | Example |
|---|---|
| Potentially biased or discriminatory |
|
| Context matters |
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| Subjective words/phrases |
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Q: Will all the words and phrases covered by Warning message FRE 4610 convert to Fatal on January 26, 2024?
A: We continue to evaluate the words and phrases that are triggering Warning messages and are looking at similar words and phrases to determine which ones will transition to triggering the Fatal message. We anticipate that some may not transition to Fatal.
Certain words and phrases are unacceptable, while for others, the context matters. For example, if “Polish” is used to refer to someone’s nation of origin or to describe the make-up of a neighborhood’s population, it’s unnecessary to an appraisal report and could reflect bias; however, if “polish” is used to note that hardwood floors look new and have a nice polish, it could be relevant.
Remember, the goal is to promote a more equitable process and institute feedback messaging that helps lenders in their compliance with Guide requirements. We’ll continue to evaluate the results of the Warning messages in a way that results in as few Fatal messages as reasonably possible.
Q: What do I do if I get an unacceptable appraisal practices Fatal message on or after January 26, 2024?
A: An unacceptable appraisal practices Fatal message is no different than any other Fatal message issued by Loan Collateral Advisor (or in UCDP, with which feedback messages are shared). The feedback message will identify the specific word or phrase in the appraisal report that is unacceptable, which will enable lenders to go back to the appraiser or appraisal management company and work with them to correct the appraisal report. It’s a great opportunity for the appraiser to be made aware of words or phrases in their reports that trigger concerns so they can improve their processes and templates. Once the correction is made, the appraisal report can be resubmitted to UCDP.
Q. What happens if the appraiser cites an unacceptable word or phrase in commentary related to a request to revise the report?
Since the unacceptable word or phrase is still found within the appraisal report, upon resubmission to Loan Collateral Advisor, the applicable rule would fire again. The appraiser should not use the word again when making a comment about the revision. The appraiser may keep record of the change in the work file.
Q: Can you provide practical examples of how to fix the words/phrases covered by the feedback messages?
A: Many feedback messages can be avoided by resisting the urge to copy/paste information from other resources (i.e., websites, old appraisal reports, etc.). Additionally, stick to the facts and avoid providing subjective or unnecessary commentary. Here are some examples based on the categories mentioned above:
| Category | Don't Use... | Maybe Use Instead... |
|---|---|---|
| Avoid Altogether | Offering information about an area’s population demographics | Provide property mix in area, linkages, median price and/or median days on market. |
| Gentrification | Discuss evidence of renovated homes in relevant market | |
| Diverse community | Discuss property mix rather than neighborhood inhabitants | |
| Subjective Words | Desirable/undesirable neighborhood/location | Provide data on mean selling prices and days on market |
| Quality neighborhood/location | Provide data on mean selling prices and days on market | |
| Within walking distance of a school | Cite actual distance |
Q: Is Freddie Mac doing anything to help appraisers submit fewer reports that result in feedback messages?
A: At industry events and through messaging on our website and social media, we’re getting the message out to appraisers about the importance of objective appraisal reports in creating a more equitable mortgage process. This includes making appraisers aware of the Guide requirements with which lenders must comply and by offering best practices and practical examples of how appraisers can improve their processes and templates.
Additionally, as part of our ongoing appraisal quality monitoring, when we identify an appraiser who exhibits patterns or trends of using unacceptable words or phrases, we plan to communicate directly with the appraiser to alert them.
We all play a role in creating a more equitable process. We’ll continue to work to institute policy and technology that advances this goal and help lenders and other industry stakeholders.