Automated Collateral Evaluation (ACE) FAQ
What is automated collateral evaluation (ACE)?
Loan Product Advisor® (LPASM) ACE leverages proprietary models, historical data and public records to allow lenders to underwrite certain loans without an appraisal. When ACE is offered and accepted by the lender, the lender is relieved of the representations and warranties related to the value, condition and marketability of the mortgaged premises.
It’s important to note that when LPA offers ACE, Freddie Mac has not performed a property review or obtained a valuation of the mortgaged premises and the lender must not make any representations that Freddie Mac has performed a property review or obtained a valuation of the mortgaged premises.
How does ACE work?
The lender submits the loan to LPA, specifying the estimated property value (refinance transaction) or the sales contract price (purchase transaction) for the mortgaged premises. The ACE algorithms determine the acceptability of the value (or sales price) as the basis for the lender underwriting the loan and uses available data to assess the condition and marketability risks associated with the property. If the analysis determines the risk is acceptable, the LPA Feedback Certificate indicates the loan is eligible for collateral rep and warranty relief with ACE and the lender can originate the loan without a traditional appraisal.
Do I have to register to be eligible for ACE?
No. Eligibility will be assessed for all loans submitted through Loan Product Advisor.
Is there a fee for ACE?
No. There is no fee for ACE.
When submitting a loan to LPA , how do I specify the estimated value or sales price of the property for determination of ACE eligibility?
You should input the estimated value in the estimated property value field (refinance transaction) or the purchase price in the sales contract price field (purchase transaction). These fields should not be confused with the appraised property value field, which should be used when an appraisal has been obtained. Once an appraisal is obtained, the loan is no longer eligible for ACE.
If our loan origination system (LOS) automatically populates the appraised value field (even in instances when there is not an appraisal) does this prevent the loan from being eligible for ACE?
No. LPA will still assess the loan for ACE. However, if an appraisal is obtained by the originating lender, the Seller will lose ACE eligibility upon delivery. (Note: if you have system-to-system (S2S) access to LPA, follow your LOS-specific requirements for entering loan data.)
What are the delivery requirements for ACE eligible loans to Loan Selling Advisor?
When delivering the loan to Loan Selling Advisor®, you must use the following data points for us to identify that you accepted the ACE offer:
- Sort ID 89 (Property Valuation Method Type): “None”
- Sort ID 376 (Investor Collateral Program Identifier): “Property Inspection Alternative”
If a loan receives an ACE offer and the offer is accepted, is it eligible for collateral rep and warranty relief?
Yes. If the offer is accepted (i.e., delivered in accordance with Loan Selling Advisor requirements), the loan will receive collateral rep and warranty relief with respect to value, condition and marketability.
If a loan is not eligible for ACE, can it still be eligible for collateral rep and warranty relief?
Yes. If the loan’s path to collateral rep and warranty relief is through an appraisal submitted to the Uniform Collateral Data Portal® (UCDP®) with an assessment by Loan Collateral Advisor®, the rep and warranty relief is for appraised value only. If the path to collateral rep and warranty relief is through ACE+ PDR, the rep and warranty relief is for property value only. The Seller remains responsible for reps and warranties related to condition and marketability.
How is the rep and warranty relief through ACE different from the rep and warranty relief when an appraisal is obtained?
If a loan receives rep and warranty relief due to ACE, the relief relates to the property’s value, condition and marketability. If a loan delivered with an appraisal receives rep and warranty relief through Loan Collateral Advisor, relief relates only to the appraised value of the property and the Seller remains responsible for reps and warranties related to condition and marketability. See Single-Family Seller Servicer Guide (Guide) Chapter 5602 Collateral Representation and Warranties, Loan Collateral Advisor and Automated Collateral Evaluation (ACE and ACE+ PDR) regarding the mortgaged premises for a comprehensive list of requirements.
Are Home Possible® loans eligible for ACE?
Yes. A Home Possible mortgage may be eligible if the loan meets all ACE eligibility requirements, including the LTV/TLTV ratio requirements.
Are condominium loans eligible for ACE?
Yes. Loans secured by condo units that are run through LPA will be assessed for ACE eligibility.
Are Texas 50(f)(2) loans eligible for ACE?
No. Freddie Mac requires an appraisal, meeting Freddie Mac’s appraisal requirements and the requirements of the Texas Constitution. See Guide Section 4301.7.
If I accept the ACE offer on a condo unit loan, do I still need to complete the condo project review?
Yes, a condo project review is still required to determine project eligibility.
Is there a value limit on properties that are eligible for ACE?
Yes. There is a $1M maximum for estimated value or sales price for a property to be eligible for ACE.
How do I know if a loan is eligible for an ACE?
The LPA Feedback Certificate provides eligibility messaging. If the loan is not eligible, the feedback message will indicate the minimum collateral assessment required for the transaction. If you use Loan Quality Advisor®, you’ll receive a feedback message that indicates if the loan is eligible for an appraisal waiver. Loan Selling Advisor also validates the loan’s ACE eligibility.
If I get an appraisal, can I still accept the ACE offer?
No. If an appraisal is obtained, it must be used to underwrite the loan and you may not accept the ACE offer.
Irrespective of whether the appraisal was obtained for the loan being underwritten or whether a recent appraisal (i.e., appraisal with an effective date that is within 120 days prior to an initial submission to LPA) for the same borrower and property was obtained for an application that was declined or canceled, the appraisal is expected to be used in the origination of the loan and the Seller may not accept an ACE offer. See Guide Section 5604.3 for age of appraisal reports, appraisal update requirements, and re-use of an appraisal report for a subsequent transaction.
Does Freddie Mac systematically restrict eligibility if a recent appraisal of the property is identified in UCDP?
Yes, Freddie Mac will systemically restrict ACE eligibility if an appraisal is submitted by any Seller with an effective date within 120 days prior to an initial LPA submission is identified in UCDP.
Does an ACE offer have an expiration date?
Yes. ACE offers are valid for 120 days. If the offer is more than 120 days old on the Note Date for the loan, you must resubmit to LPA to determine if the loan is still eligible for ACE.
May I accept an ACE offer if my property is located in a disaster area?
Yes. Sellers may accept an ACE offer received prior to or following a disaster if they can represent and warrant the value and marketability of the mortgaged premises has not been adversely impacted. Guide Section 4407.1 provides the requirements and flexibilities when the property condition has been impacted.
Is it possible to lose the ACE offer?
We recognize the difficulties that would arise if a loan loses its ACE eligibility, so we have made every effort to minimize that chance. As long as the offer is within 120 days of the Note Date, the ACE offer may only change if you change one of the fields in LPA that impact eligibility. Those include:
- Property address
- Loan amount
- Estimate of value
- Sales price
- Property type
- Loan type
- Occupancy of the property
Loan Quality Advisor and Loan Selling Advisor provide feedback messages alerting you to the loss of the ACE offer and the reason why the loan is no longer eligible.
Credit-related changes (asset or income changes) will not result in the loss of an ACE as long as the LPA risk class remains “Accept.”
Are there instances in which I receive the ACE offer, but I should not accept it?
Yes. When you are aware of conditions that could affect the property’s marketability or value, you must obtain an appraisal. Examples include, but are not limited to, a contaminated site or hazardous substance exists affecting the property or the neighborhood in which the property is located; adverse physical property conditions that are apparent based on a review of the sales contract, property inspection or disclosure from the borrower; rental income from the subject 1-unit Primary Residence ADU is used for qualification purposes; etc. Additionally, you must not accept the ACE offer if an appraisal has already been obtained or an appraisal is required by law.
Freddie Mac requirements state Sellers may not accept the ACE offer if adverse physical property conditions are apparent based on a review of the sales contract, property inspection, disclosure from the borrower, etc. Does this mean the Seller is expected
Question: Freddie Mac requirements state Sellers may not accept the ACE offer if adverse physical property conditions are apparent based on a review of the sales contract, property inspection, disclosure from the borrower, etc. Does this mean the Seller is expected to perform additional due diligence outside the typical underwriting process?
Answer: In this scenario, Sellers are required to obtain an appraisal that meets the Guide requirements.
If I accept the ACE offer, how should I comply with my requirements related to the quality control appraisal review?
You do not need to complete an appraisal review for loans delivered with ACE. You are required to perform quality control to ensure that the eligibility requirements for ACE have been met. Additionally, you must continue to perform quality control on the loan for data accuracy and consistency related to borrower credit and capacity.
How does the acceptance of the ACE offer impact project-related reps and warranties?
The Seller remains responsible for all project-related requirements. The acceptance of an ACE offer provides no project-related rep and warranty relief.
Is ACE available for correspondent loans?
Yes. Correspondent loans eligible for ACE may be delivered to Freddie Mac. Sellers delivering these loans are responsible for compliance with Freddie Mac’s eligibility requirements.
Without requiring an inspection of the property, how is Freddie Mac able to mitigate valuation and condition risk?
Freddie Mac has developed numerous models and algorithms that assess property valuation and condition by leveraging a wide variety of data, including existing appraisal data, Multiple Listing Service data and public records to mitigate valuation and condition risk.
How is ACE impacting Freddie Mac’s ability to assess value and/or condition risk if fewer appraisals are being submitted to UCDP?
Overall, there is minimal impact to our ability to assess value and/or condition risk. The majority of loans we buy continue to be delivered with appraisals so the impact to the data available is minimal. Additionally, we use multiple sources outside of appraisal data received from UCDP to help mitigate valuation and condition risk.
What impact is ACE having on appraisers?
ACE reduces the number of appraisals required, but a significant majority of loans will still require an appraisal. ACE allows appraisers to focus more of their efforts on complex properties.
Are there regulatory disclosure requirements related to a lender's acceptance of the ACE offer?
If lenders have questions related to required disclosures, they should contact their legal counsel and/or regulator.
Originally Published: November 2020
Last Updated: 02/07/2024