Fannie Mae & Freddie Mac’s Expanded Hybrid Appraisal Policy: What Lenders Need to Know
Fannie Mae and Freddie Mac just announced that they will accept hybrid appraisals on significantly more properties.
This policy shift has significant implications for lenders, appraisers, and the mortgage industry as a whole. Let’s break down the details of their new policy, what hybrid appraisals are, why this change is happening, and how it may impact the mortgage process moving forward.
Note: If you have any questions about this update, or the GSE’s appraisal modernization program, we offer a complimentary, one-on-one consultation. In it, Ken Dicks - our Head of Appraisal Compliance, will discuss the GSE programs, their expanded loan eligibility for hybrid appraisals (this set of selling guide updates), and the spectrum of new valuation products they support.
Key Details of the GSE Hybrid Appraisal Policy Update
Both Fannie Mae and Freddie Mac have announced expanded eligibility for hybrid appraisals:
- Fannie Mae: The expansion takes effect on March 22, 2024.
- Freddie Mac: The changes will roll out on April 7, 2025.
- Eligibility Scope: Hybrid appraisals will closely align with traditional appraisal eligibility but will exclude certain property types.
- Standardized Data Collection: The process requires an approved data collector who has undergone a background check and is unaffiliated with the transaction.
Eligible and Ineligible Properties
Hybrid appraisals will be allowed for a wide range of property types, but some restrictions apply:
Eligible Properties:
- Single-family residences (including primary, secondary, and investment properties)
- Planned unit developments (PUDs)
- Condominiums (meeting GSE eligibility requirements)
- Properties that meet specific condition standards without major structural issues
Ineligible Properties:
- Multi-family properties (2-4 units)
- Manufactured homes
- Unique properties or those with atypical features
- Properties with significant deferred maintenance or repair concerns
- New construction homes (unless meeting specific GSE criteria)
Now let’s dig into the key takeaways for mortgage lenders (if you’re on the go and would prefer to watch and listen, I posted a video for you on LinkedIn here).
What Are Hybrid Appraisals?
The difference between a "hybrid appraisal" and a “traditional appraisal” is the inspection. Typically, a real estate appraiser personally inspects the property then uses the information they personally collected to write their appraisal report. In a hybrid appraisal, the licensed appraiser does not complete the property inspection. Instead, a different third party data collector inspects the property and relays that information to a licensed appraiser who uses it - alongside other data - to determine the property value.
Essentially, a hybrid appraisal combines a traditional appraisal with digital data collection. It takes the inspection, and associated drive time, off the appraiser’s plate. That task is instead handled by a larger, more flexible workforce of inspectors. The goal is to help appraisers complete appraisals faster, so mortgage lenders can originate loans faster.
Why Are Hybrid Appraisals Gaining Traction?
A key driver behind this change is the ongoing shortage of licensed appraisers, which has historically led to longer turn times, especially during high-volume periods like 2020-2021. By leveraging third-party data collectors for inspections, hybrid appraisals aim to reduce bottlenecks in the process, allowing appraisers to focus on data analysis and valuation rather than fieldwork.
While hybrid appraisals may not dramatically impact turn times in today’s lower-volume market, their long-term benefits could become more evident as transaction volumes rise. The industry could see increased adoption in the coming months, particularly if mortgage rates decline and appraisal capacity once again becomes a challenge.
How Lenders Can Start Leveraging Hybrid Appraisals
Lenders looking to take advantage of hybrid appraisals should start by sending hybrid appraisal orders on eligible properties to appraisal vendors that are equipped to complete them. For lenders who go direct to panel, the process involves two separate steps: first, sending a property data collection order to a vendor who can complete the property data portion, and then transferring that collected data to an appraiser prepared to finalize the hybrid appraisal.
Because managing this bifurcated process can be cumbersome, most lenders will work with AMCs that are fully prepared to handle hybrid appraisals end-to-end. The Appraisal Marketplace, Reggora’s "Uber-style" appraisal fulfillment solution, is fully prepared to complete hybrid appraisals. Even better, The Appraisal Marketplace allows lenders to accommodate their preferred panel of appraisers to complete the hybrid, ensuring both efficiency and consistency.
Implications for Lenders and Appraisers
- Lenders Working with Direct Appraisal Panels – Lenders who typically assign orders directly to appraisers may need to collaborate with third-party AMCs or alternative vendors to access qualified data collectors.
- Pricing Considerations – Hybrid appraisal costs are expected to be similar to traditional full appraisals when facilitated through an AMC, though potentially slightly lower than direct-to-panel orders.
- Appraiser Liability Concerns – Some appraisers have expressed concerns about assuming liability for reports when they are not personally conducting inspections. However, hybrid appraisal forms explicitly outline assumptions and limitations, ensuring that appraisers are only responsible for data they deem reliable.
- Industry Adoption and Workflow Adjustments – Widespread adoption of hybrid appraisals will require adjustments in lender workflows. Despite initial hesitation, increased familiarity and operational refinements will likely lead to greater industry acceptance.
As hybrid appraisals gain traction, lenders and appraisal management companies will need to evaluate their strategies for incorporating them into their workflows. While immediate adoption may be slow, the expanded eligibility suggests that hybrid appraisals could eventually represent the majority of mortgage transactions.
Contact us for a Complimentary Appraisal Modernization Consultation
There have been quite a few appraisal modernization advances in the last two years and we’re excited to help you take advantage of them. Reggora already supports these products today, both through our network of integrated vendors and through The Appraisal Marketplace. Book a complimentary one-on-one consultation to learn about these new products, understand how lenders like you are leveraging them, and get on a practical, proven path to appraisal modernization.
