Mortgage Appraisal Waivers and Prepayment Speeds

Joshua Bosshardt
William M. Doerner
Fan Xu
Federal Housing Finance Agency

The analysis and conclusions are those of the authors alone and should not be represented or interpreted as conveying an official position, policy, analysis, opinion, or endorsement of either the Federal Housing Finance Agency or the U.S. government. Any errors or omissions are the sole responsibility of the authors.

This report examines factors affecting the use of appraisal waivers for mortgages guaranteed by Fannie Mae and Freddie Mac and the effect of appraisal waivers on prepayment speeds. It shows that the alignment of Freddie Mac’s eligibility criteria with those of Fannie Mae around the start of the COVID-19 pandemic was associated with an increase in the use of appraisal waivers. Conditional on satisfying the basic eligibility criteria, appraisal waivers are more common for refinance loans, loans serviced by nonbanks, and less risky borrowers.

The report also shows that appraisal waivers were associated with higher conditional prepayment rates during 2020 but to a lesser extent in 2021 as refinancing activity slowed down. Much of this association can be explained by correlations between appraisal waivers and other observable determinants of prepayment speeds.