VA home loan bill could open door to more virtual appraisals

Another segment of government-backed home loans could soon become available without needing an in-person property appraisal.

A bill passed by the House this week directs the Department of Veterans Affairs to change its policies around appraisals of properties against which it provides loans. These changes include provisions for so-called “desktop appraisals” — in which properties are reviewed virtually rather than in person — and waivers of appraisals altogether.

H.R. 7735, also known as the Improving Access to the VA Home Loan Benefit Act of 2022, is the latest government initiative aimed at addressing the national undersupply of home appraisers and the issues it is creating in the mortgage industry.

The Department of Veterans Affairs has special requirements for home appraisals related to its veterans home loan program.

If the bill advances through the Senate and is signed into law, the VA will join Fannie Mae and Freddie Mac in codifying the use of virtual appraisals.

The government-sponsored entities began allowing for desktop appraisals on the mortgages they purchased provisionally during the pandemic, when in-home inspections were prohibited. Last fall, then-acting Director of the Federal Housing Finance Agency Sandra Thompson announced that the change would be made permanent for certain loans starting this year.

Thompson said the change allows appraisers to complete more valuation reports in a shorter amount of time and alleviates pressures on rural and underserved communities, where a lack of appraisers is hampering transactions.

“This certainty should allow lenders, borrowers and appraisers alike to take advantage of the efficiency gains that desktop appraisals can provide and to continue the work of making our mortgage finance system more effective,” she said at the time.

H.R. 7735 was introduced by Rep. Mike Bost, R-Ill., and co-sponsored by Reps. Guy Reschenthaler, R-Pa., and Kathy Manning, D-N.C., in May. On Wednesday, it passed through the House alongside four other veteran-focused bills with broad bipartisan support.

“This bill will ease the homebuying process for veterans by letting them use the same modern purchasing tools that nonveteran homebuyers already use,” Bost said in a statement. “This will help them get into their new homes faster.”

The Mortgage Bankers Association praised the House for passing the bill and encouraged the Senate to do the same.

“The bill will encourage important reforms to the agency’s requirements regarding when an appraisal is necessary, how appraisals are conducted, and who is eligible to conduct an appraisal,” Bob Broeksmit, president and CEO of the MBA, said in a statement. “This legislation is an important first step towards broad modernization of VA appraisal processes and could make veterans’ home purchase offers more viable in today’s competitive housing market.”

Some states have reported critical regional or even statewide shortages of appraisers in recent years. North Dakota has had a waiver in place for all transactions below $1 million since 2019. Elsewhere, homebuyers and refinancers were simply forced to wait until an appraiser becomes available, which is why regulatory agencies began making allowances for desktop appraisals, hybrid appraisals — which involve a nonlicensed appraiser performing the physical inspection portion of the appraisal — and even automated valuation models, software programs used to determine property values. Freddie Mac has begun using AVMs for servicer collateral reports.

The appraiser shortage has hurt veteran borrowers more acutely, as the VA requires appraisers to meet more stringent qualifications, limiting the pool of appraisers even further.