Fannie Mae's Announcement 07-25 addresses five Fannie Mae Selling and/or Servicing Guide topics to update and/or clarify existing requirements, and communicates new requirements, as itemized below:
- Expansion of the eligibility parameters to include 2-family to 4-family principal residence and investment properties when the borrower is an revocable trust;
- Update to the flood insurance coverage requirements for mortgages secured by one-family to four-family properties;
- Clarification that the value provided by an Automated Valuation Model (AVM) may not be used to support cancellation of mortgage insurance (MI) coverage;
- Update to the policy for postponed improvements; and
- Clarification of the appraisal requirements for manually underwritten mortgages;
- New requirements for servicers on reporting delinquency status for regular servicing option loans.
Use of Automated Valuation Models (AVMs) to Support the Cancellation of Mortgage Insurance (MI) Coverage
Servicing Guide Part II, Section 102.05 Borrower-Initiated Cancellation Based on Current Property Value.
Fannie Mae has received several inquiries related to the use of an Automated Valuation Model (AVM) to establish the current property value to support cancellation of mortgage insurance (MI) coverage. As stated in the Guide, a borrower is allowed to request cancellation of borrower-purchased MI coverage for any conventional mortgage, regardless of closing date, when that loan reaches a specified loan-to-value ratio. But the Guide requires that value be established by a current appraisal based on an interior/exterior property inspection.
For certain mortgage loans, Fannie Mae allows cancellation of MI coverage based on the current appraised value if the mortgage loan and the borrower meet stated conditions. The use of an appraisal provides a real time analysis of market activity, including a physical inspection of the subject property, to arrive at an accurate valuation.
However, an AVM, relies on public record information to determine estimated value without any assessment of the current condition of the property. As such, Fannie Mae will not permit the cancellation of MI coverage based on the estimated value provided by an AVM, since a real estate appraisal completed by a qualified appraiser is the most appropriate standard and most reliable indicator for determining property value.
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