The mortgage industry is witnessing a transformative shift with hybrid appraisals now formally incorporated into GSE policy. In this blog post, we'll walk you through these important changes, explain what they mean for your lending business, and outline the significant benefits of working with Class Valuation—an industry leader who participated in the original pilot program and has successfully completed over 23,000 GSE hybrid appraisals.

 

The New Era of Hybrid Appraisals Has Arrived

Recently, the Federal Housing Finance Agency (FHFA) announced expanded eligibility for appraisal alternatives, formally introducing hybrid appraisals into the lending ecosystem. Following this announcement, both Fannie Mae and Freddie Mac have updated their selling guides to incorporate hybrid appraisal options.

Implementation Status:

• Fannie Mae: Desktop Underwriter now includes messaging specifying eligibility for hybrid appraisals (implemented March 22, 2025)
• Freddie Mac: Loan Product Advisor submissions and resubmissions are now eligible for hybrid appraisals (implemented April 7, 2025)

 

What Makes a Hybrid Appraisal Different?

Hybrid appraisals represent a perfect balance between traditional appraisal methodologies and modern data collection techniques:

Traditional Elements:

• Requires a local, licensed or certified appraiser who is fully competent geographically to perform the appraisal assignment
• Delivered on a Uniform Residential Appraisal Report (URAR) 1004/70H Hybrid Form.
• Fully USPAP Compliant and mirrors the traditional appraisal reports completed today.

Modern Innovations:

• Utilizes trained property data collectors (PDCs) for on-site inspection & digital property imaging
• Leverages AI & Computer Vision to generate digital floorplans and assess property condition.Features automated data entry to streamline the process and shorten the inspection time while capturing the maximum amount of data for collateral risk.
• Appraiser provides the opinion of value.
• Same cost as a regular traditional appraisal, with opportunity for faster inspection and completion.
• Decreased collateral risk and far more data for underwriting review.

This innovative approach allows appraisers to focus on analysis and valuation while trained professionals handle the property inspection and data collection. It speeds the entire valuation process by bringing the home to the appraiser and allowing them to virtually inspect the property and render an opinion of value.

 

Sweeping Eligibility Across Loan Types

According to industry analysis, approximately 94.7% of GSE loans originated in the past five years would have qualified for hybrid appraisal eligibility. Both GSEs have similarly announced that over 90% of current loans will be eligible for the hybrid appraisal. This broad acceptance includes:

• Transaction types: Purchases, limited cash-out refinances, and cash-out refinances.
• Occupancy types: Primary residences, second homes, and investment properties.
• Property types: Single-family homes, condominiums, planned unit developments (PUDs), and properties with accessory dwelling units (ADUs).

Only specific loan categories remain ineligible, including multi-unit properties, manufactured homes, construction loans, and cooperative units.

 

Reducing Appraisal Bias

One significant advantage of hybrid appraisals that often goes undiscussed is their potential to reduce bias in the valuation process. By separating the property data collection from the analysis and valuation components, hybrid appraisals introduce an important structural safeguard:

• Separation of Roles: The property data collector gathers objective information about the property without making value judgments, while the appraiser analyzes this standardized data remotely
• Standardized Data Collection: Our property data collectors follow strict protocols, capturing consistent information across all properties regardless of neighborhood, owner demographics, or other factors that might unconsciously influence traditional appraisals
• Reduced Subjective Impressions: By relying on digital measurements, computer-generated floorplans, and systematic documentation, hybrid appraisals minimize the subjective impressions that can sometimes affect valuations
• Data-Driven Valuations: Appraisers focus on objective property characteristics and market data rather than relying on in-person impressions that might be influenced by implicit biases
• Greater Consistency: The standardized approach helps ensure similar properties receive similar valuations regardless of location or ownership, addressing concerns about valuation disparities
• Positive Impact to Appraisal Accessibility: There are many rural areas of the country that do not have ready access to appraisers. With so few appraisers covering these markets, the homeowners often have little choice but to pay high fees for appraiser travel and time. The Hybrid appraisal process reduces that cost with increased collateral risk assessment and faster turnaround times.

This structured approach aligns with industry efforts to promote fairness and equity in housing valuations, making hybrid appraisals not just more efficient but potentially more equitable for all borrowers.

 

The Class Valuation Difference

While many companies are scrambling to adapt to these changes, Class Valuation has been perfecting hybrid appraisals for over five years through GSE pilot programs. What sets us apart:

1. Complete Vertical Integration: We manage both property data collection and valuation internally, ensuring consistent quality and reliability.
2. Unmatched Experience: Over 23,000 successful hybrid appraisals completed through GSE pilots.
3. Industry-Leading Capacity: One of the largest pools of property data collectors and over 65,000 property data collection reports to date.
4. Vast investment in Appraiser Training: Thanks to our experience we have a pool of appraisers nationally that can actually deliver on Hybrid appraisals.
5. Comprehensive Quality Control: Our rigorous selection process includes:
   • Thoroughly vetted and background-checked appraiser panels
   • Extensively trained property data collectors who follow standardized protocols
   • Multi-level quality assurance reviews for every appraisal
   • Regular performance monitoring and continuous education requirements
   • Compliance with all state and federal regulations for property valuation
6. Scale Ready: Equipped with the dedicated operations team and technology to handle the coming wave of hybrid appraisal adoption

 

Key Benefits for Your Business

Implementing hybrid appraisals through Class Valuation offers several competitive advantages:

1. Consistency: Property data collections follow a standardized process and scope of work
2. Increased Appraiser Capacity: By eliminating field work requirements, appraisers can focus on analysis
3. Faster Turnaround Times: Streamlined processes reduce delays in the mortgage pipeline
4. Representation & Warranty Relief: Available for eligible loans with qualifying hybrid appraisal scores

 

 

Prepare for the Future of Mortgage Lending

As the industry anticipates increased activity in 2025 and beyond, having hybrid appraisals in your toolkit will be essential for growth and customer satisfaction. Don't limit yourself to traditional appraisal options as the market heats up.

Class Valuation's nationally scalable hybrid appraisal solution can be a cornerstone of your valuation strategy. Our class-leading experience ensures you'll have reliable, consistent results that meet both regulatory requirements and customer expectations.

 

Take Action Today

Don't wait for your competitors to gain the advantage. Prepare now by adding Class Valuation's digital appraisal solutions to your mortgage process. Learn more about our hybrid appraisal solutions. Make hybrid appraisals a key part of your growth strategy and customer experience plan for 2025 and beyond!

 

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