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In October 2024 the FHFA announced expanded eligibility of appraisal alternatives including the introduction of hybrid appraisals.
On February 5th in the Fannie Mae Selling Guide Announcement (SEL-2025-01), and Freddie Mac Selling Bulletin 2025-1, the GSEs formally announced expanded eligibility of hybrid appraisals in their respective selling guides.
Fannie Mae will begin on the weekend of March 22, 2025 to include Desktop Underwriter (DU) messaging specifying eligibility for a hybrid appraisal. Freddie Mac hybrid appraisal expansion will be effective for Loan Product Advisor (LPA) submissions and resubmissions on or after April 7, 2025.
Hybrid appraisal eligibility estimates
This article reviews hybrid appraisal eligibility from the published announcements, and estimates what number and percentage of loans could have received a hybrid appraisal offer. It is expected that lenders will be offered the choice of using a traditional appraisal or hybrid appraisal.
To understand the impact of hybrid appraisals, we analyzed the active GSE servicing book; this dataset includes 13.44 million loans originated over the past five years using a traditional appraisal. This analysis uses the original CLTV and excludes loan modifications, voluntary & involuntary prepayments, and any loans delivered with appraisal waivers or inspection based appraisal waivers.
Key findings
These updates mean lenders will soon have the option to use either a hybrid or traditional appraisal based on borrower and property eligibility.
- 94.7% of loans would also have met the eligibility criteria for a hybrid appraisal offer
- 3.74% would be ineligible due to property type
- 1.52% ineligible due to the number of units in the property.
To be clear, this doesn’t suggest that all eligible loans would receive a hybrid appraisal offer, it highlights the significant number of loans that qualify under published guidelines.
Loans with hybrid appraisal eligibility
Subject to the other eligibility criteria, hybrid appraisal eligibility will be broad:
- Transaction types – purchases, limited cash-out refinances & cash-out refinances
- Occupancy types – primary resident, second home and investment properties,
- Property types – 1-unit single family homes, condominiums, planned unit development (PUDs) and homes with accessory dwelling units (ADUs)
Ineligible loans
Despite the expanded eligibility, some loan and property types remain excluded from hybrid appraisal eligibility, including:
- Multi-unit properties (2-4 units)
- Cooperative units
- Manufactured homes
- Loans for proposed construction or construction-to-permanent financing
- GSE renovation loans and green energy loans
For these types of loans, a traditional appraisal is still required.
Representation & Warranties Relief (for appraisal value)
Like traditional appraisals, hybrid appraisals will be submitted to the GSE Uniform Collateral Data Portal (UCDP) and be scored. Eligible loans with a hybrid appraisal receiving a lower score (generally 2.5 or less) are eligible for representations and warranties enforcement relief related to the appraisal value of the subject property.
GSE Selling Guide & Bulletins
The GSE bulletins and selling guide references are below:’