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Underwriting and Appraisal Guidelines
The GSE underwriting and appraisal guidelines, originally designed for suburban or urban communities, often make it difficult to qualify creditworthy
borrowers in small-town or rural communities. In such communities, borrowers frequently have multiple sources of income such as seasonal, self-employed, or W2 wages, all of which are critical in qualifying the borrower for the loan.
While community bankers routinely and safely approve portfolio loans for these borrowers, it has always been difficult to qualify them for a GSE loan. In addition, the diverse nature of properties in these markets makes it challenging for appraisers to document and support the value of a property in a manner that is acceptable to the GSEs.
ICBA has and will continue to work with the GSEs on developing case studies and best practices that will help expand acceptance of loans from small-town and rural communities, which in turn will help expand access to credit in these communities.
ICBA is particularly concerned that as appraisers retire or leave the business in rural and small-town communities community bank lenders may not be able to access the secondary market due to their difficulty in obtaining a property appraisal that meets secondary market guidelines at a reasonable price.
In particular, as the GSEs update the residential appraisal forms and the information they collect ICBA is concerned that increasing the amount of data points will make appraisals more expensive and difficult to obtain, especially in outlying areas. ICBA will continue to work with the GSEs, the FHFA, and the banking agencies to develop alternatives to standard residential property appraisals, which should improve access to credit in rural and small-town markets.
Servicing
Community bank mortgage loan servicing is based on close ties to customers and communities. The cost to service a mortgage has doubled since the financial crisis, forcing
many community banks to exit the mortgage servicing business. The GSEs must structure their servicing guidelines to avoid this outcome. Servicing helps community banks remain competitive in the mortgage origination business. Any changes to mortgage
servicing standards or compensation should not promote additional consolidation of the mortgage servicing business in the largest aggregators.