Fannie Mae & Freddie Mac: Are They Really the Intended Users?

Real estate appraisals are a critical component of the lending process, providing an objective estimate of a property’s market value to guide decision-making. Central to every appraisal is the scope of work, a framework that defines the purpose, methodology, and parties involved in the assignment. Two key elements within this scope are the intended user and the intended use of the appraisal report. While these terms may seem straightforward, their interpretation—particularly in the context of government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac—can spark confusion and debate among appraisers, lenders, and industry stakeholders. This article explores these concepts, focusing on the traditional definitions of intended user and intended use, and why the GSEs’ involvement creates unnecessary complexity.

In its simplest form, the intended user is the party for whom the appraisal report is prepared. According to the Uniform Standards of Professional Appraisal Practice (USPAP), which governs appraisal standards in the United States, the intended user is explicitly identified by the appraiser in the report. Typically, this is the client—most often a lender—who commissions the appraisal to assess the value of a property being offered as collateral for a loan.

The intended use, meanwhile, outlines the purpose of the appraisal. In a lending context, the intended use is clear: the lender relies on the appraised value to make an informed lending decision, determining whether the property’s value supports the loan amount. This relationship is direct and unambiguous—the appraiser’s work is tailored to meet the lender’s needs, ensuring the valuation aligns with the specific transaction at hand.

For example, when a borrower applies for a mortgage, the lender (e.g., a bank or mortgage company) engages an appraiser to evaluate the property. The lender is named as the client and intended user, and the appraisal’s intended use is to assist in underwriting the loan. This straightforward dynamic has long been the bedrock of real estate lending.

The landscape becomes murkier with the involvement of Fannie Mae and Freddie Mac, collectively known as the Government-Sponsored Enterprises (GSEs). These entities play a massive role in the U.S. housing market by purchasing mortgages from lenders and securitizing them for sale in the secondary market. To ensure the quality of these loans, the GSEs impose guidelines that lenders must follow, including requirements for appraisals.

Here’s where the contention arises: Fannie Mae and Freddie Mac often assert themselves as intended users of appraisal reports, claiming they “rely” on the valuation when deciding whether to purchase a loan in the secondary market. This stance is reflected in their appraisal forms and guidelines, which frequently require appraisers to acknowledge the GSEs as relying users alongside the lender. However, this interpretation stretches the traditional definition of intended user beyond its logical bounds and raises significant questions about the appraiser’s role and accountability.

The argument against designating GSEs as intended users hinges on the fundamental purpose of the appraisal assignment.

When an appraiser is hired by a lender, their scope of work is defined by that specific client’s needs—namely, to evaluate the property for a lending decision tied to a single transaction. The appraiser’s contract, communication, and deliverables are all directed toward the lender, not a third party like Fannie Mae or Freddie Mac.

The GSEs enter the process only after the loan is originated, purchasing it in the secondary market based on a variety of factors, including the appraisal. Their reliance on the appraisal is indirect and downstream, occurring well after the report is completed and the lending decision is made. In USPAP terms, this makes them a subsequent user rather than an intended user. The distinction is critical: the intended user is the entity for whom the appraiser knowingly performs the assignment, not every party that might later find the report useful.

Moreover, the GSEs’ claim to "intended-user" status implies a level of influence over the appraisal process that undermines the appraiser’s independence. Appraisers are bound by USPAP to provide an impartial and objective opinion of value, free from external pressure. When GSEs insert themselves as intended users, they risk blurring the lines between the appraiser’s duty to the client (the lender) and the GSEs’ secondary-market interests. This can lead to additional scrutiny or requirements—such as adherence to GSE-specific guidelines—that go beyond the original scope of work and compromise the appraiser’s autonomy.

Allowing the GSEs to redefine intended user has practical and ethical implications for appraisers. For one, it expands the appraiser’s liability. If Fannie Mae or Freddie Mac are considered intended users, they could theoretically hold the appraiser accountable for issues arising in the secondary market—issues that fall outside the appraiser’s control or original assignment. This overreach contradicts the principle that an appraiser’s responsibility is limited to the scope agreed upon with the client.

Additionally, the GSEs’ involvement muddies the intended use of the appraisal. The lender’s goal is to assess collateral value for a specific loan, while the GSEs’ focus is on the loan’s marketability in a broader financial ecosystem. These are distinct purposes, and conflating them risks distorting the appraisal process. An appraisal tailored to the lender’s immediate needs may not fully align with the GSEs’ long-term objectives, yet appraisers are pressured to satisfy both under the guise of a single report.

The real estate appraisal industry would benefit from a clearer delineation of roles. The intended user should remain the client who commissions the appraisal—typically the lender—while the intended use should reflect the primary purpose of the assignment, such as supporting a lending decision. Fannie Mae and Freddie Mac, as secondary-market participants, should be recognized as relying parties rather than intended users. Their reliance on appraisals is legitimate but does not supersede the appraiser’s direct relationship with the lender.

To achieve this clarity, regulators, appraisers, and industry stakeholders must push back against the GSEs’ overreach. USPAP provides a solid foundation for defining intended user and intended use, and its principles should guide appraisal practices without being overridden by GSE policies. Lenders, too, should advocate for appraisals that meet their specific needs rather than bending to secondary-market demands that dilute the process.

The scope of work in real estate appraisals is a carefully constructed framework designed to ensure accuracy, objectivity, and relevance. At its core are the intended user and intended use—concepts that anchor the appraiser’s efforts to the client’s needs. While Fannie Mae and Freddie Mac play a vital role in the housing market, their attempt to position themselves as intended users oversteps the boundaries of these definitions. By preserving the lender as the sole intended user and the lending decision as the primary intended use, the appraisal profession can maintain its integrity and purpose, free from the distortions of secondary-market influence. It’s time to realign the scope of work with its original intent, ensuring appraisals serve their true clients without compromise.