EXCERPT: Last week, both Fannie Mae and Freddie Mac announced their new appraisal-free product for purchase mortgages, and appraisers are already raising concerns over this new step. Freddie Mac announced its Automated Collateral Evaluation will begin on September 1, and Fannie Mae announced its Property Inspection Waiver, which went into effect immediately.
The GSEs also explained to HousingWire how their new systems work, and what lenders need to know about which buyers qualify for the new loans, which Fannie estimates will be about 5% of the purchase market.
But now, the appraisal industry is raising concerns over the automated appraisals, even accusing the GSEs of not bearing the consequences of the risk they are taking. “Republicans might slap them down for increasing the risk profile of the two GSEs and possibly the exposure to the American taxpayer,” Francis Grady, an attorney at Grady & Associates, a financial institutions and banking law practice, told HousingWire.
He explained that this is a dangerous step for the origination process, and could lead to disastrous consequences, such as those seen in the housing crisis. “I don’t know enough to say what they’re doing is wrong, but it strikes to me that there’s no debate about the safety and soundness of going in this direction,” Grady cautioned.
But Grady wasn’t the only one to raise concerns over the new appraisal-free purchases. HousingWire’s comment boards quickly filled up with appraisers sounding alarms over the new programs.
One commenter, Forest Miller, wrote, “Wow, cut out the appraiser and save a whopping $500? Why not cut out the home inspection and title search too? Can’t believe the stupidity.”
This comment, from Kim Carty JD explained the 10 days the buyers would save is just not worth it.
“I don’t understand the rush to close in 10 days. Our market is so hot with so little inventory, that you can barely get through the home inspection period in 10 business days unless you want a less-than-stellar home inspector. An ounce of prevention goes a long way and throwing out a check on the system is irresponsible. EYES are needed on each property to give an approximation of value and the automated systems that I always check because I know homeowners will, are usually off – and a significant amount.”
But not everyone in the industry sees this step as one to be concerned about. In fact, one expert explained this is a step in the right direction, and that appraisers should embrace the expanding technology.