Federal regulators mull appraisal-free mortgages for some loans
By Jeff Lazerson
Last week my staff was elated to tell four separate mortgage applicants that the automated underwriting engine just said “no” to the appraisal inspection and its $525 price tag. The last time something like that happened at my shop was exactly never!
For now, Freddie Mac will fund up to 80 percent of a home’s value on some refinances without an appraisal. Next up is bypassing the appraisal on loans for home purchases with 20 percent or more down.
“Pending approval from (the Federal Housing Finance Agency), we are hoping to implement it in the very, very near future,” said Andy Higginbotham, senior vice president of single-family housing at Freddie Mac.
And, you are in the sweet spot on a cash-out refinances for up to 70 percent combined loan-to-value and up to 60 percent for second homes and rentals.
As long as Fan and Fred have appraisal data on that specific property in their uniform collateral data portal or UCDP, these mortgage giants believe they have the ability to peg the property value.
What about the property condition, especially on a used (resale) home? Is automation that good that it can verify in real time that the home is standing and see what’s on the inside of its walls?
“The most important part of the appraisal is the comments section about conditions, upgrades, amenities or if a property is falling off its foundation,” said Lance Siegel, president of HVCC Appraisal Ordering in Lake Forest. No appraisal means no real-time quality assessments of the subject property or the comparable properties for that matter.
The good news is that this waiver process is actually a step-up from the current system. Every waiver will save time, money and take the power away from those appraisers who can be deal killers.
In my estimation and experience, refinance appraisals are low-balled 90 percent of the time. Purchases are low-balled about 20 percent of the time. Every day across America, thousands upon thousands of perfectly good refinance and purchase transactions fall apart for no good reason.
The bad news in the appraiser waiver world is that lenders are more susceptible to borrower fraud, and taxpayers are more susceptible to losses if and when those loans go bad. Fewer completed appraisals mean the current data sets are more diluted, and this will accelerate the extinction of the appraisal industry that still has many hardworking, high-quality participants.
When Freddie gets the purchase waiver green light, home buyers would be smart to pay for a completely separate, independent appraisal to be sure the property is worth what they’re paying. Good or bad, this appraisal waiver system is too new to rate.
Jeff Lazerson - Mortgage Columnist since 2011