Freddie Mac is planning a controversial new mortgage process that would not include appraisals, according to an article by Kenneth Harney for the Chicago Tribune.
The mortgage giant is getting rid of traditional appraisals and replacing them with a free alternative valuation system, according to the article. This new process could begin as early as next spring.
From the article:
For consumers, the company believes, this could not only eliminate appraisal expenses — which typically range from $350 to $600 or more — but could cut down on current closing delays attributable to appraisals. It also could relieve lenders of their current burdens of responsibility for the accuracy of appraisals — a major sore point with banks that sell loans to Freddie subject to potential "buy back" demands if significant errors are later found in appraisals.
This step isn’t surprising as several speakers at the housing summit hosted by the Urban Institute and CoreLogic, including Quicken Loans CEO Bill Emerson, said that closing times could conceivably be much shorter than they are now, even as little as 10 days.
In fact, it seems that what’s keeping lenders from closing a loan in a week and a half instead of a month and a half is actually appraisers, HousingWire’s Ben Lane reported from the summit.
As might be imagined, however, this decision has been met with controversy. Some critics even say that Freddie Mac is headed down a perilous road.
From the article:
Reliance on publicly available data without careful physical inspections of properties verges on "craziness," said Joe Adamaitis, vice president and residential lending manager for Insignia Bank, based in Sarasota, Fla. "We would never allow it here."
Not surprisingly, appraisers who know about the plans are up in arms. The Chicago-based Appraisal Institute, the largest professional group in the valuation field, has written to Freddie Mac's regulator, Mel Watt, director of the Federal Housing Finance Agency, urging him to take a hard look. Freddie Mac's "decision to veer away from fundamental risk management practices appears to harken back to the loan production-driven days in the years leading up to the 2007-2008 financial crisis" — abuses that "turned out to be disastrous for the entire economy," the group wrote.
In its own way, Fannie Mae is also seeking to speed up the mortgage process. Fannie Mae's "Day 1 Certainty" program helps lenders address risk up front in underwriting and property appraisal and inspection so that they can lend with confidence, Timothy Mayopoulos, president and CEO of Fannie Mae, said at the Mortgage Bankers Association annual conference in Boston.