The use of technological alternatives to traditional residential property appraisals is likely to expand in the coming months and years, yet it could bring new risk to the mortgage industry, or so says a new report from Moody’s Investors Service.

Currently, most appraisers are currently in their late 50s. And those who are in the field aren’t mentoring a lot of trainees due to the lack of compensation and benefit, along with lender restrictions.

These problems are leading those in the housing industry to look for alternative solutions involving technology to solve the problem.

In November of last year, Freddie Mac announced it is planning a controversial new mortgage process that would not include appraisals, and would replace them with a free alternative valuation system.

And in March, First American Mortgage Solutions, a subsidiary of First American Financial Corp. and provider of solutions covering the entire residential loan spectrum, launched its new appraisal solutions technology and brought on its first network of in-house appraisers.

But now Moody’s released a new report showing appraisal alternatives such as hybrid appraisals, broker price opinions and automated valuation models could weaken credit quality of new residential mortgage backed securities.

“In seeking to reduce operational costs, increase efficiencies and address the shrinking ranks of US property appraisers, mortgage market participants are exploring the use of alternatives to traditional means of calculating property values and, in some cases, starting to use them more,” Moody’s analyst Lima Ekram said. “Their use in tasks that affect the credit quality of RMBS securitization collateral could, however, lead to a weakening of new RMBS transactions.”

Among alternative approaches the components used in arriving at a valuation will vary, sometimes significantly, Ekram said, highlighting the potential for different approaches to yield different outcomes, some of which may be more reliable than others. Hybrid appraisals, for example, rely on information from on-site property examinations conducted by a third party, often a real estate agent or broker.

Moody’s stressed it is also important to look at whether a non-traditional appraisal alternative is being used as the primary means of property valuation, or if it is used mainly as a means of quality control.

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