Last week Freddie Mac and Fannie Mae both unveiled their appraisal free programs. In other words, an automated valuation will be needed instead of a full 1007 appraisal if certain criteria of the loan are met along with all other DU requirements. That is, a purchase loan for 80% LTV or lower and home must be the borrower’s primary residence. Currently, that’s less stringent than CALCAP’s automated valuation decision which is a 55% LTV threshold. (However, much of CALCAP’s underwriting decisions are based on the asset) As you can expect Fannie and Freddie’s announcement last week has caused a lot of pushback in the residential appraisal industry saying that it’s a dangerous step for the origination process and could lead to disastrous consequences. One appraiser said, “wow cut the appraiser and save a whopping $500? Why not cut out the home inspection and title search too? Can’t believe the stupidity” Although Fannie and Freddie expect this program to only cover 5% of the purchase market, for better or worse, this is a significant first step toward automating the entire appraisal industry. One side of the coin (rightfully) would say there is always a human element associated with valuing property because real estate is local and specialized. However, the other side would say much like all of automation and technology in the 21st century, if the job can get done faster and cheaper by automation then there will be a disruption. It will be interesting to see how the industry changes as automated valuations become more accurate and relied upon. What do you think? We would love to hear your take on this topic that will definitely be a hotly debated issue for years to come.
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