Potential Tsunami of Mortgage Fraud
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Here is my take on the new ruling since I just happen to be an appraiser with 34 years of experience:
Lenders have seen their mortgage volume drop because of liquidity issues (namely job loss and uncertainty about future income). Lenders are also reluctant to issue low rate loans in this situation given concerns about liquidity and lack of processing capacity, so mortgage rates are not falling in aggregate. In essence, they are slightly higher than a month ago. There is also the likelihood of declining property values going forward, so an 80% LTV could be a 100% LTV tomorrow.
So to fix this, the Treasury, the Fed, and FDIC have opted to allow banks to skip the appraisal for 120 days despite efforts by FHFA to allow for driveby and desktop alternatives. They are not waiving the appraisal. Yet 120 days after the loan, appraisers will provide an opinion which I would assume would show a lower value. What do banks do with that?
This rule only applies to FRT (federally related transactions), which is a small number of mortgages. Still, you can bet other regulatory bodies will adopt this rule quickly to try to bolster the mortgage volume so people can take advantage of the low rates. Yet this is not the problem. These three parties have already been critical of the appraisal process, as evidenced by their recommendations to save on cost and timing without consideration of quality and reliability last year.
The thing is, the appraiser isn’t the problem. Property access has been solved temporarily by drivebys and desktops via FHFA for sales. But refinance activity has been limited because the banks don’t want to take on the risk. After all, they don’t trust the daily changes in regulations by the federal government, have real concerns about a future with falling values and significant liquidity risk. The primary problem is liquidity, and all this rule does is unleash a potential tsunami of mortgage fraud and predatory lending on the housing market when people are most vulnerable.
Perhaps this rule was made with the best intentions, but it reflects a fundamental misunderstanding of what the purpose of an appraisal is.
Let’s hope most banks avoid this recklessness that will be paid again by the taxpayer.