Gaming of the System
Appraisers have some very strong opinions on computer driven appraisals. Others are noticing the dangers as well. It is more than just automated valuation models though. In an article written by Danielle DiMartino Booth, for Bloomberg, Fannie Mae and Freddie Mac are specifically called out on their appraisal waivers. The author compares the dangers of the automated income verification being done in the 2000’s and how the system was easily gamed to the appraisal waivers currently being done. The author is not wrong, gaming of the system is happening not only with income, (yes automated income verification has returned) but now property valuations. AVMS, Collateral Underwriter and Hybrids. Do we even know what is real anymore?
Now we all know how gaming of the system has turned out in the past and what is going to happen in the near future, but there are many consumers who are unaware that Fannie and Freddie are repeating the same bad practices that caused The Great Financial Crisis of 2008. This time it is with taxpayer money at risk.
“I’m a big fan of automation,” Pinto said in a recent conversation. “But the one I designed was for a bank, which retained the risk of the mortgage. With Fannie and Freddie, it’s the taxpayer who assumes the risk, so their only incentive is to push volumes and share as high as possible. We saw how dangerous this was with the GSEs’ automated underwriting systems in the ’00 years. My fear is that appraisal waivers will repeat the same pro-cyclical mistake.”
Many appraisers know Ed Pinto. He is the Director of the AEI Housing Center and former Chief Credit Officer at Fannie Mae.
The article in Bloomberg is very telling and has lots of facts and figures. Not only should every appraiser read the article, it should be shared with everyone you know. Clearly pointed out in the article, Fannie and Freddie are gambling with taxpayers money. American Citizens have the right to know!
Let’s educate our friends, neighbors and community. Fannie and Freddie may not remember what happened in 2008, but consumers still do. Can we all please share? Make sure you share with your representatives as well. It is an election year and time will tell how this plays out. Let’s do our part and educate our fellow Americans.
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