Foregoing Contingencies! But What About Fiduciary Duty?
It is no surprise that some loan officers are salivating over the prospect of not having to wait for a full appraisal or a home inspection. After all, who doesn’t want to close more deals in less time? While this may be beneficial from a broker’s perspective, it could result in borrowers making decisions without being fully informed about their investment.
Kim Nichols, senior managing director of Pennymac TPO, recently spoke to Mortgage Professional America about the changes to valuation methods and why they can benefit mortgage brokers & borrowers alike. According to her comments, these changes will make it easier for loan officers and their clients to secure mortgages without having any contingencies like full appraisals or building inspections.
“On the Fannie Mae Desktop Underwriter (DU), loan officers now have the option of ordering a property data collection (PDC) in lieu of an appraisal. If an LO can get their arms around it and understand it, they can educate the realtor community that there is another option,” Nichols said. “Maybe their buyers won’t be beaten out by a cash buyer willing to forego other contingencies. They can really use it to help their referral partners structure more deals for their borrowers to win and succeed in buying the property that they want.”
It’s easy for Kim Nichols and other industry insiders to promote this kind of thinking as beneficial. However, she fails to recognize that not using appraisals or building inspections could put people in financial danger if problems arise with their property.
In addition, her suggestion goes against everything we know about fiduciary responsibility – namely that loan officers should always have their customers best interests at heart rather than trying take shortcuts which may help them win more deals but leave those same customers exposed later on down the road.
The value of an appraiser actually visiting the property cannot be overstated. While Property Data Collectors do collect data and assess condition, they are limited in their scope of inspection which may lead to missing critical factors that can affect a property’s value or identify potential issues for buyers. This lack of comprehensive market data can result in inaccurate valuations and could potentially have serious financial implications for those involved.
The lack of comprehensive market data means that buyers could end up paying more than they should for properties with hidden issues or flaws; something an appraiser would have been able to identify during their visit.
By foregoing contingencies such as home inspections and appraisals altogether, mortgage lenders risk violating their fiduciary duty – which is supposed to prioritize the interests of the borrower above all else.
Also concerning is the potential for privacy issues with the use of Property Data Collection services. As Property Data Collectors take video footage of entire homes, including all items in every space, it raises questions about where this data goes and who can access it. Furthermore, the recent case involving a convicted felon being hired as one such collector, highlights how serious this issue can be if proper measures are not taken in order to ensure that all personnel involved in collecting property data have been properly vetted and licensed accordingly. There is a legitimate fear that criminals might be able to use property data collections as a way to “case” homes for criminal activity such as robberies or sex crimes, creating significant liability not only for lenders but also GSEs, taxpayers, homeowners and borrowers who order or rely on these services.
In conclusion, while PDCs can expedite loan processing times & potentially increase profits for brokers & lenders alike – they also pose significant risks for borrowers. Any decision regarding valuation methods must take into account both parties’ interests before proceeding further down this path! The introduction of new valuation methods for consumers and loan officers should be approached with a healthy dose of skepticism. These changes have the potential to raise significant concerns about transparency, reliability, bias, cost and market stability. As such, individuals need to take time to carefully evaluate these new methods before fully embracing them in order to ensure that they are not placing themselves at risk or exposing themselves unnecessarily.
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