Desktop appraisals may minimize some mileage and undoubtedly open doors for a select group of private sector businesses. However, it is still unclear whether they are better than traditional appraisals and whether they will ultimately lessen racial bias, a key GSE policy objective. Starting on July 17, Freddie Mac will accept a limited number of mortgages with hybrid evaluations, but many restrictions exist.
First, only refinances are eligible for the choice. The loan-to-value percentage for cash-out refinances cannot exceed 70% for primary housing or 60% for a second home. The loan could be up to 90% of the house’s value for other refinancing deals. Manufactured houses, investment properties, duplexes, and fourplexes are not permitted as mortgage types yet.
As part of its equity strategy, Fannie Mae also intends to utilize hybrid appraisals more frequently starting in 2022. By increasing the distance between the appraiser and the borrower, hybrid appraisals are meant to lower costs for the borrower and lower the danger of bias.
Representatives of Fannie Mae said that the GSE had proof that alternative evaluation techniques reduce the incidence of confirmation bias. For example, compared to traditional assessments, which rely on human observations and may be rife with overt or subconscious bias, its appraisal modernization pilot, which used hybrid appraisals, demonstrated an 18%-point reduction in confirmation bias.
Alternative appraisals, on the other hand, often with the help of technology, focus more on objective data and an “arms-length” approach between the appraiser and the homeowner or buyer. To read more on hybrid appraisals and their adoption within the industry, click here.
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