A few weeks ago we learned about what the Republican plans were for the housing industry. Today, we’re going to learn about a bill being proposed by two Democrats, Sen. Robert Menendez, NJ, and Sen. Barbara Boxer, Calif. The bill would give homeowners with mortgages held by Fannie or Freddie the opportunity to refinance through the Home Affordable Refinance Program (HARP.)
What’s the Catch?
The only catch is they must be current on their mortgages and have equity in their home. Right now, this program is only available to homeowners who are underwater. One important and detrimental detail of this bill is it would eliminate appraisals. The reason given is to limit costs to borrowers, so they are proposing Automated Valuation Models be utilized instead, thus eliminating the appraisal fee. In the same bill, they are also calling for stricter underwriting criteria. Am I the only one that sees the contradiction? How can you say you want stricter underwriting criteria, then say an actual appraisal is not necessary? AVMs are notorious for being inaccurate in determining specific real estate values, primarily due to pulling neighborhood information without knowing accurate, specific details on the Subject property and being able to choose similar property sales. Saving borrowers money on a refinance is a great idea, but not this way. The appraisal is a significant and necessary tool in the loan process. Are we going to rely on an AVM to determine if a property has equity and if so, the amount of equity? Haven’t we learned anything from the current housing crisis?