Freddie Mac has gotten the go-ahead from the Federal Housing Finance Agency to launch an appraisal alternative for qualifying purchase mortgages.
The FHFA on Friday confirmed that it has approved Freddie’s plan to make its automated collateral evaluator available for qualified home purchases starting Sept. 1.
Freddie’s appraisal alternative for refinance, which it launched June 19, has saved borrowers up to $500 and reduced closing times by as much as seven to 10 days.
“We’re cutting costs and speeding up the closing process for borrowers,” Freddie Mac Executive Vice President David Lowman said in a press release.
Appraisers have been concerned that the appraisal alternative’s application to purchases in particular could go too far in cutting them out of the process, but Mark Johnson, chief strategy officer at LRES, says its use will be limited.
“They’re going to be very cautious at the outset,” said Johnson, whose company provides both traditional appraisals and automated valuations.
Freddie Mac and Fannie Mae both limit use of appraisal alternatives to loans where the data gives them enough confidence to forgo in-person verification of properties’ quality.
When it comes to purchases, Freddie will not only evaluate purchase transactions using the i same analytics and data sources that it uses to assess refinances, but take an additional step as well.
“Beyond that, the value and condition of the property are being agreed upon by an independent buyer who’s willing to invest a 20% (or greater) down payment,” said Lisa Tibbitts, a spokeswoman for Freddie Mac, in an email.
Fannie Mae has no apparent plans to extend its appraisal alternative to purchase transactions.