The battle between humans and bots has a new front: the mortgage.
The federal regulator has proposed loosening real estate valuation requirements to allow the purchase and sale of most homes in the US. The Law without being evaluated by an authorized human appraiser. This has the potential to open the door for cheaper, faster, but mostly not proven property valuations based on computer algorithms.
The proposal was made earlier this month by the Office of Currency Financial Supervisors, the Federal Deposit Insurance Corp and the Federal Reserve. This will increase to $ 400,000, from $ 250,000, the value of homes that can be bought and sold without metric tape assessors visiting the property.
More than two-thirds of US homes on their Act sell for $ 400,000 or less, according to US Census data. Law and National Association of Real Estate Agents. If the regulator's proposal took effect last year, around 214,000 additional home sales, or around $ 68 billion, could be made without evaluation, the regulator said in their 69-page proposal.
However, some are worried that a decline in evaluation requirements will pose a new market risk of $ 10.7 trillion for mortgage loans.
"We still prefer humans to conduct evaluations," Lima Ekram, a mortgage-backed securities analyst at Moody's Investors Service, said.
One problem: automatic assessment carried out by computers is not widely regulated. The 2010 Dodd-Frank financial review forced regulators to propose quality control standards for so-called automatic valuation models, but they have not done so.
"There are many problems with evaluation, but there are big standards," said Ritesh Bansal, executive director of Appraisal Inc., a New York-based automated valuation provider. "On the side of the AVM, it is wild and wild in the west, and it only invites all kinds of violations."
The regulator said the direct effects of eliminating evaluation requirements would be limited because most mortgage loans in that range were bought by mortgage giants Fannie Mae and Freddie Mac today, or guaranteed by other federal agents. Which usually requires evaluation regardless of the value of the house.
The assessment helps "ensure that the estimated value of the property supports the purchase price and the amount of the mortgage," the regulator wrote in their proposal. "However, agents also realize that the costs and time to get an evaluation can, in some cases, result in delays and increased costs."
Removing evaluation requirements will open up a new patch of territory for new property valuing companies, such as HouseCanary Inc., which uses artificial intelligence, algorithms, and sometimes, even drones to assess homes. Jeremy Sicklick, the company's chief executive, said replacing computer assessors would accelerate home sales in a few weeks, reduce costs for buyers and eliminate bias and human errors in the process of valuing mortgage guarantees.
"Technology has reached the level where these changes have benefited consumers and lenders," Sicklick said.
While evaluations are based on criteria such as comparable home sales recently, they are sometimes more art than science. And the judges were attacked as a result of the housing crisis, assuming that they were very guilty of inflating house prices at the request of lenders.
His final battle in the region came months after defeat at the hands of legislators who reversed some banking rules in the era of financial crisis. The change eliminated most of the appraisal businesses by freeing up many rural properties from valuations.
"The assessment profession suffered death with a thousand injuries," said Joan Trice, executive director of Allterra Group, a Maryland company that tracks industry.
Since the collapse of housing, the number of appraisal credentials in the United States has decreased by 21%, to less than 96,000, according to a federal group that regulates the profession. Some lenders complain about the boom of appraisers and the rural market is very rare.
Last fall, a rural bank in Tennessee asked federal regulators to override evaluation requirements and allow an employee with some evaluation training to assess guarantees. The request was rejected, but triggered a national debate about whether there were enough evaluators and how households could be assessed without them.
The assessment fee is generally between $ 375 and $ 900 for a single family home. Assessments produced by people like HouseCanary often cost less than $ 100 per house. The same applies to opinions on intermediary prices, which are a kind of superficial evaluation carried out by real estate agents and even subcontracted to office workers in India who use online data.
The story continues
Wall Street banks and investors use this alternative to assess housing portfolios and mortgage loans, because valuations that are too high or low tend to be balanced in groups of thousands of properties.
However, the assessor believes that this approach is not suitable for home purchases. A small percentage discounted judgment can make the homeowner owe more than what is worth the house or lender with guarantees that are not enough to cover the loan by default.
"No computer can see, hear, feel, smell and touch," said Pat Turner, an assessor in Richmond, Virginia. "Have you ever been in a hoarder?"
Write to Ryan Dezember at ryan.dezember@wsj.com and Cezary Podkul at cezary.podkul@wsj.com
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