Computerized real estate appraisals are now coming under fire from homeowners who say they are underestimating values, preventing them from refinancing or borrowing against their houses, the Wall Street Journal reported. Lenders use computerized appraisals primarily for home-equity loans, preapprovals for mortgage refinancing, loan modifications and mortgage originations of less than $250,000. Such automated appraisals are cheaper and faster than in-person appraisals, costing as little as $20, while appraisals done by people can be hundreds of dollars. According to federal banking regulators, the computerized models are used as a check on in-person appraisals, which were often too generous during the housing boom.
In the wake of the housing bust, regulators imposed tough new rules, prohibiting banks from picking individual appraisers for individual properties. “The selling point was that [computerized appraisals] were faster and not prone to bank pressure,” said Steven Kane, a Colorado commercial and residential appraiser who authored two books on the subject. Borrowers have sued JPMorgan Chase, Wells Fargo and other big lenders, claiming that banks are misusing automated appraisals models to cut lines of credit in home equity. [WSJ]