Come July, homeowners may have an easier time canceling monthly mortgage insurance payments, saving perhaps as much as hundreds of dollars a year. But the method by which they can apply for termination of their private mortgage insurance policies, a process that may require a reappraisal of the houses, has sparked criticism.
Last month Freddie Mac, one of the largest buyers of mortgages written by banks, brokers and other lenders, said it will accept home appraisals by real estate brokers. Fannie Mae, which finances houses for lower- and middle-income Americans, soon will announce that it, too, will accept broker valuations.
Real estate appraisers say valuations done by anyone other than a trained and licensed appraiser should be unacceptable.
"You need someone that has the training, the education to give that valuation," said Michael Cibene, a senior residential appraiser at Michael's Appraisal Inc. in Fort Lauderdale. "Otherwise you're just pulling a number out of the sky."
Cibene said Freddie Mac could be creating avenues for potential miscalculations and fraud. He also noted that many states have passed laws requiring that real estate valuations be conducted by licensed appraisers.
Freddie Mac officials say they do not foresee problems with inaccurate or imprecise appraisals. They point out that, since they deal not with consumers but instead with their lenders, it is up to the financial institutions to decide who is to prepare appraisals.
Realty agent Jim Balistreri of Balistreri Realty Inc. in Fort Lauderdale said he understands the appraisers' concerns. "However, a Realtor who is proficient can also come up with an opinion that is very, very representative of the marketplace."
Homeowners often must take out private mortgage insurance policies when they purchase a house with less than a 20 percent down payment. The policy guards the lender, whether a bank or mortgage broker, against loan default.
This type of insurance is different from mortgage guaranty policies, which cover the balance of a mortgage if the borrower dies.
The federal government simplified the process for private mortgage insurance cancellations last year. Under the new rules, insurers must cancel policies when the homeowner's equity reaches 22 percent. A homeowner, however, can request termination at the 20 percent threshold.
The trick is that consumers can count appreciation in the value of their home as equity. For example, a homeowner whose house is worth $10,000 more than when it was bought can factor that amount into the calculation of equity.
John Primeau, senior vice president of mortgage lending at Republic Security Bank in West Palm Beach, said the company is determining who will make those calculations.
"I don't think we would look for a full-blown appraisal, but I would have a problem with just a [broker price]," he said. "We will come up with a format that is somewhere in the middle of the two."