Property Inspection Waivers: Who gets sued?
For a borrower, a Property Inspection Waiver (PIW) sounds like a win-win. Lower cost, faster closing, what could go wrong?! Appraisers have been warning against these fraudulent products for as long as they've been in existence, but the volume is only going up.
A PIW was originally only supposed to be issued on high loan to value ratio mortgages when there was a recent sale. However, now there is evidence that no recent sale is needed AND it can be used to wipe out a property mortgage insurance (required when the loan to value ratio is higher than 80%).
A PIW is issued using an algorithm provided by Fannie Mae with influence data from the loan officer to estimate the current value of the property. Of course, 1) the loan officer is not an independent opinion, but only gets paid if there is a loan closing, 2) the data that Fannie Mae has is notoriously error-filled, 3) the algorithms, by an interview with a Fannie Mae rep, are as much as 12 months outdated at any given time.
We're seeing a return to the kind of practices that caused the 2008 financial crisis, all in the name of "deregulation," otherwise known as "let us make money as fast as we can, and please bail us out when we crash."
Agent and Loan Officers, the question you need to ask is, "Who will the borrower sue if the PIW turns out to be wrong, and they are on the hook for the difference?" They can't sue an algorithm, and Fannie Mae has an army of lawyers. The borrower will have been advised by someone with a "fiduciary duty" to be objective. How can anyone claim to be objective to recommend that they borrow money based on such a faulty product?