One concern for banks and investors who purchase mortgage backed securities is the quality of the appraisal. If the appraisal is below actual market conditions the bank has a lower risk of lost revenue. However, if an REO property was appraised too high then upon auction or sale of this property a higher revenue loss is essentially guaranteed. To combat this problem Kirchmeyer & Associates is partnering with Group9 Insurance Solutions to offer appraisal insurance for banks and investors to cover this financial loss.
At first glance this insurance might not seem helpful to home owners. However, home owners currently have issues selling their homes for two reasons. First, banks are reluctant to loan money to particular individuals fearing they will default on the loan. Second, in many cases the appraisals are coming in under the contract price. This prevents banks from providing loans unless larger down payments are made to cover the difference in contract and appraised value. In addition some appraisers are fearing law suits by banks if their evaluations are too high so they tend to evaluate conservatively.
The new insurance coverage will now allow banks to insure against loss due to poor appraisals hopefully freeing up banks to increase their loan amount, and re-leaving some fears of appraisers halting their conservative approaches. For more details click HERE.