Give me a break

[DWiley]

Waivers were widely used for origination loans, that's how the banks ended up with all sorts of weird properties on their books that they never would've made a loan on had they ordered a full appraisal. When interest rates dropped and everybody wanted to refi those 5% loans they had gotten under the property inspection waiver program some them could not get refinanced due to appraisal issues.

Actually, waiver use back in those days was very limited. The expansion of waiver use recently has been driven by two things (1) better models - and by that I mean models that are better at self identifying when they should and should not be used and (2) the surge in rate term refis where the GSEs already have the loan and all the associated risks. See my prior post about appraisals on refis of an existing loan already owned

 

[DWiley]

Shock me. I'm curious.

The data is actually publicly available to anyone who knows where to look. Hint, look at the stuff AEI publishes and note their sources

 

[Mike Ault]

Actually, waiver use back in those days was very limited. The expansion of waiver use recently has been driven by two things (1) better models - and by that I mean models that are better at self identifying when they should and should not be used and (2) the surge in rate term refis where the GSEs already have the loan and all the associated risks. See my prior post about appraisals on refis of an existing loan already owned

Yes, I did misspeak when I said waivers were widely used. Substandard valuation techniques were widely used however for originations that were destined for the "Private Labeled Securities" section of the secondary mortgage market, it comprised a substantial portion before the crash and the GSE's testified in front of their champions in Congress that they were concerned about losing market share to them. Loss of that much market share to competitors using these new "innovative securitization techniques" was unacceptable and a lowering of lending standards to compete was the result. A fairly concise synopsis can be found here https://www.econlib.org/cee/2008FinancialCrisis/

 

[David S. Roberson]

The data is actually publicly available to anyone who knows where to look. Hint, look at the stuff AEI publishes and note their sources

What is AEI?

 

[DTB]

What is AEI?

Mortgage Default Rate

How risky are mortgages right now? The National Mortgage Default Rate (NMDR) provides accurate and timely tracking of risk in the mortgage market. The NMDR is a stress test, similar to a hurricane rating for buildings, using the 2007-08 financial crisis as the stress event. It covers nearly all...

www.aei.org

 

[DWiley]

Oh, and as I have done in others posts, I will point out the irony of so much wailing and gnashing off teeth over waivers while over the past year the GSEs have processed more loans based on appraisals than any other time since the UCDP was introduced. In many areas appraisers have more work than they can say grace over. I guess it is just human nature

 

[RCA]

The reasons for a bad AVM vs a bad appraisal imo would be different. The AVM and the appraiser both have access to the same data. The appraiser qualifies the data, the AVM can not do that on a personal each one analyzed basis, but by a rote programming basis. And the rote part is the flaw...maybe in future years AI will replicate human experience and judgement but we are not there yet .For example, the fannie CU comps satisfy their rote within a mile within X % sf, but can range from good to mediocre to terrible comps due to various reasons.

If an appraisal is bad, other than a one off event, it is either the appraiser was not competent for the assignment or the appraiser set out to mislead/ inflate value - either way especially the second the clients should not be using that appraiser -

The other flaw with an AVM is the AVM concludes X $ value, is that a range or a point value with a confidence score around it ? Either way, who on the client or user end gets to choose the value from that AVM or whether to rely on it, order another one? idk but seems a murky area..

Yea. That true. A couple of days ago I put up on a forum that I was just finishing an appraisal for Montara and was surprised that almost all of my comps were within 1%. I went back to do more work on it and saw that the MLS I had actually stuck in one that was simply an average and also one of the comps actually had an ocean view. Those damned ocean views!!!. You know, they are not all the same, and the MLS only says "TRUE" or "FALSE". I have 220+ comps and there is no way I could go through everything and check and rate the ocean view. Although, I think in terms of whether there is at least a "peak ocean view" 90%+ are correct. I had to go over everything again.

I spend a hell of a lot of time on this for $700. But for me, being retired, well I like doing it.

Anyway, going over everything very carefully, so that the models do make sense. No weird stuff except there is a 2-way interaction between baths and sale age (COE age) that I really can't get rid of, it is very persistent.

This is what the deviations of the comps from the average come in at - and I was shocked:



That is to say, each of these comps was adjusted within 1/5th of one percentage point of their average (the concluded value) ... And this was spit out by my computer program. Of course I had to do a lot of work getting the data correct and using MARS. And no one is going to believe you can get this close. But yes. I have one model that I consistently applied to each of these homes to get the adjusted price, and the model is not all that complicated. These are all custom built homes ages 15-80 years in a small California Coastside community.

But the point is, to do this, you really have to understand the characteristics and what make sense or doesn't

 

[Mike Ault]

Oh, and as I have done in others posts, I will point out the irony of so much wailing and gnashing off teeth over waivers while over the past year the GSEs have processed more loans based on appraisals than any other time since the UCDP was introduced. In many areas appraisers have more work than they can say grace over. I guess it is just human nature

Yes, similar to the irony of one appraiser who posted here years ago that used to work for the phone company. He said they were extremely busy for the last couple of years even hiring extra field service technicians to switch out old-style telephone wall receptacles for the new style modular jacks. After that job was complete they had no more use for 90% of their field service technicians. Poor example because that was real progress, prior to that phones had to be "installed" or moved to a new room by a trained person, afterwards the consumer could move them around at will. Now that 90% of field appraisers seemed destined to soon be replaced by 10% of low bidder desk appraisers working in conjunction with low bidder remote data gatherers the "wailing and gnashing of teeth" seems more than justified to anybody who cares about the appraisal profession and the direction that is headed (and hasn't drunk the AVM Kool-Aid). I reiterate, people are making backroom, profit driven "risk tolerance decisions" that affect the entire housing market and by extension the whole economy without input from the public at large it seems. And once again the only thing we know with certainty is who will be left holding the bag.

 

[Mejappz]

(and hasn't drunk the AVM Kool-Aid).

DW has drunk the AVM Kool-Aid by the gallons.

 

[Joe Flacco]

There are only two acceptable options for the GSEs

1) Privatize them and make it clear that there is no government guarantee of the MBS.

2) Remain under government control with all profits being swept into a fund for future losses.