Give me a break

[Terrel L. Shields]

virtually all those loans were based on/backed by appraisals. Ooops

I believe the losses were from the mortgage bundled (MBSs) PLUS Fannie got into derivatives. In the end, it wasn't the individual mortgages that caused the bailout. It was taking on risking investments in pumped up Moody Approved AAA crap that was D grade at best.
Fannie Mae's loan acquisitions were:

• 62% negative amortization
• 84% interest-only
• 58% subprime
• 62% required less than 10% downpayment

Freddie Mac's loans were even more risky, consisting of:

• 72% negative amortization
• 97% interest-only
• 67% subprime
• 68% required less than 10% downpayment

Don't excuse these losses and blame them on appraisals- they were taking junk and adding to a few good properties to disguise them as AAA bonds. That's F/F's fault, not the appraiser. F/F was buying junk and not reviewing those appraisals when they even existed.

 

[DWiley]

You fix situations like that by ordering field reviews on a sufficient number of appraisals until everybody doing GSE work is doing it right. It wouldn't take that long, be that expensive nor as destructive to the transparency & independence of our financial system. The only thing we're going to ultimately be entitled to see out of your AVM is a cloud of "trust me fairy dust" as well. Or you could have a public facing AVM and a real AVM for inside people who really need to know. Lack of transparency and lack of accountability will ultimately lead to abuse of the public trust. You can trust that.

Would it not be simpler to just require support for adjustments within the report? Why require the forensic machinations you suggest rather than just having the appraiser out the cards on the table?

 

[DWiley]

I believe the losses were from the mortgage bundled (MBSs) PLUS Fannie got into derivatives. In the end, it wasn't the individual mortgages that caused the bailout. It was taking on risking investments in pumped up Moody Approved AAA crap that was D grade at best.
Fannie Mae's loan acquisitions were:

• 62% negative amortization
• 84% interest-only
• 58% subprime
• 62% required less than 10% downpayment

Freddie Mac's loans were even more risky, consisting of:

• 72% negative amortization
• 97% interest-only
• 67% subprime
• 68% required less than 10% downpayment

Don't excuse these losses and blame them on appraisals- they were taking junk and adding to a few good properties to disguise them as AAA bonds. That's F/F's fault, not the appraiser. F/F was buying junk and not reviewing those appraisals when they even existed.

If the argument is that the evaluation of the collateral was not the problem, then why all the angst about AVMs. Can’t have the cake and eat it too.

 

[Mike Ault]

Would it not be simpler to just require support for adjustments within the report? Why require the forensic machinations you suggest rather than just having the appraiser out the cards on the table?

I have no problem with the GSE's adding additional appraisal requirements to the current overlay, in fact, I would applaud them. The 1004 MC addition is a good example that required everybody to at least think about analyzing the market. I do however have a considerable problem with the amount of assumptions an appraiser is going to have to make to produce a competent valuation product based on the proposed third party inspection/inspector. Confident in the knowledge that his competitor won't be working very hard on their valuations at $50 per.

 

[Terrel L. Shields]

I have no problem with the GSE's adding additional appraisal requirements to the current overlay

if they are willing to pay for it. Which really begs the question. If we have an average home price of $295,000, why is paying $500 or $600 for an appraisal such a cruel burden upon the homeowner? It isn't even half of a single months mortgage. The title insurance costs more, etc. etc. When I started in 91-92, a fee was $250-325 and the average home was under $100k. 3x 300 = $900

 

[Terrel L. Shields]

Let's do some more math.

30 year 3% interest on $300,000
Monthly payment $1,261

6% interest Monthly payment. $1,790

1992-
adjust $300,000 home back to 92
Inflation calculator says $160,905.57
9.5% (my home loan after the 11%+ construction loan - 1992)
$1,342.35...monthly payment in 1992
Now what would that payment equal in 2021 dollars? 46.4%
$2,504... Today's low interest rate means you save right at half what you would pay on a mortgage at 9.5%. What would you do if you suddenly had to refi at 9.5%? Could you swing doubling your home mortgage?

 

[DWiley]

I have no problem with the GSE's adding additional appraisal requirements to the current overlay, in fact, I would applaud them. The 1004 MC addition is a good example that required everybody to at least think about analyzing the market. I do however have a considerable problem with the amount of assumptions an appraiser is going to have to make to produce a competent valuation product based on the proposed third party inspection/inspector. Confident in the knowledge that his competitor won't be working very hard on their valuations at $50 per.

I share that concern. That is why we are testing. We are not assuming that it is equal, better or worse. We are gathering data to analyze. Again, that is what appraisers do. Remember however, that the measure is not perfection. The measure is how well does it stack up to the traditional appraisal.

i have seen several articles on the “problems” with hybrids. Many have included an actual report as a sample. I have observed that many of the issues noted (in the M Ford article, for example) are equally problematic in traditional appraisal reports - but they never seem to point that out. Hmmmm

 

[J Grant]

LOL. Risk management is the only reason that lenders are required to get appraisals. You can try to spin it any way you want, but that is the bottom line. Waivers are granted in situations where it has been determined that risk management does not require an appraisal. Why else would a lender ever order an appraisal, if not for risk management?.

Why else.... to know what the property is worth for LTV as of eff date, and to know the property condition, defects and attributes for investors since it is the collateral for loan?

 

[DWiley]

Let's do some more math.

30 year 3% interest on $300,000
Monthly payment $1,261

6% interest Monthly payment. $1,790

1992-
adjust $300,000 home back to 92
Inflation calculator says $160,905.57
9.5% (my home loan after the 11%+ construction loan - 1992)
$1,342.35...monthly payment in 1992
Now what would that payment equal in 2021 dollars? 46.4%
$2,504... Today's low interest rate means you save right at half what you would pay on a mortgage at 9.5%. What would you do if you suddenly had to refi at 9.5%? Could you swing doubling your home mortgage?

And how is that related to the method used to evaluate the collateral? If a “full appraisal” is used how would that lessen the burden on the borrower? I am not saying it’s not an issue - just not an appraisal/AVM issue

 

[DWiley]

Why else.... to know what the property is worth for LTV as of eff date, and to know the property condition, defects and attributes for investors since it is the collateral for loan?

Yes. And those are all elements of risk management for the lender/investor.