Waivers, huh?

[George Hatch]

Your friends at American Enterprise Institute keep track of GSE activity on the monthly basis:

Prevalence of GSE Appraisal Waivers

The use of appraisal waivers at the GSEs has exploded in recent months and now accounts for over 40% of all valuations.

www.aei.org

 

[George Hatch]

So the totals above speak to how many waivers the GSEs use in total, but below is a breakdown by LTV, which is arguably much more relevant when it comes to the questions involving risk management and what represents a sufficient amount of due diligence WRT safe/sound lending. What do you notice about GSE usage of waivers on purchase transactions?

 

[George Hatch]

What do you notice about GSE usage of either appraisals or waivers in their cash-our refis?

 

[J Grant]

Far as I can tell, waivers are used with high equity to loan value re fi's

WRT their risk management - if waivers were so low risk why does not fannie, freddie, or the lenders back any losses when a waiver is used for the valuation ?? They don't- it;s all on the taxpayer.-

 

[Mike Ault]

But then we have this…

 

[Mike Ault]

And this… admittedly old Covid data…

Massive Expansion of Appraisal Waivers

Editor’s Note: Currently appraisal waivers make up approximately 46% of all valuations for GSE mortgage transactions. Massive Expansion of Appraisal Waivers by Isaac Peck, Editor The expansion of Fannie Mae and Freddie Mac’s (the GSEs) appraisal waiver programs, to replace traditional...

www.workingre.com

 

[Mike Ault]

 

[George Hatch]

From a lender's perspective, the cash-out and purchase transactions are where the risks come in. Not the no-cash refis.

If a lender or GSE is doing a no-new-cash refi then they already know what that borrower has been doing and they already own that mortgage. They may not ALWAYS have a prior appraisal on file which informs them of the subject attributes, but they usually will. Either way, the money has already gone out the door and their exposure to the risks already exists as a fact independent of the accuracy of the facts in the prior valuation.

As for the previous usage, the Covid lockdowns were obviously of significant effect on the usage of waivers. But the post-lockdown usage from 2022-2023 have been substantially lower. The reference from the WorkingRe article that Mike posted above (post #6 in this thread ) ended in 2021. This is the other half of that story as of 11/2023, which is the most current AEI reference.

 

[George Hatch]

Far as I can tell, waivers are used with high equity to loan value re fi's

WRT their risk management - if waivers were so low risk why does not fannie, freddie, or the lenders back any losses when a waiver is used for the valuation ?? They don't- it;s all on the taxpayer.-

What losses at the GSEs are not ultimately backed by the taxpayers? Similarly to the VA, the GSEs are not operated exactly like a conventional lender. The "enterprise" part is, but there are strings attached to the "government sponsored" part. And the parties pulling those strings reside in each of the three branches of the federal govt; Executive, Legislative and Judicial.

 

[George Hatch]

And circling back to that "IF the risks are so low...", lemme ask you: If a borrower already has an equity position of 20% or more in their home, do you think the risk to the lender for that loan going down later as high as it is when the borrower's equity position is within the margin of error for a conventional 1004 appraisal?

As for how they're coming to these decisions, check out the explanation that the AEI summary presents:



If you were going to rephrase that "data-based analysis" into another term, what term would you use that means the same thing? And while were talking about the GSEs usage of "data-based analysis", what do you think is the likelihood that the GSEs have been using the same sort of "data-based analysis" to check on the reasonableness of the conventional 1004s?