Appraisal Waiver (Explosion)

[DWiley]

yes, but.... you're not really comparing apples to apples, are you? (a) of course performance data related to delinquencies is going to be better for loans with PIW's - the LTV's are lower, the credit scores are higher, and the assets are greater. It's a 'credit' risk decision - not a 'collateral' risk decision. Kind of like a signature loan, right? (b) a better measure of whether the PIW is good or bad for business would be measuring the amount of the delinquencies from PIW loans relative to loans with appraisals, no?

Actually, I am comparing apples to apples. As you note, waivers are only offered on low risk loans. So, comparing the performance of waivers to the general population is an unfair comparison, as that would always favor the waivers because they are the lower risk loans to start with.

I am talking about looking specifically at loans within the same credit box. If you look at loans that are waiver eligible, but the waiver was not accepted, the ones with waivers still perform better.

 

[J Grant]

Performance data on loans with waivers indicates better performance than similar loans with appraisals. Lower default rate, and lower cost when they do default. Not what some want to hear, but it is what the data shows.

The better performance of the loan is not because of a waiver/lack of appraisal, and you know that, right ? The reason is the strength of the BORROWER in waiver loans.
A better loan performance is because waivers are granted to borrowers with very strong income and credit and/or more $ down in equity or NICO existing mortgage they were paying for years with good record


Disturbing to see implied as if using a wavier vs an appraisal is the difference. Since you know it is due to strength of borrower, why not state that as the reason?

If you switched things around and used appraisals for only the best credit worthy and stronger job/income borrowers and for high $ down /very secured loans and used waivers on the others the reverse loan performance would be true.

 

[DWiley]

Good performance of waivers during a period of favorable market conditions shouldn't be used as support for more aggressive use of waivers.

I agree 100%. But the data goes back many years over several market cycles.

 

[DWiley]

I don't think it really matters what the data shows until there is a decline of 10% or more in values. What is the performance when you get a 10% or 20% decline in values?

OK. And if values decline 10% to 20%, exactly how will having had an appraisal, as of a fixed effective date just prior to the loan origination, be more effective in that situation?

 

[J Grant]

Actually, I am comparing apples to apples. As you note, waivers are only offered on low risk loans. So, comparing the performance of waivers to the general population is an unfair comparison, as that would always favor the waivers because they are the lower risk loans to start with.
I am talking about looking specifically at loans within the same credit box. If you look at loans that are waiver eligible, but the waiver was not accepted, the ones with waivers still perform better.

If true, then what do you think is the reason?

What are the reasons waivers were not accepted? (not accepted by who ?) Was something discovered about the property making it need an appraisal or did the borrower decline a wavier ,and then an appraisal was done?

 

[alebrewer]

If you look at loans that are waiver eligible, but the waiver was not accepted, the ones with waivers still perform better.

Ahh. Fair enough. So then, has anyone proffered any hypotheses about why that is? IOW, what is it that causes loans where the waiver was accepted to perform better than loans where the waiver wasn't accepted? On the surface that makes no sense. There must be some mitigating factor that drives the fact (assuming your data is correct) that borrowers who choose not to use a waiver somehow aren't as creditworthy as borrowers who choose to use the credit waiver, no? Surely it can't be because the borrowers who took advantage of the waiver are $500 richer than the ones who didn't...

 

[J Grant]

OK. And if values decline 10% to 20%, exactly how will having had an appraisal, as of a fixed effective date just prior to the loan origination, be more effective in that situation?

Why did values decline 10-20% - were the properties over valued in a market cycle, or did a bad economy/other affect prices ?

It is kind of a chicken and egg question - if appraisers were 100% insulated from business pressure to hit high values ( be it sale or refi purpose), and no trend to use number hitters (which still goes on ), then appraisals could prevent inflated values from being green lit for loan. And since waivers are tied to prices , preventing inflated values would positively impact both forms of valuation.

I've seen articles where lenders report they like a waiver because it meets a sale price more often or refi target more often than an appraisal.

 

[Joe Flacco]

OK. And if values decline 10% to 20%, exactly how will having had an appraisal, as of a fixed effective date just prior to the loan origination, be more effective in that situation?

The whole point of the value is to manage loss. Of course I am assuming that the value used to calculate the LTV for waivers is more likely to be wrong by 10% or more than an appraisal. Maybe it is a bad assumption. I don't know.

 

[J Grant]

The whole point of the value is to manage loss. Of course I am assuming that the value used to calculate the LTV for waivers is more likely to be wrong by 10% or more than an appraisal. Maybe it is a bad assumption. I don't know.

It seems on the back end they decide that the point of value is to manage loss. But on the front end ( valuation /appraisal) it is to provide information along with a $ amount to determine if the loan should be made at all, as well as if loan should be made at that $ price.

Ignored in focusing on the value and loan performance is how many more defaults or bad loans being funded take place because appraisals reveal defects or other issues about a property or a condo building such as too many units owned by one party etc. That gets glossed over. Many lenders cancel a loan when appraiser reports back X or illegal zoning for the ADU etc.

As far as the value $ itself, it is really scary when a target refi # from a mortgage broker is teh green light for a waiver as long as if falls within a fannie range. I think that up till recently, the markets were on an increasing trend for years when the waivers were granted. But if that changes and prices soften or decline, it is not only the borrowers who over paid that are exposed, it is the manh owners who over borrowed in a refinance based on high sale prices. I've read articles wehre the lenders claim a better pass rate for prices on a waiver so idk but sounds right.

 

[J Grant]

I agree 100%. But the data goes back many years over several market cycles.

For how many years were waivers used for origination mortgage/purchase loan purposes ?

What were all those years and market cycles loans - mainly NICO refinances ?