Appraisal Waiver (Explosion)

[J Grant]

I read a good quote the other day -
"when they invented the ship, they invented the shipwreck"

Point is, Fannie can run prior stats and impose a limited test run and then green light expand the waivers, use of third party data collections , more desktops etc - net result far fewer appraisals /homes inspected by the appraiser who does the appraisal.

We do know that appraisals has underpinned the mortgage market for decades with a very good track record and allowed UW of collateral of a a vast variety of properties ( 2008 market crash many causes an exception ) The public trust and RE markets won't know the outcome of large shift to non appraisals/ use data collectors for years or a decade out.- what impact will it have on interest rates if investors are more cautious about the property collateral etc. IF the stakeholders are willing to take this gamble then the reality is appraisers have no voice in the outcome.

Appraisers did try to warn about the mortgage brokers system for years before the 2008 debacle , looks like this is round two for ignoring our voices - go for it !

 

[alebrewer]

We do know that appraisals has underpinned the mortgage market for decades with a very good track record of low default and UW collateral of a a vast variety of properties

How do we know that appraisals are responsible for that 'very good track record'?

 

[J Grant]

How do we know that appraisals are responsible for that 'very good track record'?

Since appraisals were the dominant form of collateral for origination purpose loans by FF? We are as appraisers only responsible for our track record in the collateral end but if "they" want to use loan performance and borrower default rates to denigrate appraisals, what about all the decades appraisals were the collateral used for a system that survived to this day and UW hundreds of millions of loans?

 

[J Grant]

Lower default rate, and lower cost when they do default.

Why would a wavier have a lower cost when they do default - because the lender has zero liability for the valuation? So okay the costs are lower for the default process, but withe lenders off the hook for the collateral /valuation, does that also mean investors/tax payer guarantors more fully absorb the $ impact of the bad loans in waivers ?

 

[alebrewer]

Since appraisals were the dominant form of collateral for origination purpose loans by FF? We are as appraisers only responsible for our track record in the collateral end but if "they" want to use loan performance and borrower default rates to denigrate appraisals, what about all the decades appraisals were the collateral used for a system that survived to this day and UW hundreds of millions of loans?

That still doesn't answer the question. The fact that 'they' (whoever they are) used appraisals for decades, and underwrote 'hundreds of millions of loans' does not necessarily follow that appraisals were responsible for the 'very good track record' of loan quality. You throw these unquantifiable terms around like they're fact. Yes - we are responsible for our track record, but how do you measure that? How do you measure the impact that appraisals have had on default rates? My guess is that there is little correlation between an accurate appraised value and borrowers' default rate - one is an estimation of a collateral's worth, and the other is a result of credit underwriting. Those are two separate things.

 

[DWiley]

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.

Have you seen the Philly Fed study? Appraisers seem to do a pretty good job of hitting the needed magic number.

https://philadelphiafed.org/-/media/research-and-data/publications/working-papers/2018/wp18-28.pdf

 

[J Grant]

That still doesn't answer the question. The fact that 'they' (whoever they are) used appraisals for decades, and underwrote 'hundreds of millions of loans' does not necessarily follow that appraisals were responsible for the 'very good track record' of loan quality. You throw these unquantifiable terms around like they're fact. Yes - we are responsible for our track record, but how do you measure that? How do you measure the impact that appraisals have had on default rates? My guess is that there is little correlation between an accurate appraised value and borrowers' default rate - one is an estimation of a collateral's worth, and the other is a result of credit underwriting. Those are two separate things.

The answer is right there - the decades long of a functional and successful American mortgage system that used appraisals as the dominant collateral assessment for origination loans. IF you want to argue that record I can not participate - it stands there as fact. Argue with yourself how to measure it, I don't have time or inclination to get lost in that quicksand.

Loan quality is a metric outside of the appraisal - what is loan quality? There is a loan granted to a borrower and part of that loan is made using the property itself as collateral. The collateral is what makes the attractive financing terms of the mortgage market possible - investors have collateral if a borrower defaults.

 

[J Grant]

Have you seen the Philly Fed study? Appraisers seem to do a pretty good job of hitting the needed magic number.

https://philadelphiafed.org/-/media/research-and-data/publications/working-papers/2018/wp18-28.pdf

I have a problem with that indeed - (part of which is when "appraisers " get lumped as one - since not all hit a magic number - but those who do are beloved by clients, lenders and the AMC's who are a pass along for the lender client. WRt to client /lender can order a second appraisal if first one found to have an issue it is abused and is used to value shop for a second appraisal that will hit the number. I've had to happen twice this year that I know about , how many times does it happen the appraiser does not know it.

I've argued many times that the only way to eliminate number hitting/ reduce it to a fraction is to 100% isolate appraisers from the business/client end
Valuations of any kind will face these same problems when the ones doing the valuing or in control of it also make the profit from /have a vested interest in results.

BTW I argue against the number hitters on this board who put forth nonsense like an appraiser who does not hit the SC -"ignores the contract" or "ignore the market" and "no appraisr is good enough to come in below a few % than a SC price "-etc - but those posters are very popular here and those kinds of appraisers busy so that is the present system I seen no arguments or ideas on your end to change this present corrupted ordering system that favors (still) the number hitter - to instead give up on appraisal and use waivers or data collectors but they still rely on former appraisals so not sure where that will end up. The HVCC /DF had only a limited success as supposed firewall of an AMC depends for their own business survival on the very same lenders as their client (or owner as subsidiary).

One only need to look at the track record of FHA appraisals before and after the FHA panel was disbanded and went to lender select.

 

[alebrewer]

Have you seen the Philly Fed study? Appraisers seem to do a pretty good job of hitting the needed magic number.

https://philadelphiafed.org/-/media/research-and-data/publications/working-papers/2018/wp18-28.pdf

Is it possible that one reason appraisals 'hit the needed magic number' for purchase appraisals is that the appraisal problem is slightly different for purchase than for refi? IOW, when an appraiser is engaged for a purchase transaction, what the lender really wants to know is whether the collateral value is in line with the contract sales price. As opposed to a refi, where the lender really wants to know what the estimated value of the property is. See the difference? AND, since the agencies are hung up on a 'point estimate of value' (which doesn't exist), it makes sense that, for a purchase appraisal, the appraiser would reconcile to the contract sales price assuming it falls within the appraiser's range of market value, no? To cite the fact that ~ 30% of appraisals 'hit the number' is not necessarily in indication that the appraisal is inflated, but could very well be the result of the appraiser concluding to the contract sales price in lieu of some other random 'point estimate of value'...

 

[alebrewer]

One only need to look at the track record of FHA appraisals before and after the FHA panel was disbanded and went to lender select.

And what does that track record look like?