Be the Driver, rather than just a passenger of your appraisal practice

[J Grant]

So, you are arguing that appraisals should be used just so there is recourse in case that appraisal is bad?

Imo, using appraisal sees the lender liable for a buy back recourse is a better deal for the tax payer. And an incentive not to loan on overvaluations. That would be my argument.

Do you argue that Waivers should be used to give all the relief to the lender, while dumping all of it on the taxpayer?

 

[DWiley]

There doesn't appear to be an answer in that response. Nor do I see the argument you are claiming within JGrant's post. Maybe your deflection is an indication that taxpayers are really about to get royally screwed.

Sorry - That is how I read her response

Correct me if I am wrong,-
But far as I know, in the above scenario, if the lender gets a waiver-it is a new new refi rate/term loan, (even though the the lender already had the loan. Now, with the new refi loan, because they used a Waiver, the lender has no liability for a buy back if the borrower defaults.

But If the borrower defaults on that same refi loan done with an appraisal, the lender can be liable for a buy back if turns out the appraisal was an over valuation/flawed.

It seems that you, like most appraisers do not fully understand the system and how it works.
When lenders sell loans to the GSEs they make representations and warranties to the GSEs. In certain cases, the GSE may grant "Rep and Warrant relief."

In cases where an appraisal report is submitted, that report is evaluated by the GSE system, and the GSE may grant rep and warrant relief for the value (but not for condition or marketability). That would mean that the GSE could not pursue repurchase based on value. The GSE could still pursue repurchase for reasons other than value. Rep and Warrant relief for value is NOT granted for all appraisals.

In the case of a waiver, rep and warrant relief is granted for value, condition and marketability. That is why waivers are only granted when the data shows that the reliability of the appraisal alternative meets or exceeds the reliability of an appraisal report. And, repurchase for other things can still be pursued.

 

[J Grant]

Walk through the very scenario you present. You are the lender, and you have the loan on your books. You did the loan based on a value of $1,000,000, but the value is now $900,000. What the home is worth now does not change the fact that you already have a loan.

If you can do a rate/term refi and lower the payment, then you have lowered your risk - because now the borrower is less likely to default. If you get an appraisal and refuse to do the refi because the value is now only $900,000, you are just increasing your odds that the borrower defaults.

A cash out refi is a different story, as there is more risk involved, But for a rate/term on a loan that the lender already has, what does an appraisal report bring to the risk management table?

Imo, that is why I object to the off label use of appraisal as a "risk management tool". Though appraisers can't stop lenders from using it that way, the purpose of an appraisal is a market value opinion (for a mortgage lending decision) , no to be a "risk management tool" .

If a lender off label uses an appraisal as a risk management took, then the lender can Mis Use it as well.

In the above , the loan was based on a value of $1,000,000 , but now the value of the house is $9000,000. But somehow ( based on what value??? ) a Waiver will approve a refinance, but if an appraisal is done, and the value is only 900k, then the owner cant' refinance. What then was the WAIVER value to greenlight a refi loan? ( A value of 950K ?- guessing here )

If the house credible market value is 900k, but a WAIVER estimates 950k value (or whatever made it work ), then the waiver is loaning on an over valued property, despite the fact that risk has been lowered by a reduced interest rate.

 

[J Grant]

Sorry - That is how I read her response



It seems that you, like most appraisers do not fully understand the system and how it works.
When lenders sell loans to the GSEs they make representations and warranties to the GSEs. In certain cases, the GSE may grant "Rep and Warrant relief."

In cases where an appraisal report is submitted, that report is evaluated by the GSE system, and the GSE may grant rep and warrant relief for the value (but not for condition or marketability). That would mean that the GSE could not pursue repurchase based on value. The GSE could still pursue repurchase for reasons other than value. Rep and Warrant relief for value is NOT granted for all appraisals.

In the case of a waiver, rep and warrant relief is granted for value, condition and marketability. That is why waivers are only granted when the data shows that the reliability of the appraisal alternative meets or exceeds the reliability of an appraisal report. And, repurchase for other things can still be pursued.

I had the correct rough idea of how it worked and your post confirms that. Though I appreciate the first hand detail you bring. I called it liability, the technical term is rep and warrant relief .

I was overall correct - when an appraisal is used, the lender is liable for a buyback in an over valuation or problem appraisal, in a WAIVER , the lender holds no liability for a bad value/or value ( despite the data supposedly exceeds the reliability of an appraisal report ) A repurchase for other things can still be pursued, but not for a valuation, which is what relieves the lender and sticks it with the tax payer.

 

[DWiley]

Imo, that is why I object to the off label use of appraisal as a "risk management tool". Though appraisers can't stop lenders from using it that way, the purpose of an appraisal is a market value opinion (for a mortgage lending decision) , no to be a "risk management tool" .

Object all you want, but for a lender/investor the appraisal report is for risk management. Full stop.

 

[glenn walker]

BS, if it was always all about the Credit and Employment there would be no collateral and no valuation of that collateral

The collateral of the property is the reason why rates and terms for FF backed mortgages are so favorable. Whether the valuation is done by an appraisal or other method, but the appraisal was considered the most reliable -

The worth of a valuation is that it anchors the favorable loan terms, vs just good for one day /a worthless paper weight.

A 100 % LTV VA-A 95%-97% LTV FHA- A 95% Fannie- Freddie, All are upside down the day they are funded if a owner has to sell or relocate. Unless the property goes up in value after funding its a Zero Sum Game . In my area prices had been going up for well over 6 years and each 12 months people were bailed out and again had equity, Now that the game is over, we are starting to see the markets effects on owners who some are now unemployed. The Appraisal was originally designed to protect a lender but as we progressed, in time may are now really unsecured loans as lenders transferred liability onto the GSEs and other agencies and the tax payors.

 

[DWiley]

In the above , the loan was based on a value of $1,000,000 , but now the value of the house is $9000,000. But somehow ( based on what value??? ) a Waiver will approve a refinance, but if an appraisal is done, and the value is only 900k, then the owner cant' refinance. What then was the WAIVER value to greenlight a refi loan? ( A value of 950K ?- guessing here )

Note that I never said that a waiver would be granted in this scenario. I just pointed out that in the scenario presented an appraisal report had little value, from a risk management perspective.

 

[J Grant]

Object all you want, but for a lender/investor the appraisal report is for risk management. Full stop.

I acknowledge that, but it is a mis application of the purpose of an appraisal, and thus they can play games and mis use it for risk management. Including off loading their risk with a Waiver..

The WAIVER is, from this viewpoint, the ultimate risk management tool - complete warranty and relief for a lender wrt the valuation,, because they can shift the risk to the tax payer.

 

[J Grant]

Note that I never said that a waiver would be granted in this scenario. I just pointed out that in the scenario presented an appraisal report had little value, from a risk management perspective.

Again, this is so because the appraisal was never meant to be a risk management tool. So they are mis using the appraisal, then claim it has no or little value for their off label risk management use?

A crude analogy, but that is like me saying my Garden Hose has little value as a Vacuum Cleaner - ignoring the fact that the design and purpose of a Garden Hose was never to suck dust from a floor.

 

[DWiley]

I acknowledge that, but it is a mis application of the purpose of an appraisal,

I respectfully disagree. Appraisal reports for collateralized lending have always been for the purpose of risk management. You say they are for the value, without seeming to realize that itself is risk management.