Fannie, appraisers move to the back of the bus.

[George Hatch]

Is a loan based on a waiver the same as "financial arrangements comparable" to cash?

Appraisals are a tool used in the underwriting of some of these loans
Waivers (and the AVMS) are a tool used in the underwriting of some of these loans.

The loan is the "financial arrangement", not the mode of underwriting that loan.

 

[DWiley]

However, if a buyer pays cash, and they overpay, the US taxpayers are not backstopping the loan wrt the loss if the owners go underwater with the loan or later defaults.

But that is not the "data cancer" argument, at least not as I understand it. The claim, as I understand it, is that waivers help facilitate inflated home prices, which then artificially drives up the prices of all homes.

What I do not quite follow is how the very small percentage of purchase loans that get waivers could be the driver for such a thing (if it even exists) rather than the much larger percentage that just pay cash and/or the unknown percentage who got an appraisal that was done by "skippy" As GH notes, time will tell.

 

[TerryRohrer]

Is a loan based on a waiver the same as "financial arrangements comparable" to cash?

Is a loan based on an inflated appraisal the same as "financial arrangements comparable to cash"? I don't see appraisers railing about their "peers" who routinely rubber-stamp purchase contract assignments to ensure the deal flies and they remain in rotation. While I am not a fan of waivers and hybrids and the like, the widespread unwillingness of appraisers to police their own and ensure their accountability is the bigger problem.

 

[J Grant]

No, your comment was to question whether paying cash impacted the price, apparently when compared to sales financed by a mortgage.

He asked me a different question after I posted that first response.
They are two different answers becauseThe they address two different issues wrt cash purchases vs financed purchases.

With a cash purchase, it is noted on the MLS and also no mortgage shows up on public recrords, so an appraiser or other analyst can tell if the fact that cash was used impacted the price.

second issue is that with a cash purchase, the buyer still has plenty of equity even if they overpaid, and the US taxpayers are not backstopping the overvaluation in a loan, with a higher risk of going underwater or default for overpayment in purchase or overborrowing in a refinance.

 

[George Hatch]

A waiver based on a 70% LTV isn't going to pose an undue risk of overencumbrance to a lender. Even a 90% LTV won't pose much risk to a lender.

 

[J Grant]

But that is not the "data cancer" argument, at least not as I understand it. The claim, as I understand it, is that waivers help facilitate inflated home prices, which then artificially drives up the prices of all homes.

What I do not quite follow is how the very small percentage of purchase loans that get waivers could be the driver for such a thing (if it even exists) rather than the much larger percentage that just pay cash and/or the unknown percentage who got an appraisal that was done by "skippy" As GH notes, time will tell.

First of all, in my experience, not all cash purchases are overpriced/inflated prices. In fact, in a number of cases, a property sells lower in an all-cash purchase because of a fast closing, no contingencies.. A lot of cash purchases sell for MV - the buyers are careful or get an appraisal ( and some of them use financing even if the contract has no financing contingency.

If a property MV is an inflated price wiether a waiver or an appraisal by skippy it stinks either way, however, in a WAIVER the sales price is the value, 100% of the time after the waiver is green lighted- whereas at least with appraisals, not all are done by skippy and a % them will have a MVO below an inflated sale price. The lender with an appraisal has a buyback obligation wrt a valuation issue and they are not required it with a WAIVER ( the release from reps and warranties )

 

[J Grant]

A waiver based on a 70% LTV isn't going to pose an undue risk of overencumbrance to a lender. Even a 90% LTV won't pose much risk to a lender.

Waivers can be up to 90% LTV now and perhaps higher-

And overpriced properties distort a market and they can become a possible next comp sale in an AVM or appraisal.

 

[George Hatch]

None of that conflicts with my observation. A waiver at even 90% doesn't present a significant risk to overencumbrance.

And for the last time, it is not the role or appraisers or lenders or whatever protocols they use to underwrite their mortgage decisions to "protect the market from distortions". A lender's role is to make a safe/sound loan decision, not put their thumb on the meeting of the minds between buyer and seller in any one transaction; let alone manage the entire RE economy. You need to let go of that fallacy.

 

[J Grant]

None of that conflicts with my observation. A waiver at even 90% doesn't present a significant risk to overencumbrance.

And for the last time, it is not the role or appraisers or lenders or whatever protocols they use to underwrite their mortgage decisions to "protect the market from distortions". A lender's role is to make a safe/sound loan decision, not put their thumb on the meeting of the minds between buyer and seller in any one transaction; let alone manage the entire RE economy. You need to let go of that fallacy.

How do you know a waiver at 90% does not risk over encumbrance? It it is an over valuation, then it does risk it

Wrt the role of the appraisers and lenders involves the public trust in US taxpayer-backed loans, so the RESULT of their actions can distort the market. They darn well know it, too. The RE economy reach a tipping point when too many smaller bad deals and bad loans and bad decisions pile up.

 

[George Hatch]

In order for a 90% LTV to become a gross overencumbrance the waiver+AVM combo being used in the underwriting would need to be at least 15% overvalued. I know you're passionate on the topic but how common do you believe that scenario could possibly be? The price was established between the buyer and seller (and not by an appraiser) prior to applying for the financing.

Think it through.

And regardless if the negative results accrue in the RE economy, it's STILL not the role of the lenders - or the appraisers - to manage those markets. The line of reasoning you're using is an off-label use of the role of the lenders and the appraisers, both of whom are operating on only one transaction at a time.