Freddie Mac Oks Appraisal Alternative For Some Mortgages

[jay trotta]

From any objective analysis, the waiver of appraisals in certain circumstances does make sense. However, it is important for the GSE to keep this in mind - all of the historic data related to risk is based on an environment where appraisals are required in most cases. The PIW program changes that basic environmental variable, and that change is significant enough to affect the analysis. It seems to me that having market participants aware of the PIW increases the fraud risk. To what degree, I do not know.

When an opportunity arises to significantly increase ones ability to "make" more $$$$$$, you can most certainly agree, the cat is out of the bag on this one. There was a period of time in which felons were funding mortgage loans, now that they have All been eliminated (LOL) only the more credible funders are left ??

 

[Randolph Kinney]

How quickly people forget. Before the market meltdown in 2008, stock, bond and real estate markets were not correlated. After the market meltdown, they broke all conventional wisdom and became correlated. The real estate market was considered local, independent of the national markets. Well real estate became international.

The federal government became the only investor and guarantor of mortgages. As long as the government remains so, it won't matter what the GSEs do since they are backed by the taxpayer for any losses.

 

[J Grant]

They did studies at cash register lanes with no humans ( scanner only), the amount of theft increased so significantly that the stores barely saved money by not paying a human cashier. Hidden videos showed it. Clever people, whether consumers or mortgage originators, will find ways to exploit the waivers, desktops, bifurcated, and the other supposed cost and time saving alternatives.

One I just did is a classic. Too bad for them it was not after Sept 1. Maybe they'll take the app to another lender. Its a "cookie cutter" townhouse, the buyer is putting 30% down. ( I have no idea why they are buying the POS, because inside the interior is totally trashed, mold, rat droppings, no appliances etc) Outside it looks normal, since the ext is maintained by the HOA. A desktop, exterior , or Waiver would have no idea what is inside the property. That is an extreme case, but I predict multiple refinances or straw buyers whatever people can manage. They will soon find a way. At least an appraiser was one person with a license and a lot to lose by not telling the truth about a property and trained to inspect it not just mechanically, like a home inspector POV,, or from a market cheerleader RE agent POV, but inspect a property from the POV of an appraiser.

I read defaults are at the lowest level in years.
Seems the system of having appraisers personally inspect and then appraise those same properties was working so well it was time to mess with it.

 

[timd354]

From any objective analysis, the waiver of appraisals in certain circumstances does make sense. However, it is important for the GSE to keep this in mind - all of the historic data related to risk is based on an environment where appraisals are required in most cases. The PIW program changes that basic environmental variable, and that change is significant enough to affect the analysis. It seems to me that having market participants aware of the PIW increases the fraud risk. To what degree, I do not know.

You make a good point, but under the Fannie PIW and Freddie Appraisal Waiver programs as currently constructed, the vast majority of GSE loans (at least 85 -90%) will still require an appraisal. If these programs are limited to 10-15% of transactions, then I don't believe the risk of systematic collateral fraud appreciably increases. However, the question is what happens if these programs are expanded to include a much larger percentage of loans.

 

[J Grant]

I wonder if lenders will end up disliking the waiver, because it might lead to more borrowers lender shopping and switching lenders mid stream. With no appraisal fee paid and no need for appraisal, they are not "locked in" to any lender except for maybe filling in an application- lenders love to get that appraisal fee when a borrower shows up to get that borrower committed .

 

[Deleted member 130081]

How quickly people forget. Before the market meltdown in 2008, stock, bond and real estate markets were not correlated. After the market meltdown, they broke all conventional wisdom and became correlated. The real estate market was considered local, independent of the national markets. Well real estate became international.

The federal government became the only investor and guarantor of mortgages. As long as the government remains so, it won't matter what the GSEs do since they are backed by the taxpayer for any losses.

Kudos. That certainly puts a spin on the risk variable now doesn't it?

 

[Mark K]

The current LTV requirements, prior appraisal in file, etc. are TODAY'S restrictions.

Today they allow a Waiver subject to restrictions.

Before long, they'll allow an Appraisal, subject to restrictions.

The camel's nose is under the tent.

 

[TRESinc]

I wonder if lenders will end up disliking the waiver, because it might lead to more borrowers lender shopping and switching lenders mid stream. With no appraisal fee paid and no need for appraisal, they are not "locked in" to any lender except for maybe filling in an application- lenders love to get that appraisal fee when a borrower shows up to get that borrower committed .

there are so many loan programs available today it's amazing. most of them are offering no or limited up-front costs, so that kind of blows your theory out of the water about changing mid-stream. there is a local, but slowly becoming national, lender who currently offers traditional loans and "low fixed cost" loans. the traditional 10 year (meaning you pay all closing costs and application fees in the thousands and don't roll it into the loan amount) is 2.79%. their alternative is has a single fee of $295 (for application, closing costs, appraisal fee, title fee, - EVERYTHING) but the interest rate is 3.19%, or a .4% increase.

given the nature of most people today which product do you think is the overwhelming winner in terms of number of loans?


the $295 cost program.

 

[azbassman21]

Obviously it is rare for a loan to default immediately! That was not what I meant (we seem to communicate poorly, at least on this board )

I agree that yes the UW would consider long term risk, however a default is about a borrower - but the collateral to cushion against a default is the info in the appraisal. Some loans perhaps should not be made, or not made be at such a high LTV % of a certain price...a poor decision at time of loan origin has repercussions later, not immediately.

Should the bank approve the property is first question answered in appraisal (such as a defect or adverse or site or condo financials, # of rentals etc- ) and if yes, then how much should the LTV be based on the value opinion. If a property is over valued aka inflated value, it puts the bank in a vulnerable position on the loan,

With 20% or more down from borrower, the questions about issues concerning the property are less critical, but still present. Defaults or underwater loans leading to short sales/property issues typically will not show up for years, making a short term trial run of mere months to see if the waiver system works seems reckless (imo)

Exactly Tim's point, it's all about the long term risk of the loan. The appraisal is one tool to guage the collateral's market value, to see whether or not they will have the ability to retain their capital investment if the deal goes south. This is not a binary issue, as the appraisal is simply part of the process in analyzing the entire package i.e. the conditions of the loan, collateral involved, character or credit worthiness of the borrower, capital brought to the deal, and capacity of the borrower to repay the loan, in order to guage the risk associated with a loan over the long term.

 

[jay trotta]

You make a good point, but under the Fannie PIW and Freddie Appraisal Waiver programs as currently constructed, the vast majority of GSE loans (at least 85 -90%) will still require an appraisal. If these programs are limited to 10-15% of transactions, then I don't believe the risk of systematic collateral fraud appreciably increases. However, the question is what happens if these programs are expanded to include a much larger percentage of loans.

As I think a bit more on the issue, over the past 10 years there have been major issue's on "Stips" for; toilets / Permitted Projects / Market Acceptable support and a lot of other stuff, so even if there are 10-15% of the transactions that Qualify, where and how are those "Risk Factors" accommodated ?? Zoning & Permit issue's are a yearly if not less time, Risk Factors OR are they saying those no longer matter ?? Historical Data is exactly that, it is Not current data that is verified via Due Diligence and by that I mean an investigative approach via actual Town Hall data, not the crap from on line public records. Did one today, the only way to search the records for basement SF, in the town records is to have the Owners name for research.