In my opinion there are several potential problems with appraisal waivers:
- Unsupported increases in sale prices in certain areas.
- Increase default rates should market values decrease.
- Cause an increase in interest rates as investors are leery of the potential increase loss rate based on an increasing use of waivers, especially for borrowers who may be borderline qualified in more than one category (ie. DTI, LTV, Credit Score, Job Time, etc.). Basically, lending comes down to the three "C's", character, credit and collateral. If one of these is weak the other two need to be strong in order to offset.
As pointed out in the broadcast, F/F seem more interested in the default rate than the potential loss. In my nearly 50 years of bank lending, appraisal and real estate experience I know it will generally take 5 - 10 years for most mortgages to go into default. A high percentage of mortgages that go into default prior to five years, generally had an underlying issue/weakness when approved.
With the widespread use of waivers being relatively new, any purported study of the results/impact is very limited in its ability to predict long-term trends. Personally, F/F cannot be privatized soon enough thus eliminating the Government backing. Let the investors evaluate the risk and invest accordingly. Right now, unelected bureaucrats are making financial decisions that could seriously impact the Federal Governments balance sheet, because if the bureaucrats are wrong the Government will bail them out.
