Rocket mortgage Fraud?

[NC Appraising]

It has always been my theory that one of the main reasons the GSEs went to waivers and hybrids is to make the large online lenders happy and not to loose Market share. See 2008 crash....

I have also said in my prior posts that it's not about saving the borrowers money, but to trap the borrowers from shopping....

Rocket engaged in a kickback scheme that discouraged home-buyers from comparison shopping and getting the best deal," CFPB Director Rohit Chopra said in a statement.

https://www.reuters.com/markets/us/us-accuses-rocket-homes-illegal-kickbacks-mortgage-scheme-2024-12-23/

 

[NTX_Guy]

Waivers and hybrids came about because the GSEs now have millions of data points now from which they can analyze a property against the comparable data they have. After nearly a decade of testing CU's accuracy within a certain confidence level, they feel they can accept CU's model value on low LTV loans.

We have to remember appraisals are for determining risk to the lender. If the borrower defaults on this loan, is the collateral's value sufficient (as of the loan date) enough that we could sell it and recoup the loaned money back.

So, think about it. The GSEs prefer 80% LTV or less loans. Let's say a borrower is only seeking a $100k loan and they think their home is worth $200k (50% LTV), and CU gives the subject a model value of $185k (54% LTV). If their testing shows that CU's model value in this location is typically off by no more than 5-6%, then the risk analysis says even if CU is 15% too high they still have a less than 80% LTV. And if the lowest sold comp price available is say $130k (probably the lowest the subject could be worth), they still have an 80% or less LTV. Why do they need an appraisal to show them what they already know - that the value risk is minimal? Any non-appraiser can look at that data and say there's probably no risk here.

Now, there will be a few outliers where there was an unknown condition that greatly negatively affected the subjects value more than was expected, but that's going to be a rare one-off. A couple of those types happening is easily absorbed when tens of thousand of others perform as expected. Also, if the borrowers continue to pay the loan, then it never goes into default and the GSE never has to deal with the unknown negative condition.

So, if you have a borrower that has a high likelihood of being able to pay on the loan AND there appears to be very little value risk given all the comp data available, why is an appraisal needed to assess a risk easily assessed without one? Why should the buyer have to pay for a full appraisal in that situation?

 

[Dublin ohio]

they feel they can accept CU's model value on low LTV loans.

Did you miss the recent announcement tha waivers will now be used for up 97% ltv?

 

[TerryRohrer]

Waivers and hybrids came about because the GSEs now have millions of data points now from which they can analyze a property against the comparable data they have. After nearly a decade of testing CU's accuracy within a certain confidence level, they feel they can accept CU's model value on low LTV loans.

We have to remember appraisals are for determining risk to the lender. If the borrower defaults on this loan, is the collateral's value sufficient (as of the loan date) enough that we could sell it and recoup the loaned money back.

So, think about it. The GSEs prefer 80% LTV or less loans. Let's say a borrower is only seeking a $100k loan and they think their home is worth $200k (50% LTV), and CU gives the subject a model value of $185k (54% LTV). If their testing shows that CU's model value in this location is typically off by no more than 5-6%, then the risk analysis says even if CU is 15% too high they still have a less than 80% LTV. And if the lowest sold comp price available is say $130k (probably the lowest the subject could be worth), they still have an 80% or less LTV. Why do they need an appraisal to show them what they already know - that the value risk is minimal? Any non-appraiser can look at that data and say there's probably no risk here.

Now, there will be a few outliers where there was an unknown condition that greatly negatively affected the subjects value more than was expected, but that's going to be a rare one-off. A couple of those types happening is easily absorbed when tens of thousand of others perform as expected. Also, if the borrowers continue to pay the loan, then it never goes into default and the GSE never has to deal with the unknown negative condition.

So, if you have a borrower that has a high likelihood of being able to pay on the loan AND there appears to be very little value risk given all the comp data available, why is an appraisal needed to assess a risk easily assessed without one? Why should the buyer have to pay for a full appraisal in that situation?

Are you a GSE employee?

 

[Terrel L. Shields]

CU's model value on low LTV loans.

So, who determines what is "Low"? I mean in 2008, we saw inflated values then plunge by 50% in some cases. So, they loan 80% on a "$200k" house, but no one is sure how that $200k home was valued. Was the valuation accurate? Maybe the property was only worth $140k. They start out underwater and the borrower has no SITG...skin in the game.

We have seen prices dump from highs in the 2006-07 era to obscene lows. I could have purchased sacks full of houses for under $100k and sold in 2015 for double my money. Then Covid hits and suddenly prices which totally rebound from the 2011 low add an additional 30% premium on prices.

We don't know what 80% LTV is unless we actually appraise the place. And the computer is the perfect place to reinforce its own opinion in an endless feedback loop that completely misinterpreted the data to arrive at a price that isn't accurate. I mean, look at Zillow. It cannot opine condition accurately and condition in older homes especially, is key to the value.

 

[Mark K]

So, if you have a borrower that has a high likelihood of being able to pay on the loan AND there appears to be very little value risk given all the comp data available, why is an appraisal needed to assess a risk easily assessed without one? Why should the buyer have to pay for a full appraisal in that situation?

I've been saying this for many years....and have been labeled a heretic by a few here. LOL!! Some on here would require an appraisal on your next cart of groceries if they had their way.

If I can go out today and borrow $100K on a new, top-of-the-line pickup truck just by signing my name and driving it home, why all the additional expenses to do the same for a house? After all, the pickup is going to lose value the minute I drive it off of the lot while the house will likely appreciate.

Yeah, yeah, yeah....I understand the difference between real and personal properties and the various rights associated therewith, but I think most (well at least some) of the forum participants get the point.

As long as the borrower makes the payments, it doesn't matter if there's a full appraisal (good or bad), AVM, waiver, etc. Someone with an 800 FICO, good job, and good credit history is very likely to make the required payments. And if they don't make the payments, it doesn't matter if the loan was made based on an AVM, appraisal, etc.

Of course that was back then. Today they're making high LTV loans with no appraisal to anyone that can fog a mirror. This is going to come back and bite the taxpayers since the F/F taxpayer subsidized mortgage system will certainly pass the losses back to us, again.

 

[Dublin ohio]

Are you a GSE employee?

I was thinking the same thing since all of their posts today seem to be in defense of the GSEs

 

[TerryRohrer]

I was thinking the same thing since all of their posts today seem to be in defense of the GSEs

Might be a part of the new effort to convert "uniformed" appraisers (or whatever the key rat's term was) to accepting of hybrids, etc. New account next to GSE headquarters, too.

 

[Elliott]

I wished I could find the link, but mortgage bankers had a study that showed the risks associated with foreclosures, (square 5x5 boxes) and page after page with whatever variable was used, the obvious correlation was credit rating score. (people lose their job and can't make payments or are over extended). Ever since the Great Depression, appraisals have been employed to keep a lid on the top end of LTV, which waivers will not prevent or protect against. It is like the Roaring 20's are being recreated in many ways.

 

[NTX_Guy]

Did you miss the recent announcement tha waivers will now be used for up 97% ltv?

No, I didn't. The 97% LTV waivers are inspection based. A property data collector must inspect the property to ascertain its physical characteristics. That data is then fed into the computer system and a value generated based on the comps in the system that are physically similar to the subject. It sounds like they have tested the model enough to be comfortable with the potential risk. In order to offer it, I'm sure when the address is entered the computer can pretty quickly tell whether there are sufficient comparable data points to return a result with a high confidence score - basic statistical analysis. That, coupled with an analysis of borrower income, credit, and assets, is what offers the waiver options. Again, it's all a risk assessment. Also remember, the GSEs don't just come out with these programs on a whim - they have to be approved by FHFA and show the testing and quality controls behind them.

If the subject is in a subdivision with a relatively homogenous market area and hundreds of sales in the past 6-12 months, how hard is it for the algorithm to search for proximate sales similar in age, site size, bedroom count, GLA, basement area, rated in say C4 condition? Isn't that basically what we do when we get back to the office and search the MLS? That's not a hard thing to program. It then spits out 20 sales meeting those criteria and performs basic regression analysis on them. If the lender entered a value guesstimate of $200k for a 90% LTV, and the resulting comps within a quarter mile had sale prices from $185k to $225k with the predominant sales having prices from $190k to $210k, don't you think it's pretty easy to figure out where the appraisal would come in at? If you sent three appraisers out there don't you think they should all come in somewhere within that range? If an appraiser went out, pulled those same comps, do you think they wouldn't come in somewhere around $200k? And if three ethical appraisers went out using that data, couldn't we have a 5% difference between the three (say $190k; $200k, and $210k) and generally say that all three values were reasonable? If the GSEs can figure all of that data out without needing an appraisal report, why do they need the appraisal?

I mean, my assistants can generally tell whether the lender's value looks good or not just from the data they pull while setting up my work file. They pull the subject's public record and MLS listing data, and then pull comps based on general parameters I've given them. They don't have an appraisal license and never inspected the property but, just by looking at the subject's MLS photos and the MLS results they pulled, can usually make a pretty good guess at value themselves.

I totally get not liking this trend because it takes assignments away from us, but as a statistics guy who generally understands risk-based assessments, it totally makes sense they would go this route. Orders for those easy appraisals of cookie-cutter tract homes in densely populated suburban areas are going to diminish - it's just a fact. But, there will be increased demand for more complex assignments (rural, manufactured, higher quality, large acreage, etc.) because the GSE models can't handle those well.