Gene's Chicagoland Mortgage Blog: April 2021

Current Interest in Appraisal Waivers Runs High

Current Interest in Appraisal Waivers Runs High

My mortgage clients' interest surrounding the topic of Appraisal Waivers ... and the number of questions they ask regarding them ... has grown quite dramatically over the last year ...

It's become quite common for my borrowers to ask about waivers during our earliest conversations together.

I've found that their interest has either been:

Piqued by an article they've read about Appraisal Waivers online
They know someone that reaped the benefit of a waiver
Their real estate agent has mentioned it to them as a possible cost-saving measure when purchasing their home

Depending on their borrowing scenario, it's a topic of conversation we'd likely held anyway. Appraisal waivers are currently being used that commonly.

The statistics below prove that to be true. Over the last year, there's been an "explosion" of their use. The reasons for this are many, but perhaps the main driving force has been the Covid Pandemic and the amount of reliable Data in the Automated Valuation System.

The large number of refinance loans being made during this time has also factored into the number of appraisal waivers awarded.

Having witnessed this noticeable increase in Appraisal Waivers on Conventional Loans (those that fit into the Fannie Mae/Freddie Mac guidelines) firsthand, I wasn't surprised to learn the actual statistical data recently released on this subject. You'll understand and agree with my use of the term "explosion" when you read the stats below.

Year-end 2020, "waivers" occurred on 45% of the two Agencies' volume, per a recent release of figures. 45%!

This dramatic explosion of waiver use began in 2019. As recently as 2018, only 10% of business was conducted using these appraisal waivers.

Another contributing factor was the large number of refinances conducted during the same time period. Waivers are more commonly used during refinancing than home purchases. Non-cash-out refinances utilize the most appraisal waivers at 67-69%.

The increased amount of waivers can be also furthered explained by several phenomena, in my opinion:

Increased data accumulated in the "CU" (Collateral Underwriter) system of Fannie and Freddie
Increasing home values, creating lower LTV (Loan-To-Value) ratios and larger equity positions
The "need for speed" and reductions in consumer costs in the mortgage process.

With a growing comfort level with automated valuations and an ever-improving appraisal reporting method within these database systems, we can likely expect these trends toward waivers (versus full appraisals) to continue.

There are those that believe that Lenders could be taking on greater risk without an appraiser's on-site inspection and eventual report/opinion of value. But I can say from experience that, at least in the Chicagoland area, the riskier scenarios are typically NOT getting a waiver option offered them (at least up to this time, March 2021).

Some of the factors impacting the automated decision allowing for appraisal waivers include:

Purchase VS Refinance
Loan-to-Value Percentage
Property Location and proximity to metro areas
Single-Family (detached condo, townhouse, duplex)
Combination of borrowers credit and assets and help limit "risk"
The amount of stored appraisal data and public records for given properties

Bottom line, the many factors that go into the "System Approval" for a Waiver are fairly complex, As a rule, at least from this Originator's perspective, seems appropriate.

Risk Management Cost Savings ... and the ability to adjust to ever-changing markets ... is the ongoing challenge to the algorithms that ultimately provide for these decisions. Common sense must ultimately prevail.

Should you have any questions regarding Appraisal Waivers or the mortgage process in general, please do not hesitate to contact me for additional information.

* Looking for mortgage financing answers, options, solutions, and experienced assistance?

Are you hoping to Buy, Refinance or purchase an Investment Property in New Lenox, Will County, or elsewhere in the Chicagoland area?

Contact me! I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
I'm easily found at:

Gene Mundt

Mortgage Originator -NMLS #216987 - IL Lic. 031.0006220 - WI Licensed

American Portfolio Mortgage Corp.

NMLS #175656

Direct: 815.524.2280

Cell/Text: 708.921.6331

eFax: 815.524.2281

www.genemundt.com

gmundt@goapmc.com

Gene Mundt, Mortgage Originator, an Originator with 40+ years of mortgage experience, will offer you exemplary mortgage service and advice when seeking:

Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago and the

greater Chicagoland region, including:

The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena,

Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook,

Romeoville, Naperville, etc.), DuPage County, Kane County, Grundy County,

the City of Chicago, Cook County, and elsewhere within IL & WI.

Referrals are Appreciated and Welcomed

Gene Mundt, Mortgage Originator - NMLS #216987, IL Lic. #0006220, WI Licensed. American Portfolio Mortgage Corp. - NMLS #175656 - IL Lic. #031.0006220

I am a 40+ year veteran of the mortgage/banking industry with extensive expertise and education in mortgages, appraising, management, and financial planning. My assistance is ongoing, as I provide info, advice, and service leading up to, during, and following my clients' mortgage financing process. I aim to develop trust-based relationships that encourages asking questions freely.

Do You Have an FHA Buyer Offering to Purchase Your Home?

Do You Have an FHA Buyer

Offering to Purchase Your Home?

FHA loans have a long history of helping consumers successfully buy homes. They have helped homeowners purchase more than 46 million single-family and multifamily homes since its inception back in 1934.

As a mortgage lender, I refer to FHA loans as "the path of least resistance" for some borrowers.

Here's why I say that:

The minimum down payment needed to qualify for an FHA loan is lower (can be as little as 3.5%)
Gift monies can be a source of down payment and closing costs
Minimum Credit score and credit history requirements are lower and more lenient
Co-signing borrowers (non-occupying) are allowed

Add to those benefits listed above:

An FHA loan also provides a buyer somewhat of a break on their interest rate as well (1/4% to 1/2%), if credit scores are equal to those utilized for comparison with a Conventional Loan
FHA is the most forgiving loan product regarding employment requirements and allows borrowers to rebound more quickly from major credit events, such as bankruptcy, foreclosure, and short sales.

All these reasons (and more) explain why so many borrowers choose to buy using an FHA loan. It expands the number of qualified buyers capable of viewing and buying homes. That's of great benefit to Sellers hoping to sell their home.

But besides the advantage of having more potential buyers viewing your home, what do offers received from FHA-qualified buyers mean for a Seller? What decisions lie before them as they consider accepting an FHA offer?

One concern heard fairly often from Sellers surrounds one of the FHA benefits mentioned above ... credit scores. Sellers often fear that the lower FHA credit score requirements mean their transaction might not proceed to fruition or Closing. The buyers making the offer will "fall through" or face stumbling blocks on the road to Closing their loan.

In fact, data does not back up that concern. According to Ellie Mae statistics, FHA and Conventional Loan applications reach successful Closing at a similar rate.

As an FHA loan is "insured" by a government entity, all FHA loans must meet certain set guidelines. Lenders must follow these guidelines for all their FHA borrowers.

By this point, an experienced loan officer should have conducted the automated underwriting for their borrower. A pre-approved buyer in the automated underwriting system should be able to meet the final approval, assuming a thorough job was performed upfront and no "surprises" arise while in the verification process.

In other words, most reasons for buyer "fall through" should have already been discovered and addressed. So of those concerns expressed by Sellers, the ones that may have validity are those surrounding the home appraisal.

Why is that true?

It's important to point out that appraisals for FHA loans and Conventional loans are focused on achieving slightly different goals:

A Conventional loan appraisal's aim is that of determining property value
An FHA loan appraisal must also make the same determination, but a "review" of the property ... and its condition ... must be provided as well

FHA demands minimum requirements and guidelines be met by the property being appraised. The "health and safety" of the property must be determined. If discovered, concerns must be pointed out by the appraiser in the appraisal report.

An FHA appraiser also provides an estimation of the repair costs within the report. The possibility of repairs being requested is what gives some Sellers pause.

If a Seller:

Believes that their property might have issues that would be raised by an FHA Appraisal Report, it stands to reason that they might not view the offer from an FHA buyer as favorably as an offer from a conventional buyer
Does not want to (or can't) make repairs to their property, the same stance regarding an FHA offer might be taken

However, in most transactions, the concerns mentioned in an FHA Appraisal will likely have already been addressed by the Home Inspector (assuming one was done).

In that case, the Seller is typically responsible for items of concern and then chooses one of two paths, if they hope to move the transaction forward. Sellers choose to either:

Make the repairs
Offer a Credit to the buyer

Fact is, whether a buyer is at the lower range of credit scores, their down payment is the minimum required, or their Debt-to-Income ratios are on the higher side, a loan approval is a loan approval.

So the real issue at hand for Sellers is whether the potential buyer has a closeable loan? And ... will it impact me in any significant way financially by choosing one buyer over another?

In the end, a Seller is the only one that can answer that question ...