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 ...
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.
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.
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