Friday, December 12, 2008

Questioning Lockhart's Grasp Of The Situation

I want to give FHFA Director James Lockhart the benefit of the doubt. I really do. He's been willing to take on the giant mess that the GSEs, Fannie Mae and Freddie Mac, find themselves in. It takes guts and brains and ability.

But his latest comments make me wonder about, well, his understdanding of the problems in the housing market. From Bloomberg, Dec. 10, Fannie, Freddie May Waive Appraisals for Refinancings:

Fannie Mae and Freddie Mac, the mortgage-finance companies seized by the U.S. government, are considering forgoing new appraisals on refinanced loans to help struggling homeowners, their regulator said.

“If they refinance someone, rather than doing a loan mod, do they need a new appraisal if they already have the credit?” Federal Housing Finance Agency Director James Lockhart told reporters after a speech in Washington today. “That’s an issue that’s being discussed. They’re looking at it.”

They're looking at it? You mean "they" (and you, Mr. Lockhart) are actually considering the idea of ignoring the actual/current value of the collateral on which tens or hundreds of billions of loans would be based? I certainly don't expect that you'd go as far as allowing loan applicants to place their own value on their properties. Of course not, that would be crazy.

Maybe you're thinking about just requiring an AVM (Automated Valuation Models) instead of a full appraisal. But wait, that's still a type of appraisal, and you did say "... do they need a new appraisal if they already have credit?"

Or would the plan be to have Fannie/Freddie accept the original purchase price or appraisal done for a previous refinance? If that's what you're going after, you'd certainly take care of a lot of underwater mortgages. But what about the investors, who Fannie/Freddie depend on for capital? The folks who buy your loans, do you really think they will accept this? I have a hard time believing they will if they know that what they're buying is upside down from the get go. Okay, you at least have the FED - they'll buy anything.

There's also a post (and tons of comments) on Calculated Risk - Report: GSEs May Waive Appraisals For Refis

After(post) Thought: FHFA could bring back the PIW (property inspection waiver) or the FNMA 2075 (Property Inspection Report) . The PIW required no appraisal/inspection, was used for purchases and refis with low LTV (80% or less) and applied to borrowers with high credit scores. A PIW cost the issuing bank $50, a fee which they passed on to the borrower at closing. The 2075 was also used for purchases and refis with low LTV, but did come from an appraiser and required them to inspect the property (but no value given). But using these on a nationwide, across the board basis in today's market could be very problematic.

1 comment:

Larsen B said...

It seems like the devil on Lockhart's shoulder is whispering in his ear: "How can we make the mortgage mess worse?"--!!