Interesting new study out by American Enterprise Institute (AEI) shows appraisal waivers have more bias than human appraisers. They are more likely to hit the needed loan to value (LTV) target to qualify for lower refinance rates and approvals.
"Evidence of Potential Gaming of Appraisal Waivers: Waivers Demonstrate More Anchoring than Human Appraisals. It is well known that LTVs are heavily anchored to certain percentages. Anchoring is the use of a value that ones knows in order to make a decision or value estimate. In the case of refis, these anchor points interact with the applicant’s perception of home value and the refinance amount and any cash proposed to be extracted from the home."
Appraisers don't know the LTV target or needed refinance value. The borrower who estimates the value of their own home obviously does. The borrower with help from the lender submits an estimate of value when using appraisal waivers. Looks like confirmation bias to me. I think these waiver robots need to take a mandatory CE class on bias just like appraisers. That will surely fix the problem ;-)
Read the full study here. Lots of great stats and charts like the one above.
https://www.aei.org/research-products/report/prevalence-of-gse-appraisal-waivers/
Mary Cummins of Cummins Real Estate is a certified residential licensed appraiser in Los Angeles, California. Mary Cummins is licensed by the California Bureau of Real Estate appraisers and has over 35 years of experience.
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