Inspection based waivers for credit unions are growing in 2024

This article looks at GSE inspection based waivers for credit unions who originate & aggregated loans directly for their balance sheet in 2023, and for issuance with the agencies. This is for 1st lien closed-end 1-4 family residential mortgages.

Credit union agency and portfolio lending

For the full year there were 388 credit unions delivering directly to the agencies out of a total of 1,730 total issuers, with 123 delivering directly to Freddie Mac, 318 delivering directly to Fannie Mae and 65 issuing with Ginnie Mae. Total agency issuance volume for credit unions totaled 60,312 loans.

On the portfolio side there were ~1,000 credit unions that originated or aggregated loans ‘held for investment’, with 75% of volume concentrated in the top 350 credit unions with most of these credit unions also agency issuers. As of Q3 2023 there are 3,470 credit unions holding first lien closed-end 1-4 units residential mortgages on their balance sheet, representing 70% of 4,745 active credit unions. Total ‘held for investment’ loans originated and purchased during the year is projected to be 351,584 loans.

Inspection based waivers for credit unions

Of the 388 credit union sellers, 385 (99.2%) utilized appraisals, 260 (67.0%) utilized appraisal waivers and 80 (20.6%) utilized inspection-based waivers when delivering loans.

Of the 318 Fannie Mae direct credit union sellers, 226 (71.1%) were using their waiver solutions. Freddie Mac had 123 direct credit union sellers with 74 (60.2%) using their waiver solutions. For Freddie Mac the overall usage of inspection based waivers for credit unions was 13.5% compared to 20.4% for Fannie Mae.

Appraisal waivers

Appraisal waivers were the first GSE appraisal alternatives available and many credit unions have utilized these several years but saw increased adoption in 2020 as refinance origination volume spiked. In Q1 2020 appraisal waivers were utilized on 15.5% of loans, but 12 months later in Q1 2021 utilization reached 39.3% on agency issuance.

The catalyst for some larger credit unions to start using appraisal waivers was COVID-19, and once approved by credit committees this use has been maintained and expanded.

In January 2024, credit unions used appraisal waivers on 7.8% of all loans delivered to the agencies (including Ginnie Mae streamline refinances), lower than both banks and non-banks at 8.7% and 6.45% respectively.

Inspection-based waivers for credit unions

The adoption of inspection-based waivers for credit unions steadily increased throughout 2023, from 4 credit unions at the end of Q1 2023 to 80 at year-end. Early indications in Q1 are that additional credit unions are introducing inspection-based waivers, and we expect this to effectively increase to over 200 participants throughout 2024, achieving the same levels as appraisal waivers.

Conclusions for non-agency & portfolio lending

The streamlining of the inspection-based waiver ordering process, unification of the GSE Uniform Property Dataset (UPD) and GSE analysis showing that loans originated with inspection-based waivers have the same or better credit risk characteristics over traditional appraisals (due to the credit box) should further accelerate adoption.

The additional benefits of appraiser independence, mitigation of racial and purchase contact confirmation bias, coupled with reductions in costs and turnaround time for the borrower – now routinely $250 and 3-4 days or less – make inspection-based waivers, if the loan is eligible via an AUS, the next best alternative to an appraisal waiver.

Further, credit unions have approved and utilized alternative proprietary valuations in their consumer and home equity lending programs from many years, including interior and exterior inspections, automated valuation models (AVMs), desktop and hybrid appraisals.

The GSE appraisal alternatives formalize valuation standards that will over time be accepted by all industry stakeholders – including ratings agencies, insurers and investors – and be adopted for portfolio and consumer lending, non-QM programs and private label securitization.

More information about GSE appraisal alternatives