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Since inspection-based waivers were introduced by Freddie Mac and Fannie Mae the number of lenders delivering loans has grown quickly, with 25% of all agency sellers utilizing these solutions through the end of October 2023. What is less visible is the number of correspondent lenders who are taking advantage of these new solutions.
To recap, inspection-based waivers typically cost $240 and take 3 days to complete, so are the next-best alternative to a full appraisal waiver. Lenders are notified that loans qualify for these solutions through the Fannie Mae and Freddie Mac automated underwriting systems.
Active correspondent lenders and aggregators
In 2022, over 4,400 lenders reported 8.4 million loan originations to HMDA, including first and second liens, lines-of-credit and reverse mortgages. Of these HMDA indicates 1.6 million were purchased by over 730 aggregators. As you would expect the majority are first lien agency mortgages, totaling 1.5 million loans.
The HMDA reporting guidelines are extensive, but only financial institutions and transactions covered by Regulation C of Title XII need to report under HMDA. Broadly this includes any bank or non-bank with more than 200 closed-end and/or 25 open-end mortgage loans in each of the preceding 2 years. Plus they should be making the credit decision, so while mortgage brokers generally do not report, correspondent lenders do. HMDA reporting guidelines result in under-reporting of total originations when compared to agency and other data sources.
The top GSE aggregators
There are 1,780 active GSE sellers in 2023 year-to-date, with most operating more than one production channel. There are currently 375 aggregators managing a correspondent channel, with the top 25 purchasing over 92% of all loans from correspondent lenders.
Of the 460 lenders currently utilizing inspection-based waivers, only 74 of those are delivering through the correspondent channel, although these lenders represent 87% of total purchases from correspondent lenders.
Identifying correspondent lenders
By comparing the GSE aggregators utilizing inspection-based waiver solutions with the correspondent lenders identified through HMDA, we can estimate the number of correspondent lenders who sell to aggregators currently offering the ACE+ PDR and VA and PD solutions.
The following table shows the correspondent lenders by type of institution from HMDA, and the types of loan they are originating. We can identify 1,626 correspondents from 2022 who originate agency (and non-agency) loans. Of these 688 originate agency loans but have not delivered directly to the agencies in 2023 year-to-date.
Takeaways for appraisal management companies & inspection firms; start early with lenders and perform well
The detailed ‘property data’ inspection being completed for these waivers is the foundation of hybrid appraisals that will likely be taken to guide in 2024. These hybrids have been running in pilots for 5 years, tested thoroughly by top lenders, and vetted by the GSEs and their regulator. Over 300,000 hybrid appraisals have been completed and all aspects of quality, risk management, bias, turn-time performance, appraisal capacity and compliance have been inspected and analyzed.
If this data signals anything, it is the opportunity that appraisal and inspection firms have to engage lenders who are deploying a new valuations product across their retail, wholesale and correspondent lending channels: This type of industry product change only comes along once in a decade, or two. Freddie Mac and Fannie Mae initiated their waiver programs in 1999 and 2001 respectively, and Fannie Mae introduced Property Inspection Waivers (PIWs) in 2016 and Freddie Mac introduced Automated Collateral Evaluation (ACE) in 2017.
The appraisal modernization programs and GSE Uniform Appraisal Dataset (UAD) initiatives ramping in 2024 will re-shape the landscape for agency and non-agency valuations by the end of 2025. Appraisal and inspection firms who can support lenders successfully now will be well positioned to grow market share in the coming years.