econintersect .com

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

posted on 05 February 2017

Collateral-Related Loan Denials Exhibit Wide Geographical Variations

from CoreLogic

-- this post authored by Yanling Mayer

In a November CoreLogic Insights Blog, collateral was noted as the third most-frequently-cited reason for denials (13.7 percent) for nearly 450,000 first-lien purchase mortgage applications on one- to four-family, owner-occupied homes, as reported in the 2015 Home Mortgage Disclosure Act (HMDA) data. Since the 2012 housing recovery, the number of loans denied due to collateral issues has remained relatively unchanged in HMDA data: 13.7 percent in 2012, 14 percent 2013 and 12.9 percent in 2014 - continuing to trail distantly behind credit history and debt-to-income (DTI) for lender-cited reasons of denials.

When viewed geographically, however, the 2015 HMDA data reported wide variations at the state level in collateral-related loan denials, ranging from 7 percent in Delaware and 8 percent in Alabama, to 20 percent in Ohio and Hawaii and 22 percent in Michigan. Although there were no specific details on why collateral was listed as a cause of denial, often it is caused by appraised values that come in below the buyer-and-seller’s negotiated price. Nationwide, appraised values below contract sales price make up about 10-13 percent of single-family purchase-loan appraisals, tracking closely with the HMDA data.

Likewise, at the state level, the frequency at which appraisals come in below the arms-length price can vary widely from state to state (Figure 1). Nationwide, about 11 percent of purchase-loan home appraisals assessed a lower collateral value than the contract price stated in the loan applications during 2015. In only about a dozen states the share of homes with an appraised value below the contract sales price exceeded the national average. Notably, the frequencies of low-appraised homes in Michigan (20 percent) and Hawaii (18 percent) are in line with the states’ respective HMDA data on collateral-related loan denials - likely not a coincidence.

Besides geographic variations, there are a number of noteworthy temporal differences. For most states, on the heels of the 2012 housing recovery the temporal trends generally show a small-to-modest decline in the number of appraisals assessed at below the arms-length market price, but nevertheless stay close to the 7-9 percent range. What stands out the most are Florida, Hawaii, Michigan, Nevada, Texas and Arizona in which, despite rising sales and a strong market recovery, appraised collateral continues to come in relatively frequently at below the arms-length contract price (Figure 2).

As of November 2016, collateral is appraised at below the arms-length market price for nearly one-in-five single-family purchase-loan applications in Florida and Michigan. Florida’s temporal improvement since 2012 - down to 19.6 from 21.9 percent ­ - is rather modest in light of steadily improving market conditions (e.g., rising sales volume, declining REO and short sales, and steady home-price growth: Figure 3). And Michigan’s temporal declines are likewise moderate at best. In Nevada and Arizona, on the other hand, the incidences of low-appraised collateral fell significantly during the same period marked, similarly, by a strong housing recovery. The upticks in Hawaii and Texas, however, are despite significant declines in the volume of REO and short sales, rising housing activity and solid home-price growth.

In view of its underlying sales comparison approach, the quality and accuracy of home appraisal can only be as good as the availability and quality of the comparable transactions used for the appraisal development. Through the impact on the pool of comparable properties, many factors - such as a local market’s sales activity, market distress, whether the appraisal is an REO or short sale property, or whether it is a higher- or lower-priced property - are found to influence the appraisal accuracy. [1] Of course, let’s not forget that the experience of the appraiser is just as important, if not more, since even with an abundance of comparable sales to select from, the appraisal can only be as good as the accuracy of comparative adjustments made subjectively by the appraisers.

1 See, for example, a research note by the author, “FNC Study: How Local Market Conditions Affect Appraisal Valuations," June 2012.

© 2017 CoreLogic, Inc. All rights reserved.


>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.

Econintersect Contributors

Print this page or create a PDF file of this page
Print Friendly and PDF

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Middle East / Africa
USA Government

 navigate econintersect .com


Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2018 Econintersect LLC - all rights reserved