While it trails well behind credit history and
debt-to-income levels, collateral problems are consistently the third most
frequent cause of loan denials.
CoreLogic said Home Mortgage Disclosure Act (HMDA) data for 2015 show
collateral issuers were the reason behind 13.7 percent of the 450,000
first-lien purchase mortgage applications that failed approval.
The share of loans turned down for collateral reasons has
remained consistently in the 12-13 percent range since home prices began to
recover in 2012. But Yanling Mayer,
writing in CoreLogic's Insights blog, says there is a wide variation in
collateral denials on a geographic basis, ranging from 7 percent in Delaware to
22 percent in Michigan. While lenders
don't provide specific causes in their HMDA reports, Mayer says appraisals
coming in below the contract selling price is common. Data from other sources show 10 to 13 percent
of appraisals nationwide come in below the contract sales price, a number
consistent with HMDA data.
Those below-contract value figures, which average 11.3
percent on a nationwide basis in 2015 and through November 2016, also vary
widely at the state level. Only about a dozen states exceed that national
average, but CoreLogic points out that the frequency of too-low appraisals in
Michigan at 20 percent and Hawaii at 18 percent are very close to their failed
collateral percentages of 22 and 20 percent from HMDA. As Mayer says, "likely not a coincidence."
In addition to geographic variations
Mayer points to several "temporal" differences.
Most states show a small-to-modest decline in the number of appraisals
that come in under the arms-length contract price as the recession recedes, but
they 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, have appraisals that continue to
come in relatively frequently at a too-low level.
As of November, nearly one in five
appraisals in Florida and Michigan come in under contract price. For Florida,
the improvement from 21.9 percent in 2012 to 19.6 percent is rather modest
given the state's steadily rising sales volume, declining distressed sales, and
strong home price growth. The same
moderate improvement is noted in Michigan. 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 and Hawaii and
Texas experienced upticks in low appraisals even though they too have had significant
declines in the volume of REO and short sales, rising housing activity and
solid home-price growth.
Mayer concludes that due to its
reliance on sales comparisons, the quality and accuracy of home appraisals can
only be as good as the availability and quality of the appraiser's comps. The
pool of available comparables can be impacted by many factors such as local
sales activity, level of housing distress, whether the subject property is
itself distressed, and where the property falls in the price tiers. These,
along with appraiser experience, can all influence the appraisal accuracy.