Author(s): Joshua Bosshardt, William M. Doerner, and Fan Xu
Abstract: This paper examines factors affecting the use of appraisal waivers for mortgages guaranteed by Fannie Mae and Freddie Mac and the effect of appraisal waivers on prepayment speeds. We find that the alignment of Freddie Mac’s eligibility criteria with those of Fannie Mae around the start of the COVID-19 pandemic was associated with an increase in the use of appraisal waivers. Conditional on satisfying the basic eligibility criteria, appraisal waivers are more common for refinance loans, loans serviced by nonbanks, and less risky borrowers. We also find that appraisal waivers were associated with higher conditional prepayment rates during 2020, but to a lesser extent in 2021 as refinancing activity slowed down. Much of this association can be explained by correlations between appraisal waivers and other observable determinants of prepayment speeds.
A revised version of this paper has been accepted for publication in an academic journal with open (free) access. Citation: Joshua Bosshardt, William M. Doerner. 2022. "Mortgage Appraisal Waivers and Prepayment Speeds." Cityscape, 24(3), 61-86. https://www.huduser.gov/portal/periodicals/cityscape/vol24num3/ch3.pdf