Refinance Mortgages Demonstrate Less Risk

The default rate for refinance mortgages, or “refis”, has historically been higher than purchase mortgages. That trend appears to be turning around, though.

The Urban Institute, in a blog post, says changes made in response to widespread appraisal bias during the crisis have improved the industry’s risk assessment and management abilities overall and, accordingly, have decreased the expected default rate on all mortgages.

Increased scrutiny, according to The Urban Institute, has made for more accurate appraisals and the automated valuation models (AVMs) have enabled Fannie Mae and Freddie Mac to share concerns with lenders about an appraisal prior to the execution of a mortgage, allowing the lender to take corrective action.

The authors of the blog post, which has extensive informational charts on their data gathering, said It was predicted that these developments would decrease the expected default rate on all refinanced mortgages, which were particularly susceptible to appraisal fraud. The data reveals that this has indeed been the case, they concluded.

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