Mar
21
By Laurie Goodman and Jun Zhu
Historically, purchase mortgages have performed better than refinance mortgages, or “refis,” defaulting less often. But 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.
We looked at the data and concluded that these improvements have reduced the difference in how purchase and refi mortgages perform. And while the models used in FHA, Fannie and Freddie underwriting systems are not public, our results suggest an update may be in order.
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