When Facebook launched its Initial Public Offering, the CEO of Veros, Darius Bozorgi, joked that his wife used the social media platform so often, he felt obliged to invest. This was during his opening remarks at the Predictive Methods Conference in Laguna Beach, Calif., back in June 2012. The Facebook stock price opened at $38, but was falling rapidly as Bozorgi was speaking.
By any measure, his Facebook investment certainly proved to be a sound decision, as it now trades above $130 per share, but the industry he works in faced upheaval at the time. But, just as the wizened Facebook investors may tell you, “good things come to those who wait.”
Marianne Sullivan, senior vice president of credit portfolio strategy underwriting and pricing for Fannie Mae, used her time at that conference to espouse the advent of the eMortgage, a technological feat seemingly unreachable at the time. Now, six years later, digital mortgages are expected by many potential first-time homebuyers.
Valuations, to put it kindly, are hardly keeping pace. And here’s why.
Sitting across from me at that conference was an individual from the Appraisal Institute and I asked him if he felt tech could solve the problems facing the valuations industry. He replied frankly, “Our problem is with individuals, not with processes,” which is no less true today. The only difference is, at the time, I took his comment on “individuals” to be implicitly directed at “appraisers.” And for years, that sentence guided my view on the valuation industry:
appraisers are the ones with the problem.
THE STORY SO FAR
Jonathan Miller is president and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm he co-founded in 1986. He is a state-certified real estate appraiser in New York and Connecticut, performing court testimony as an expert witness in various local, state and federal courts.
In his spare time, Miller keeps me apprised on the valuations industry from a boots-on-the-ground perspective. He has done more to proactively educate me on the trials and tribulations of those who work in the valuations industry than anyone else. However, he falls squarely on the side of the appraisers and once took HousingWire to task for suggesting there is a so-called appraiser shortage in the valuations industry.
Blaming appraisers, he argues, is an easy way out when judging the challenges in the valuations business.
Writing in HousingWire last year, Miller put it this way:
We haven’t been very good at speaking up for ourselves, so other industries stepped in long ago and did it for us. I’ve characterized us as ‘lone wolves’ who don’t have anyone representing us. Sure we have some trade groups, but they are no match for the lobbying juggernauts behind real estate agents, appraisal management companies, GSEs and the mortgage banking industry.
Speaking to me by phone from his office in New York City, Miller filled me in on what has changed since that blog was written. “2017 was a big year for valuation, mainly with the emergence of a grassroots movement for appraisers to join together to influence the overall direction of the industry,” Miller said.
It appears the Appraisal Institute is falling somewhat out of favor and appraisers are taking matters into their own hands. They want change and they’re using social media tools to demand it more and more.
“Some lessons from the housing bubble have not yet been learned. HVCC and Dodd-Frank all damaged the valuations industry and we continue to fight a perception problem. We still need to convince others about what it is we do and the value we bring,” Miller added.
And he’s not alone in that opinion.
“To better address the challenges we all face, we must develop a greater sense of empathy for our counterparts in the industry,” said Kevin Marshall, president and co-founder of Clear Capital. “We should rise above finger pointing and instead invent new tools and processes to lift all boats.”
The current environment of deregulation isn’t helping, Miller argues. The idea that federal regulation is becoming more lax may be emboldening nationals lenders to push the envelope more on what fees they are willing to pay appraisal management companies to commission appraisals.
But while appraisers fight state boards for what they say is a fairer fee structure, the federal law remains ambiguous: Under current law, mortgage lenders are required to compensate property appraisers at a “customary and reasonable” rate for performing appraisal services.
Ask someone in the valuations industry what a “customary and reasonable” rate is for an appraisal and the response varies depending on where you sit in the valuations industry.
“All appraiser experiences aren’t created equal,” said First American President Kevin Wall. “Some appraisers work directly with lenders, while others work with AMCs. Some work independently, while others work as staff appraisers for a firm. So, if you ask them about their experience in the business, you’re bound to get different answers.”
Clear Capital’s Marshall said the ambiguity of appraiser compensation is harmful for everyone, especially those whom they ultimately seek to serve — the potential homeowner.
“Too many borrowers are let down by the appraisal process and too many appraisers are being asked to do more for less money — we should continue to bring technology and process solutions to market that help everyone work more efficiently,” Marshall said.
SITTING AT THE ROUND TABLE
Midwinter gripped the nation in two hard ways at the start of 2018. Arctic weather pushed temperatures down across the country and this year’s influenza strain was particularly virulent. Hardly ideal conditions to be working outside, exposed.
In the middle of the worst of the weather, I sat down with three valuations experts from First American to ask about ways data and technology can keep appraisers working, when it felt like half the nation was either snowed in or under the weather.
Wall was there. As was George Opelka, senior vice president of sales and marketing for ACI, a member of the First American family of companies, as well as Alan Hummel, chief appraiser and vice president of valuations for First American Mortgage Solutions.
First American is notable as it is willing to consider almost any technology if it thinks it may increase efficiency in the valuations process. A tour of their facility in the Dallas area appears to support this ethos: great care and thought is given to the comfort of the worker.
There are standing desks, healthy food options and creative office designs. The feeling is energetic and focused with everyone rowing in the same direction.
On the logistics side, Wall is willing to speak about leveraging bot technology to improve valuations — a subject of moral hazard not many in the valuations business want to explore. But, why?
When you talk of tech advancements these days you are only a few steps from suggesting artificial intelligence could soon replace appraisers. According to a website called Will Robots Take My Job?, developed by Mubashar Iqbal and designed by Dimitar Raykov, robots will indeed take over. By some estimations, millions of jobs are at risk across the nation. For those in appraisals, Iqbak and Raykov estimated 90% of these jobs will be lost to robots soon.
And in the meantime, good, decent hard-working appraisers are being pushed aside by brokers using Google street maps, or worse, low-wage workers in India.
Furthermore, if you take your cues from much of the mainstream media, you’d almost be inclined to agree that replacing appraisers is a good idea.
A recent article in The Wall Street Journal by Ryan Dezember and Peter Rudegeair suggests it is already happening, with the headline: “What’s a House Worth? Wall Street Turns to Drive-By ‘Appraisals.’”
From the article:
BPOs have been used to value collateral in the more than $20 billion of bonds sold by institutional landlords, such as Blackstone’s Invitation Homes Inc., and in the fast-growing business of lending to individual house flippers. Banks request them when considering whether to foreclose or negotiate repayment plans with delinquent homeowners.
Their popularity shows how Wall Street is finding ways to adapt to government efforts to crack down on some of the excesses that contributed to the housing crisis. Critics say BPOs are ill-suited to gauge home values and could leave debtholders with less collateral than they thought. Properties worth less than their debt could result in losses for investors, while inaccurate price information might misguide a lender in a foreclosure process.
“BPOs are a creature of financial institutions that want deals to close fast, and so they don’t have to use an appraiser,” said Donald Epley, a retired University of South Alabama professor who helped write national appraisal standards after the 1980s savings-and-loan collapse. “You’re just dumbing down the standards to make the loan.”
“When Fannie Mae last year guaranteed about $1 billion of Invitation Homes debt, it accepted BPOs for the 7,204 houses serving as collateral,” wrote Dezember and Rudegeair. “Assuming a typical appraisal price of $450 and the $95 that Invitation Homes pays per BPO, the company saved about $2.6 million.”
So good people are being replaced by poor technology just so greedy “Wall Street” firms can make a quick buck?
In reality, at least on the residential valuations side, things are much less alarming.
Jay Kingsley, an executive at CoreLogic Valuation Solutions, said, “CoreLogic employs hundreds of staff appraisers, many of whom have worked for us for years. We go to great lengths to enable, empower and support what they do.”
Far from replacing appraisers, CoreLogic is seeking to make their jobs easier.
“Innovation is a critical part of our strategy and we are combining data, technology and analytics with the human component to drive connectivity across the valuation workflow. What we are doing isn’t just enhancing the process but helping it evolve to better serve our clients. Our clients are excited about the possibilities of what we are building.”
Devi Mateti, another CoreLogic executive, expounded on their strategy.
“There is an increased use of software that is improving the interactions between lenders, AMCs and appraisers. This is leading to three notable, significant improvements,” Mateti said.
“First, technology can enable the streamlining of entire collateral valuations workflow, all the way from smart work assignment, to appointment scheduling, to collection of payments. This means that the appraiser spends less time on overhead and can turn around appraisals quicker. This improves efficiency, enhances consumer experience and is in our collective best interest.
“Second, mobile tools are improving. For example, data-enabled tablets and sketch tools are enhancing the quality of the valuation that is being produced.
“Third, the collection of data and analytics is more vital, especially when it comes to automating the QC process.”
In fact, during the roundtable discussion with First American, the positivity about the valuations industry was actually infectious — and logical.
“By combining field technology with universal data access and cloud-based applications, multiple stakeholders can work on the same appraisal report simultaneously,” said Opelka.
“So, instead of throwing new technology at the old way, we’re leveraging new technology to create a better way.”
Opelka knows a thing or two about the valuation business. He likes to joke that after more than 30 years in the business he now has to answer to more than 30,000 appraisers in his employ.
So where is the pain point? Can the valuations industry fully adopt new technology? First American thinks so.
“We believe there remains a better way to perform valuations and the use of data and technology enables that,”Wall said.
“And it’s a myth that appraisers don’t want to change,” he added. “Many are open to using a cloud or SaaS model to allow for a more collaborative approach in collecting data, and many want the ability to complete their analysis from their desktop.”
How does First American do it? For one, they said the appraiser needs to be given a choice, a guiding light, as it were.
“We push factual data to the appraiser and he/she can choose to use it, amend it, or ignore it. In our experience, appraisers are receptive to this approach, as the data is factual and it represents an immediate time savings,” Hummel said.
“Keep in mind, this editor versus author approach gives the appraiser complete control over the data, which allows the appraiser to be more efficient and spend time on the greatest value, the professional analysis.”
By leveraging the use of data, via technology, First American said its appraisers have never been busier, or more efficient.
“Using a team approach, a seasoned appraiser can create and deliver several credible appraisal reports a day, instead of laboring to complete one assignment,” concluded Opelka. “The appraisers win, in fact all participants in the transaction win, including the consumer.”
WHAT DO APPRAISERS REALLY THINK?
HousingWire recently hosted a live Twitter chat to talk about some of the thorny issues facing the industry. Here’s the #AppraisalAnswers conversation from Jan. 31 between Lori Noble, SRA, and Jacob Gaffney, HousingWire editor-in-chief, edited for format.
Jacob Gaffney: Lori, you’ve often stood up for the appraisal community. Do you feel there could be an even stronger unified voice?
Lori Noble: We have some great organizations. Until recently, trade groups & financial institutions have spoken on our behalf. Today, there are more than 30 state appraiser coalitions. It’s working to grow a stronger more unified voice.
Now, there is a full movement by fee appraisers. The #APPRAISERFEST Economic Forum this fall; the State Coalitions and the Network of Coalitions are the organizations for information and in the trenches at the state legislative level to impact good change.
JG: Why is the appraisal industry so often maligned in the press? I know I’ve been guilty of doing this myself in the past.
LN: Easy, we are always the fall guy. We have no gravitas in the lending process, are sole practitioners, & last to the party.
Since 2008, our image was damaged by financial institutions who make appraising a commodity (to control us & value outcomes), not as a profession.
Access to credit has not normalized since the crash yet lenders seek the cheap & fast, knowing quality from AMCs is typically poor.
These institutions do not represent the appraisal profession, they represent the widget commodity model, which is not what appraisers are.
JG: Well, hopefully conversations such as these are helping to fix those appraiser perception problems. Is the current de-regulatory attitude toward the mortgage industry creating more problems than it solves?
LN: It’s strange to have an institution in receivership trying to expand the credit box. The GSEs PiW (appraisal waivers) set a tone that implies no appraisals on collateral is ok.
If we want the secondary market to come back & history shows they follow GSE protocol, the detachment from risk will become widespread. I suppose it would not be an issue if the legacy of a government backstop were not in place.
The deregulations in our sector of the loan process defies the logic of FIRREA & spirit for which it was written. Financial markets simply aren’t disciplined enough for the leniency, especially the waiver of appraisals all together.
Can you imagine how the brokerage community will react when home buyers find out that no appraisal was done and later sue the brokers if they feel they overpaid?
JG: I agree that getting sued is no good for anyone! So you say there isn’t an appraiser shortage, rather a raft of qualified individuals who are unwilling to devalue their appraisals. What can lure them back into the valuations industry?
LN: There was never a shortage, only a shortage of appraisers willing to work at 50% or less the market rate. Lenders and AMCs make it nearly impossible for appraisers to compete in the free market with the monopoly they enjoy in many markets
AMCs and some lenders are in effect, blaming appraisers for responding to the forces of supply & demand which is against their interests, which is to commoditize a profession.
JG: It’s getting to a point, to be honest, where the blame game is coming to an end… hopefully. More and more lenders are looking to outsource BPOs to countries like India. WCGW?
LN: This isn’t the same situation we saw with the housing bubble. Cheap and quick = value as an afterthought. Wall Street now owns many AMCs now driving mortgage lending valuation and I am confident in saying that Wall Street has never understood housing.
Consumers are equally vulnerable because they don’t understand how much our role is being changed in the mortgage process. When they do realize, real estate agents may be sued.
It seems the key effort by institutions is to automate and outsource to save money with no credible concern for quality and risk.