Here it is: another article about appraisal modernization. Many are tired of hearing about how the appraisal industry needs to change and progress. But it’s true, and change is necessary. (Where would our Internet-provider world be if it hadn’t evolved beyond 9600 baud modems to gigabit fiber-optic service?)
The FHFA RFI responses to appraisal modernization are a treasure trove of insight into ideas and options for modernization from a wide variety of respondents. In many of those reviewed, there is a strong desire to keep appraisals and appraisers as key components of the mortgage lending process. A desire to see the collateral analysis and valuation process evolve, modernize, and move forward—whatever term you prefer. There are many good ideas for updating and modernizing that keep the appraiser involved, though the appraiser’s role may look different. Because Freddie and Fannie are such a large share of the market, their appraisal guidelines—forms and methods—become the de facto industry standards for residential mortgage lending.
Additionally, we’ve seen recent updates from Fannie and Freddie on their effort to redesign UAD and update the “forms.” The GSEs have been working to gather feedback on their proposed ideas and approach to appraisal reporting formats from various industry stakeholders for the past couple of years. The current notion is to adjust how an appraiser reports their value opinion with accompanying salient information—moving from a standardized form to a standard yet dynamic format that will adjust to the property’s characteristics being appraised. This approach would eliminate the need for property-specific forms and the need to cram multiple data points into a single field on a form, as we do with today’s UAD. These changes are beneficial from a simplicity and flexibility perspective.
To paint an example of what this might look like, an appraisal form software provider would provide data input screens for the subject property address and certain property characteristics, such as single-unit or two-unit, owner-occupied or tenant-occupied, fee or leasehold ownership, and so forth. Based on these classifications, additional information would be input. For a single-unit home, HOA information or project amenities would not be needed. For a four-unit, the data fields included would expand to address information for all units, rental information and other building attributes important to multi-unit properties vs. single unit. When all required data input fields are completed, the data file is delivered to the lenders, same as it is today, and the data fields are formatted and presented in a manner that a “form” is printable or can be turned into a PDF so that the appraisal can be viewed.
The GSEs are pushing out a timeline that indicates the design and planning for this new approach will be completed this year. The industry begins the mammoth task of rebuilding its systems, technology, processes, and product to support this new approach in 2022/2023. The changes will impact just about everything and everyone in the collateral valuation space.
As this effort’s scale and breadth are coming into focus, many are asking FHFA and GSEs to clarify and justify the associated costs. There are numerous comments in the FHFA RFI responses, from significant entities including the MBA and ABA, asking FHFA to provide more insight into the value of the proposed changes. There is some concern that the changes will be beneficial primarily to the GSEs, with the cost and impacts borne by the lenders with minimal direct benefit. Forms providers, collateral management technology providers, automated appraisal review tools, AMCs, lenders workflow systems, and loan origination systems, to name a few, will be impacted significantly; not to mention the people, training, and process changes that will also be needed. This change is akin to pulling all of the wiring and plumbing out of your house and replacing—no small task.
As this effort by the joint GSE group is still in process, there are no finalized requirements or new data standard to build to at this juncture. It is business as usual for at least another year, likely longer. So, at this point, exactly what this new world looks like is speculation. Additionally, we have yet to see if the FHFA provides any additional direction to the GSEs based on the extensive feedback collected in the RFI.
No doubt, investment in modernization is needed in the appraisal process. A measured, incremental, iterative approach minimizing impacts to all stakeholders seems prudent. At CoreLogic, we remain closely involved with all participants in this process and stay ready to support the needs of our appraiser, lender, and AMC clients as they help consumers find, buy and protect their homes.