Appraisals and ValuationsMortgageOpinion

Opinion: The pros and cons of VA modernization bill

Balancing safety and efficiency is no easy task

When it comes to offering an opinion of ‘good or bad’ on HR 7735 — the VA modernization bill — and its ultimate ability to create a better appraisal process for veteran and active duty borrowers, it’s simply too early to tell with too little information being shared on exactly what changes we should expect.

But, we might also pull from wisdom of the ages: “If it ain’t broke, don’t fix it.”

Simple enough axiom, and one many military or rural readers may be able to relate to. Veterans are certainly familiar with the saying as many of the techniques, tactics, and procedures (TTP) for warfare have changed little over the years.

That said, modernization is a good thing as well and should never be feared. After all, Marines aren’t fighting wars atop horses with bows and arrows as they did in Sun Tzu’s day. My hope is that many of the features and policies that have made the VA loan the safest mortgage in the U.S. remain intact while updating some of the systems and processes that make it antiquated, inefficient and costly for the veteran. 

While I’m a fan of improving antiquated systems, I first wonder if the VA, the MBA, or Congress were open enough about the problems with the current system. To my knowledge, there were never any open statements backed with any sort of data or analysis to prove the deficiency of the VA appraisal. 

Personally, tracking the occurrences of over 2,700 VA loans through Vetted VA for 2021, I can tell you that professionals — who truly know the VA loan — don’t hate the current VA appraisal process. We don’t believe it is slower than other appraisals, nor does it need massive change as a generality. 

It may be that many of the loan originators and real estate agents calling for major changes to the VA appraisal process are be those with the least amount of first-hand experience with the VA product.

So what’s good, what’s bad, and what’s ugly?

To begin with, I applaud the flexibility of allowing desktop or drive-by appraisals, but at the same time this would seem to fundamentally alter the requirement of the appraiser to inspect the property to ensure Minimum Property Requirements (MPRs) are met. 

MPRs exist on all loan types, and it’s my opinion that they are a good thing even though VA is stricter with a few details, like peeling paint, an issue often dismissed as trivial and unworthy of repair. Peeling paint is an open door to water intrusion, one of the most pervasive pathologies in a home.

MPRs protect the borrower, the home, and the financial investment made by all parties. And one of the many reasons that VA loans default at a lower rate than other loan types, including conventional, is because of the required due diligence to ’protect the property,’ which then protects the homeowner. VA’s MPRs allow for the veteran to not worry about having to immediately sink their funds into repairs and instead have savings in the bank to avoid defaulting on the loan.

I do believe there are issues in rural markets that lead to lengthy delays that are difficult for homebuyers in a normal functioning market, but what about the burden of proof? With other loan types, we are able to see the appraisal data which confirms the average time for the report to be completed. 

Though John Bell, deputy director of the Loan Guaranty Service at the VA, has cited the speed and efficiency of the VA appraisal, the data sources are not available to the larger industry participants to illustrate the actual issues that would prompt a major change like this.

Currently, the VA loan has a requirement to be delivered in 10 days after acceptance and we believe they do in most cases. However, in several rural markets there is failure to meet this standard as appraisers may not even accept the order for weeks. Without a doubt, other loan types, including conventional, also experience long delays in obtaining a completed report in rural markets for the same known issue of shortage of available appraisers.

The supply of appraisers approved with the VA has greatly and disproportionately impacted veterans in smaller markets in two ways: time and money. Fewer VA fee appraisers exist because of the additional requirements appraisers have to meet in order to perform appraisals for VA loans. 

This shortage oftentimes leads to delays in accepting appraisals and costs being driven up for veterans with the ‘bidding’ impact it creates. Veterans have felt hostage to the current system in these smaller markets, and I think that is an appropriate analogy. I believe changes are needed to ensure veterans in rural markets are not disproportionately impacted.

Again, notably there is a shortage of appraisers for all loan types, hence the changes in USPAP to lower the education requirements to become an appraiser.

When it comes to establishing market value, I think the VA appraisal at present determines this as well as any other. When value is not achievable in the opinion of the appraiser — both Tidewater and Reconsideration of Value allow more protective flexibility for the borrower than any other loan type. ‘Market value’ doesn’t change from one loan type to another after all, though there are small inconsistencies between comparable analysis required for VA, FHA, or conventional loans. 

I believe these inconsistencies are nominal at best and, if anything, the comparable requirements of conventional lending are a bit too loose as they are more likely to lead to sale comparisons of truly non-comparable properties. VA appraisal standards have long proven their strength with lower default rates and healthier homes.

So how will the VA modernization bill change comparable property analysis fundamentally? How will it change MPR analysis with the introduction of desktop/drive-by appraisals? How will it change the process to allow for more VA appraisers? How will all of these changes at once impact what is already a very competitive and accurate appraisal?

We don’t really know the how yet, we just know the what. Personally, I’m a fan of improvement even when other new unforeseen problems arise. I think these changes are likely to impact the veteran, the originator, and the real estate agent in a positive way — even if I’m annoyed the powers that be didn’t ‘show their work’ or publish the data that supported a need for this massive overhaul. 

A fundamental change

Make no mistake, this is a significant fundamental change to what we have all currently known as the VA appraisal process. My hope is this creates an environment where real estate agents, loan originators, and even veterans are more likely to consider the VA loan when purchasing a home in the US.

For far too long, ignorant professionals have cited some of these concerns as a reason to include “Not accepting VA Loans” in the MLS property listing, which quite frankly is infuriating to those in the know.

The VA loan is the most cost-effective, efficient, flexible and secure mortgage in the world. I remain hopeful these changes further drive that point home.

Christopher Griffith, a Marine veteran, is the CEO of Vetted VA and Broker/Owner Partner of Be My Neighbor Mortgage.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Christopher Griffith at [email protected]

To contact the editor responsible for this story:
Sarah Wheeler at [email protected]

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