A Fannie Mae survey published in mid-May found that mortgage lenders see value in appraisal modernization, specifically in the implementation of non-traditional appraisals and inspection-based appraisal waivers. However, they have several more pressing priorities when it comes to what they’re investing in.
Out of 200 senior mortgage executives surveyed, who represent 188 lending institutions, 94% think that appraisal modernization efforts will simplify the origination process. The main benefit of appraisal modernization, according to the first-quarter sentiment survey, is that it will help shorten the loan origination cycle time.
One mid-sized lender echoed the opinion of others that appraisals still take too long.
“Currently, the appraisal process is the biggest issue facing the mortgage industry,” the mid-sized lender said. “It causes significant delays, higher costs due to involvement of [appraisal management companies], and there are fewer experienced practitioners that understand more complex collateral assignments.”
Lenders surveyed also think that modernizing appraisals could help enhance appraiser capacity and lower borrower costs. With a declining number of appraisers in the field and rigorous requirements to enter the profession, lenders say that appraisers are stretched thin in how many properties they can get to. Implementing desktop appraisals would help alleviate this.
“They cannot get to all the houses we need appraised,” said one mid-sized lender that participated in the survey. “If they can, they want to charge more money for the appraisal. The charge gets passed on to the consumer so it’s hurtful for consumers.”
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Despite a majority of lending institutions agreeing that adopting new technology for appraisals would be beneficial, survey takers identified several other priorities that were even more important.
Forty percent of lending institutions reported that a consumer loan application digital portal was either a first or second priority of their investment and eMortgages — eNote, eRecording, and eClosing — came in a close second with 39%. The desire to invest in appraisal modernization came in third place, with 29% of lending institutions reporting that this was a top-of-mind investment.
Lenders also mentioned concerns and roadblocks with adopting new appraisal modernization tools. Some of the biggest challenges listed by lenders include: speed, or lack thereof, of industry implementation and integrating these tools with loan origination systems.
Appraisal modernization efforts in the housing industry have ramped up because of the pandemic.
In March 2022, the Federal Housing Finance Agency (FHFA) made hybrid appraisals a permanent fixture. Both Fannie Mae and Freddie Mac now allow appraisals to be conducted remotely, using public records such as listings and tax appraisals, for purchase loans.
Meanwhile, the Department of Housing and Urban Development (HUD) recently extended its timeline for allowing desktop appraisals for certain transactions impacted by the pandemic. The policy now expires on December 31, 2022.
Concerns remain, however, around whether automated valuation models (AVMs), used in desktop appraisals, have the potential to bake-in and amplify racial bias, in part by relying on historical sales comparison values.
