Appraisal modernization is generating a lot of buzz in the real estate lending industry. Expanded use of desktop appraisal technology began out of necessity during the COVID-19 pandemic. Lenders accelerated technology adoption, and regulations were loosened to give lenders more flexibility in using desktop and hybrid appraisals at a time when safety and social distancing were top priorities.
While social distancing is becoming a distant memory, last year’s announcement by the GSEs that desktop appraisal technology would remain permanent was quickly followed by Fannie Mae’s launch of the Appraisal Acceptance + Data framework — a clear indication that appraisal modernization is here to stay.
Most would agree (me included) that the appraisal process is long overdue for modernization — a 2022 Fannie Mae survey showed 94% of lenders are in favor of appraisal modernization. In addition, research has shown that the benefits of leveraging appraisal management technology along with process modernization are real and measurable — including shorter loan cycle times, enhanced appraiser capacity and lower costs for both lenders and consumers.
However, is appraisal modernization on its own enough? The real estate lending market is more competitive today than it has ever been. Housing inventory has been hovering at or near all-time lows for months. Scarce inventory combined with high interest rates have caused loan volumes to plummet, resulting in significant pressures on lenders to squeeze more profit margin from every loan and find ways to attract and retain consumers just to maintain market share.
Modernizing the appraisal process and adopting appraisal management technology is a start – but there are risks in taking a myopic view of appraisal modernization.
A decade ago, companies believed that selecting best-of-breed technologies was the best approach. But lenders have since found that implementing multiple point solutions for each step of the loan process can result in silos, gaps in communication, lack of visibility and high overhead costs related to systems integration and vendor management. Best-of-breed integrations are failing to keep pace with the speed and on-demand nature of today’s world.
The most forward-thinking lenders are following the lead of their counterparts in other industries and making the move to a more platform-centric approach to business process automation and reporting — across the loan process.
By adopting a comprehensive technology or service platform that spans multiple stages of the mortgage loan process, lenders can enable end-to-end digitization of the loan process, monitor loan status at every stage from a single dashboard, improve operational efficiency and reduce vendor management costs. At the same time, platforms provide more holistic compliance and a more seamless consumer experience.
As technology gains more importance in the mortgage industry, an influx of technology startups is entering the space. Most are focused on one step in the loan process, with many making promises that appraisal modernization is the answer to all lender problems. In addition, vendors are capitalizing on the buzz of AI (artificial intelligence) without proof points to back up their claims. Others are marketing and claiming first-mover innovation on technology capabilities, such as mobile property inspections, that have existed for years.
While it may be tempting to choose the flashy new tech interface, remember that automating one step of the loan process will only get you so far. We saw this with loan origination. Most lenders now have a digital approach to loan origination, which has proven beneficial to lenders and welcomed by consumers.
But what happens after the digital origination experience? Lenders hit the obstacle of the appraisal process. Appraisal modernization promises to remove that obstacle, but then what? Lenders will hit the title information stage of the process and efficiency could again grind to a halt.
Avoid the temptation to piece together best-of-breed solutions. Instead look to solution partners that offer a broader footprint and provide technology-enabled solutions for appraisal, title and closing, with support for all types of real estate loans.
The best platforms will enable you to tackle appraisal, title and closing modernization at your own pace, while still enabling a seamless experience for all stakeholders in the loan process. Typically, these vendors will also have a longer track record in the industry — ensuring a more stable, secure and sustainable technology environment with better customer service.
There has never been a more critical time to take a holistic view of the mortgage loan process and embrace technology that can help you deliver end-to-end efficiency and transparency through an integrated platform approach to appraisal, title and closing. Your ability to survive and thrive now and in the future depends on it.
