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   ARTICLE   |   From Scotsman Guide Residential Edition   |   October 2017

Valuation Goes Digital

Technology-enhanced appraisals are becoming the new normal

All around us, technology has become integral to our lives. We shop online, pay bills from our computer, make restaurant reservations without talking to anyone and hail car rides with the push of a button. We can even control our thermostats, lights and appliances via Wi-Fi. And it’s no different in many workplaces, where e-mail, file-sharing platforms and business-process automation have become the norm.

In the mortgage industry, however, the rate of technology adoption has been much slower. Although loan origination systems have been in place for some time, other aspects of the mortgage loan process are lagging behind.

One area of particular frustration for mortgage originators, lenders, appraisers and borrowers alike is the appraisal-management process. So why not streamline and automate it?

Risky business

The property appraisal is a critical component of any home loan — whether it be for purchase, refinance or home equity — so it seems like a logical process to automate. Instead, appraisal turn-times are actually getting longer in some markets, and appraisal management remains a complex area that many lenders are hesitant to change.

There are several factors that make appraisal management difficult to automate:

  • Appraisal regulations are complex and vary by loan type;
  • Appraisals are human-centric, requiring the expertise of a qualified appraiser and the cooperation of the borrower;
  • Appraisal and compliance processes vary by lender; and
  • Government-sponsored enterprises (GSEs) have their own set of standards.

Overall, the perception in the industry is that any change in the appraisal process or deviation from traditional appraisal methods poses a big risk to the business. Consequently, most large lenders stick to the status quo.

Signs of change

Disruption in appraisal management may be on the horizon. There are three things happening in parallel that could come together to prompt both lenders and appraisers to lower their resistance to change:

The secondary market may be open to alternatives. The GSEs and other secondary market players, including the U.S. departments of Housing and Urban Development (HUD) and Veterans Affairs (VA), are loosening up requirements on real estate appraisals. Fannie Mae introduced its Day 1 Certainty Program last year and then announced it would waive the appraisal entirely for some refinance loans. Freddie Mac is evaluating a change to its mortgage process that would replace traditional appraisals with a no-cost alternative valuation system. And VA recently held hearings on the adoption of desktop appraisals to streamline operations.

Market forces also are increasing the pressure. There is a growing shortage of appraisers in some real estate markets. The appraiser shortage results from a combination of factors, including an aging appraiser population, higher barriers to entry (education and apprenticeship) and pricing issues.

Those factors are prompting many appraisers to leave the business. This appraiser shortage is leading to higher appraisal costs and longer turn-times — both of which negatively impact lender profitability and borrower satisfaction. When everyone in the process is frustrated, it’s a true sign that change is needed.

Technology innovation is accelerating as well. The cloud-based, software-as-a-service (SaaS) delivery model is finally taking hold in appraisal management. The top appraisal-management companies (AMCs) have developed technology to automate process workflows, implement lender-specific business rules, crowdsource resources for property inspections, and auto check appraisals for accuracy and compliance.

In addition, platforms such as Mercury Network and AppraisalWorks are increasingly being adopted by lenders who manage their appraisal-management function in-house. Desktop-appraisal software also is finally making its move into the mainstream.

In 2015, the leading desktop-appraisal technology platform, ValueNet, incorporated an interior-inspection option that was certified to be compliant for all loan sizes and could replace a traditional appraisal for home equity and portfolio mortgage loans. This was a huge evolution in the desktop arena, and, as the GSEs and VA explore alternatives, desktop-appraisal technology is likely to emerge as the wave of the future.

Opportunities abound

The business benefits of moving to technology-enabled appraisals are significant, including fostering a better borrower experience. Appraisal-management technology and alternative-valuation solutions such as desktop appraisals allow mortgage originators, lenders and appraisers to provide faster and better service to borrowers, while also ensuring an accurate, compliant appraisal. Borrowers will appreciate the increased transparency and smooth, efficient process — making them more likely to remain long-term customers.

Investing in modern technology to streamline appraisals and improve transparency is one of the best ways to improve operational efficiency and lower operating costs. In the past, upgrading software technology required large capital investments, but that is no longer the case. Software-as-a-service and cloud-based applications have become the new standard in technology and, in most cases, require no upfront investment.

Through automation and better visibility, the right appraisal-management technology can accelerate processes, reduce errors and enforce compliance checks while improving productivity and lowering costs, thus having a direct impact on profitability. The best appraisal-management technology platforms also enable all constituents to collaborate more effectively and give everyone visibility into appraisal status and information. 

Desktop-appraisal technology applications require minimal upfront investment as well, but they offer a big payoff in productivity, enabling appraisers to handle more volume at a lower cost with less administrative effort. The best desktop-appraisal solutions offer mobile capabilities that allow local property inspectors to upload property specs and photos that can be reviewed immediately by licensed or certified appraisers.

In addition, compliance regulations in the appraisal field are complex and involve both federal and state considerations. With the GSEs, VA and HUD all evaluating changes to appraisal guidelines and the future of the Consumer Financial Protection Bureau in question, it is likely that appraisal-compliance regulations will become more dynamic. Having cloud-based and SaaS technology in place that is automatically maintained and enhanced by an expert third party will help to ensure that your appraisal-management business processes, rules and forms are all updated on a continual basis and that you maintain ongoing compliance with changing regulations. Stronger compliance means lower risk for your business.

• • •

The appraisal-management process is ripe for change and technology adoption is likely to be a key component of this change. Technology has the power to deliver process automation, compliance enforcement, improved collaboration and on-demand transparency— all of which will improve the appraisal experience for originators, lenders, appraisers and borrowers.

Market forces are already underway, and the technology-enabled appraisal will soon be the new normal. It’s time to get on board. The earliest adopters will gain the biggest benefits and become the new market leaders.


 
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