Residential Magazine

Crumple Up These ‘Typewriter Era’ Forms

The challenge is balancing immediate costs with long-term benefits

By Ernie Durbin

Loan volumes are near historic lows and the cost of originating mortgages has only risen. Profit margins are thin if existent at all. The lending industry has moved from the post pandemic “thrive” to the higher interest rate “survive” mode.

The business is hanging on, hoping for a market rebound that seems elusive at this point. Investment in future technology and efficiency is hard to justify when expenses are exceeding income. But now is actually the time to prepare for the future.

Monumental change

By the end of 2026, there will be a monumental change in residential real estate valuations. The Federal Housing Finance Agency (FHFA) has directed Fannie Mae and Freddie Mac to standardize the Uniform Mortgage Data Program, improve data quality and align with MISMO guidelines. Current residential appraisal forms will be retired and replaced by one standardized appraisal report.

Since 2010, the government-sponsored enterprises (GSEs) have used a Uniform Appraisal Dataset (UAD) for receiving appraisal reports for conventional mortgages. Simplified, the 2010 UAD data is a set of abbreviations and codes used by appraisers and shoehorned into existing appraisal forms. There are 12 main appraisal forms used by GSEs, all originally created in the “typewriter” era. UAD data are XML abbreviations truncated to fit into these legacy forms, which have been around since the early 1980s with few modifications over the years.

In 2018, the GSEs began the process of developing a new UAD specification. Fannie and Freddie reached out to all stakeholders. This fresh design is data centric, doing away with abbreviations and creating more discrete data fields. The data fields have enumerations that are standardized and will reduce narration by the appraiser. This new data standard will be machine readable, allowing for automated quality control, and focusing human review where the collateral risk is most likely.

Dynamic report

When the original UAD is deprecated, the 12 legacy appraisal forms will also be withdrawn. In their place will be one Uniform Residential Appraisal Report. The report will be based on the property type and characteristics.

This dynamic report will have a new summary page and no more addenda. Photos will be placed in the sections that refer to them. The adaptable report will be able to adjust to valuation practices as it evolves with technology or other unforeseen circumstances.

This advancement began in 2018, but truly started with the release of the UAD 3.6 specifications in 2023. Change is already underway with limited production expected in the second half of 2025 and required implementation by the end of 2026. Roughly two years from now, all companies, particularly lenders will need to be ready to adopt UAD 3.6 and the new appraisal report. To transact business with the GSEs, you will have to be compliant with the new standard.

There are many aspects that lenders will need to focus. Technologically, there will need to be extensive modifications. The new data set will require redesign of proprietary systems, including their access to the Uniform Collateral Data Portal, the single transfer point to the GSEs.

Lenders will need to engage their software partners in testing and verification. Staff will have to be trained on the new appraisal report. Not only how to read and review it, but also how to price and order appraisals without the old form product types. This will be costly and time-consuming.

Opportune moment

It may appear to be a horrible time to be allocating financial resources on new technology, but actually it is one of the best times. Low loan volume periods provide an opportunity for research, education and training when staff are not under the pressure of high-volume production.

If these changes had taken place during earlier boom times, it would have been very disruptive to production. Loan processors, underwriters and staff were under tremendous pressure previously, a required technology change might have been catastrophic.

In the long run, the new UAD standard is going to make the mortgage origination process more efficient and subsequently lower in cost. It will minimize lender review times and provide for more transparent GSE scoring. Overall productivity will increase with machine-readable data that highlights key risk areas. Repurchase risk will be reduced.

Alignment with MISMO standards also will reduce future costs that might be associated with data discrepancies and/or regulatory noncompliance. The benefits of this new standard are very measurable and positive.

The challenge for lenders is to balance the immediate costs of developing and integrating new systems with the long-term benefits. While initial expenses might be significant, the potential for streamlined operations and cost reductions in appraisal processing can result in substantial savings.

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By investing in this change now, lenders can not only navigate the current financial doldrums but also emerge as leaders in a modernized, efficient mortgage landscape. Lenders shouldn’t shy away from the investment required in these ostensibly worst of times, for such initiatives promise to bring forth the best of times in terms of operational efficiency and strategic advantage. ●

Author

  • Ernie Durbin

    Ernie Durbin is the chief valuation officer at Voxtur, where he provides expertise in developing innovative solutions for the valuation industry. He holds the prestigious CRE designation from The Counselors of Real Estate and the SRA and AI-RRS designations from the Appraisal Institute. Durbin has contributed to various special projects, including the Appraiser Diversity Initiative (ADI). He serves on the Real Property Valuation Committee for the National Association of Realtors.

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