Role play: evaluators and their intended uses
Tell someone that you are a professional fee assessor and most people will have no idea what that really means. Some will imagine the guys from Pawn Stars or the Antiques Roadshow trying to put some value into something they pulled out of their parents’ attic. If they work in the mortgage industry, they will likely fall into one of two groups: those who understand the value you bring to the mortgage finance transaction and those who think you are filling out forms. This last group is much larger.
It may be the seemingly endless stream of electronic advertisements for form filling software, but something has convinced a large majority of mortgage professionals that what we are doing is filling out the latest version of the report. Evaluation.
No wonder they think computer software can replace us.
In truth, human reviewers fulfill two vitally important roles today, (1) we collect information and (2) analyze it so that it can be presented to our clients. The way we present our results, the forms we use to display the conclusions we have reached based on our years of experience and the data available, have changed over time and will continue to do so. But the two essential roles we play in the process will not change.
The changes we are seeing today in our industry and in the forms that investors ask lenders to use to present our views on value are evolving in the interests of optimization and efficiency. We should accept this, even though most of the efficiency gains benefit our customers as our jobs get more difficult, at least in the short term.
Some reviewers vehemently oppose some of these modernization efforts because they remove certain steps from our traditional process.
Ours is not the only industry where we see this. Think about oral care. Dentists, in particular.
If you are going to the dentist today with a toothache and it is a professional that you have seen in the past, perhaps for a regular checkup, you would not expect to have to undergo the procedure again. x-ray procedure. This has already been done in the recent past. What you need now is relief. So you collapse in the chair and the dentist goes to work to relieve your pain.
Today in our industry, mortgage services make refinancing offers to new borrowers within 90 days of entering the service platform. In a declining interest rate environment, it is not uncommon to see a borrower return to the closing table for a new loan within a year of closing their last loan. Unlike the dentist, we’re warming up our full appraisal professional and getting ready to re-x-ray the property, metaphorically speaking.
COVID has brought this concept to the fore, and we have seen the rise in valuation waivers – when GSEs determine based on risk that the information they have about the property and the expected value of that property is sufficient to a subsequent transaction. GSEs are confident that the expansion of the waiver program has not increased the risk, and their regulator has approved the use of waivers, sending a signal that the risk exposure is under control.
But even with waivers, there will be a time when these properties will need to be reconsidered. At some point there will be questions about changes to the property that a professional appraiser will need to answer.
But will it be a return to the full assessment methodology of the past? Chances are we may see an appraiser role or one supervised by an appraiser where we send someone to collect physical information and provide feedback to lenders and agencies on the continued reliability of the initial data set. .
If that sounds like a role we could give to a computer, then you should know that every system needs to be measured and maintained to make sure the algorithm is still delivering reliable results.
When an automobile leaves the assembly line, it is not only presented to the general public. It’s tested. We will have to do the same. In fact, we’ll be even more important because, unlike the automotive industry, we don’t have a standardized approach to collecting and developing real estate data.
There can be a big gap between what intended users need in terms of real estate data, think lenders and tax assessors. The human appraiser must navigate through this pool of non-standardized data to come to reasonable conclusions when estimating the value of the property.
Before COVID, pretty much all real estate finance transactions were treated the same in terms of appraisal requirements. Today that has changed and it will not change back.
Lenders and their investors now know that some transactions will likely still require a full appraisal, but many will not. If a lender takes over a property as an REO after foreclosure, you can bet they’ll want a full appraisal so they can be confident in their estimate of the severity of the losses. But refinancing at 30% LTV using a 15-year note probably won’t require the full nuts and bolts approach. This is not a new concept, valuation validation has been in the risk nomenclature for quite some time, it just wasn’t very widely practiced.
Through all of these changes, our roles will remain the same. We will continue to bring the data together and make sense of it, providing key and relevant feedback to our lender clients on which to base a decision, which is all the assessment was ever designed to provide.
Do you have comments or would you like to submit your own content? Become a member of the Appraisal Buzz forum and comment below or email [email protected]