Mort­gages with­out ap­praiser vis­its? Fan­nie pi­lot asks why not

In a bid to cut time and costs, Fan­nie Mae is test­ing whether ap­prais­ers can ac­cu­rately de­ter­mine a home’s value with­out vis­it­ing the prop­erty.

National Mortgage News - - Contents - By Bon­nie Sin­nock

In a bid to cut time and costs from the mort­gage process, Fan­nie Mae is test­ing whether ap­prais­ers can ac­cu­rately de­ter­mine a home’s value with­out ac­tu­ally vis­it­ing the prop­erty.

In­stead, the govern­ment-spon­sored en­ter­prise is ask­ing ap­prais­ers to com­bine lo­cal mar­ket data with prop­erty-spe­cific de­tails from a home in­spec­tion to cre­ate a “hy­brid ap­praisal” re­port.

Fan­nie Mae de­clined to com­ment about the pro­gram, but the pi­lot was de­scribed to NMN by mul­ti­ple sources fa­mil­iar with the tests.

Hy­brid ap­praisals tend to be faster for lenders and cheaper for bor­row­ers than tra­di­tional, “full” ap­praisals, par­tic­u­larly in ru­ral ar­eas and hot mar­kets where there are ap­praiser short­ages, and they are be­ing in­creas­ingly used for orig­i­na­tions in the home equity mar­ket in re­sponse to higher rates, costs and com­pe­ti­tion.

“We think it’s a game changer, the fact that they’re go­ing down the path of test­ing it,” said Jim Smith, pres­i­dent of Prop­erty So­lu­tions, the val­u­a­tions, ti­tle and as­set man­age­ment di­vi­sion of Com­put­er­share.

The use of al­ter­na­tive ap­praisal prod­ucts has long raised ques­tions about data in­tegrity and ac­cu­racy. For ex­am­ple, the qual­ity of the sub­ject-prop­erty data in a hy­brid ap­praisal will vary based on the skill and ex­pe­ri­ence of the home in­spec­tor, said Mark John­son, pres­i­dent of prop­erty valu­a­tion com­pany LRES.

“The pro for the lenders is ev­ery­thing is faster and eas­ier. Re­ally what you are do­ing there is tak­ing the ap­praiser out of the drive-time and ap­point­ment equa­tion, and al­low­ing them to fo­cus on the anal­y­sis and con­clu­sion. An ap­praiser can do more ap­praisals per day sit­ting at his desk,” John­son said.

“The dis­ad­van­tages are ob­vi­ously it’s a dif­fer­ent pair of eye­balls out there and boots on the ground writ­ing the re­port,” he con­tin­ued. “The guy writ­ing the re­port can’t re­ally know what the other guy saw out there. You don’t have a real, true li­censed ap­praiser notic­ing all those nu­ances.”

If the GSEs ap­proved hy­brid ap­praisals, “I think we’d gladly fol­low along,” said Rick Bech­tel, head of U. S. mort­gage bank­ing at TD Bank, which re­cently started gear­ing up to use hy­brid ap­praisals in con­junc­tion with home equity lines of credit.

How­ever, Bech­tel said he’d be cau­tious about us­ing hy­brid ap­praisals to eval­u­ate dis­tinct jumbo prop­er­ties or for use with higher- risk govern­ment loans. Mean­while, GSE ac­cep­tance of hy­brid ap­praisals, while by no means cer­tain, is look­ing more likely.

Both GSEs al­ready are us­ing other ap­praisal al­ter­na­tives; and Fred­die Mac “wouldn’t rule out test­ing the use of hy­brid ap­praisals as part of the way we’re work­ing with lenders,” said Sam Oliver, a vice pres­i­dent at Fred­die who works with the agency’s Loan Ad­vi­sor Suite of tech­nol­ogy prod­ucts.

Some ap­praisal al­ter­na­tives are more re­li­able than oth­ers, Moody’s In­vestors Ser­vice noted in a re­cent re­port, and nei­ther GSE is likely to move ahead with a full hy­brid ap­praisal roll­out with­out a sta­tis­ti­cally sound set of con­sis­tent data el­e­ments that val­i­date the prod­uct’s in­tegrity.

The GSEs also may need to iden­tify a prac­tice that bridges vari­a­tions in state laws gov­ern­ing ap­praisals.

For ex­am­ple, while a real es­tate agent or bro­ker can col­lect on-site in­for­ma­tion in some types of hy­brid ap­praisals, the West Vir­ginia Real Es­tate Com­mis­sion has a 2007 mem­o­ran­dum that can be in­ter­preted as dis­al­low­ing real es­tate bro­kers from do­ing in­spec­tions re­lated to valu­a­tion re­ports or bro­ker price opin­ions in the state, Smith noted. Fan­nie is test­ing hy­brid ap­praisals based on in­for­ma­tion col­lected by home in­spec­tors.

If hy­brid ap­praisals do get ap­proved by ei­ther or both GSEs, they will likely have lim­ited ap­pli­ca­bil­ity based on the amount of com­pa­ra­ble data avail­able to back them up and how dis­tinct the prop­erty in ques­tion is.

“It all comes down to ho­mo­ge­neous prop­er­ties,” said John­son. A hy­brid ap­praisal may be ap­pro­pri­ate to size up sim­i­lar low- or mid-tier prop­er­ties with lot of re­cent com­pa­ra­ble data, but with more high- end homes that tend to be more cus­tom- built, us­ing a hy­brid ap­praisal “gets com­pli­cated,” he said.

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