Fear of the unknown preventing many LOs from taking important steps
It’s been roughly a year since the GSEs unfurled their sweeping sets of appraisal modernization guidelines – a series of changes to valuation methods for conventional loans – but brokers, by and large, have been slow in assimilating the changes.
Kim Nichols (pictured), senior managing director of Pennymac TPO, spoke to Mortgage Professional America about the changes to valuation methods and why they can benefit mortgage brokers and borrowers alike. The changes have already been implemented as part of the process at Pennymac TPO where Nichols works alongside small broker shops and individual brokers, she said.
“There would be a cost saving, that’s a big driver,” she said regarding implantation of the GSE’s appraisal modernization techniques. “We see where consumers could save hundreds of dollars if they don’t have to get a full appraisal.”
Consequently, Nichols suggested, it behooves loan officers to implement the changes to their own protocols. “We’re encouraging loan officers to really get up to speed and educated on this because it’s a value they can bring to their referral partners.”
Fear of the unknown keeps some LOs at bay
Yet some LOs are hesitant to try, she suggested. “I think loan officers are having a hard time sorting through this,” she said, providing hypothetical sentiments some may have to the changes: “ ‘What is this thing? I don’t know if I trust it. I only have two loans in the pipeline that are purchases, and I don’t know if I’m trying that out – it scares me. I know what the appraisal process looks like, but I don’t understand this.’”
For the uninitiated, Fannie Mae was the latest to announce changes to property valuations, calling its efforts “valuation modernization.” For its part, Freddie Mac uses the term “appraisal modernization” in referring to its changes. Both efforts aim to give borrowers alternatives to full appraisals, reduce turn times in the appraisal process and lower the cost to consumers.
Along the way, the acronym PIW – property inspection waiver – has been shed in lieu of the term “value acceptance.” Freddie Mac still uses the ACE (automated collateral evaluation) terminology, Nichols noted. Moreover, Fannie Mae now offers a Value Acceptance + Property Data Collection (PDC) instead of an appraisal. On the Fannie Mae Desktop Underwriter (DU), loan officers now have the option of ordering a property data collection (PDC) in lieu of an appraisal, Nichols said.
“In purchase markets with limited supply, meeting appraisal contingencies can be quicker with these appraisal alternatives,” Nichols noted. “The cost of PDCs are lower than appraisals, and borrowers can save potentially hundreds of dollars.”
These are not your grandfather’s appraisals
To be clear, Nichols reiterated, PDCs are not appraisals: “An inspector goes out to the property to collect data and photos,” she said. “They still inspect the interior. But unlike an appraisal, they don’t collect property market data, nor do they provide a value estimate.”
The inspector does report on the condition of a property and convey the need for any repairs, but that is as far as their roles go under the new protocol, Nichols said. “They are not there to render an opinion on value.”
Lowering costs to consumers was GSEs’ motivator
Freddie Mac officials cited a need to lower costs for consumers and a response to the number of industry appraisals remaining constant as motivators in launching the government-sponsored agency’s appraisal modernization efforts. What’s more, officials convey in an educational video, the appraisal process had remained largely unchanged even as the industry in general has been swept up with technological advances.
“If an LO can get their arms around it and understand it, they can educate the realtor community that there is another option,” Nichols said. “Maybe their buyers won’t be beaten out by a cash buyer willing to forego other contingencies. They can really use it to help their referral partners structure more deals for their borrowers to win and succeed in buying the property that they want.”
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