Modern Life, Modern Loans

Stepping into the new world of valuation

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Associate Editor

Earning the stamp of “modernized” typically indicates a significant savings of time and money.

This rule holds true for Fannie Mae’s Modernization Initiative, according to industry experts, who say the changes the enterprise made earlier this year to its selling guide have proven gainful for watch and wallet, expanding valuation product options for lenders and borrowers.

“When a lender takes advantage of the product eligibility from the GSEs, loans, in most cases, will only require a data collection inspection, which will save hundreds of dollars and several days per transaction,” says Kristin Gruidl, senior product manager of Veros Real Estate Solutions, the collateral valuation partner for Fannie Mae, Freddie Mac, FHA, and VA.

Fannie Mae touted the updates as a way to help lenders, appraisers, and risk investors manage collateral risk more effectively, with higher appraisal accuracy, lower costs, and increased speed of loan decisioning for consumers.

Keeping Up

“It’s a part of our ethos to make sure we’re keeping up and staying at the forefront of where the industry is headed and trying to be thoughtful in helping the industry meet its goals,” said Sean Pyle, president of appraisal management and property valuation provider Valutrust Solutions. “There have certainly been efforts by companies like ours and others to prepare for this.”

Weighing the advantages of risk vs. risk aversion, some early adopters have already seen cost reduction benefits, while others are awaiting more data.

“The movement from both Freddie and Fannie to look to have a little bit of an alternative process for gathering property data and using that property data in the overall process, I think that’s a potentially big issue and big change in our industry,” Pyle said. “We’re just on the very forefront of it in our opinion. There’s some programs that have just moved out of pilot. I think there’s a lot of lessons to be learned and a lot to be sorted out so we can ensure we don’t introduce any additional risk into the industry, but I do think the GSEs have been thoughtful about that.”

Ultimately, the best avenue in which to achieve valuation is a decision lenders need to make on behalf of each consumer.

“I think really understanding where the benefit can come from in the consumer experience and trying to marry that with possible improvements within their own operations can be something that will ultimately lead lenders to success in this process,” Pyle said.

Where It All Began

Veros first partnered with the GSEs during the mortgage meltdown of the late 2000s, building the Uniform Appraisal Dataset and Uniform Collateral Data Portal.

“Those initiatives really started the appraisal modernization efforts,”said Gruidl, who manages the company’s appraisal modernization products. “Continuing to support the current efforts was a no-brainer. We are proud to be a part of the continued effort to standardize and collect data that will help improve collateral valuation risk management.”

The changes expand product options beyond the traditional appraisal or appraisal waiver. In fact, the latter term has been replaced by ‘value acceptance’ under the new guidelines, to better reflect the technology- and data-driven process.

Valutrust Solutions provides appraisal management services on a nationwide scale.

“For us as a company, it’s not torn our attention away from our core fundamentals, it’s another offering that we have for lenders to meet them where they want us to meet them,” Pyle said.

“We are beginning to see more valuation products available along the full spectrum of loan risk.”

Kristin Gruidl, senior product manager, Veros Real Estate Solutions

Breaking down the changes

Lenders now have the option to use analysis of third-party data collection to confirm property eligibility without the need for an appraisal. In addition, an attestation letter from the borrower/builder verifying completion of repairs can now be submitted in lieu of the traditional Appraisal Update and/or Completion Report (Form 1004D).

“We are beginning to see more valuation products available along the full spectrum of loan risk,” Gruidl said. “With the inspection-based appraisal waiver programs now offered by both GSEs, the prescribed data requirements bring much more consistency and standardization to the data. This aligns well with the digital mortgage many lenders are pursuing. Borrowers find it more convenient as scheduling inspection times with busy appraisers can be challenging, and their out-of-pocket appraisal cost is much lower. Appraisers focus on the more complex and higher-risk assignments to ensure loan quality for all involved.”

The $500-$700 appraisal is being superseded in many instances, with a $200-$250 data collection report. Occasionally, an upgrade to a hybrid appraisal could be required, according to Gruidl, but cost and time savings can still be achieved.

Watch it on The Interest:Guiding The Valuation Process

Bifurcation, or splitting the inspection and appraisal processes apart, is not a new concept.

“What’s being done now is an attempt to make that property inspection data collection process more consistent and open up the pool of people who could perform that function,” Pyle explained. “Then that data could feed into a valuation process that may or may not be performed by the person who collected the data.”

Lenders are also now completing a minimum number of pre-funding loan reviews monthly, equal to 10% of the prior month’s total closings or 750 loans, including both full-file reviews and lower-cost component reviews. The time frame for the post-closing QC cycle has been shortened from 120 to 90 days, with individual component deadlines eliminated. The shorter cycle allows errors to be detected more quickly, preventing them from being duplicated.