Is the advent of the e-mortgage resulting in greater pressure on appraisers to reduce turn times? And to what degree can technology and automation speed up the appraisal process?
Seeing as how part of the main purpose of the e-mortgage is to speed up the origination process for borrowers, it makes sense that lenders would want to see a corresponding increase in appraisal turn times. Despite the fact that e-mortgage technology has greatly reduced the amount of time it takes to apply for a loan and get pre-approved, it still takes an average of 45 days to close a mortgage – about the same as three years ago. Although some on the appraisal side may beg to differ, many lenders still say the appraisal remains a major roadblock to achieving a faster overall mortgage process.
So, can the appraisal process be sped up through technology and automation, much the same way the origination process has in recent years? As we saw with the advent of automated valuation models (AVMs) in the early 2000s, it can, but as we witnessed, that speeding up of the process came at the price of decreased accuracy and increased risk. Even today, with all the advancements in big data and analytics, AVMs and broker price opinions have their limitations. That is why, to date, there is no real substitute for a traditional on-site appraisal with a full inspection of the property.
The problem with on-site inspections, of course, is that they require a “truck roll” to the property. These truck rolls are costly, as they involve man hours. Therefore, most service-oriented businesses – appraisal included – are doing everything possible to reduce or eliminate them. However, in the case of the appraisal industry, it is nearly impossible to avoid these truck rolls. That is because, so far, no technology – be it drone or virtual reality or artificial intelligence (AI) – can replace what a human appraiser brings to an inspection.
Considering the truck roll cannot be avoided, what can be done to make appraisers more efficient in the field? What more can be done to make the appraisal process faster for lenders and borrowers?
As we have seen, big data and analytics are playing an important role in speeding up the process and increasing accuracy. There is no question that appraisers in the field now have access to data, software and tools that are helping them do their jobs faster. But is this technology resulting in increased pressure from lenders and appraisal management companies (AMCs) to reduce turn times?
“As automation transforms the mortgage application and origination process – Quicken Loans’ Rocket Mortgage being the prime example – there will be increasing pressure to reduce appraisal turn times,” says Laura Kelly, managing director for residential valuation solutions at CoreLogic, in a recent interview with SME. “But that pressure will subside as the amount of time it takes to do an appraisal approaches the amount of time it takes to do the underwriting.”
Kelly says the march has begun to automate as much of the appraisal process as possible.
“It’s going to be a horse race,” she says. “We talk about underwriting now being six to 10 days [on average] – but we know it could be even faster than that. It could get to be a two- to three-day process. That, in turn, is going to put even more pressure on appraisal [turn times].”
But further speeding up the appraisal process from this point forward is going to be a challenge. As Kelly points out, scheduling the inspection alone has always been a major roadblock.
“If you think about the process, I’m trying to get you to make an appointment to get into your home, and you might not even be able to do it for a couple of days,” she says. “So, when that happens, there’s going to be another round of pressure to figure out how to expedite that.”
It cannot be denied that a lot of innovation has already taken place in recent years, with an aim of speeding up turn times and improving accuracy. Thanks to new integrations between appraisal management systems and loan origination systems, lenders and their customers can now quickly and seamlessly order appraisals without having to leave the loan origination system interface.
At the other end of the appraisal process, sophisticated online portals launched by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, as well as the Federal Housing Administration, have made it many times easier for lenders and AMCs to submit appraisals and find out almost instantly if they meet investor or agency guidelines. In addition, new submission and scoring tools, including Fannie Mae’s Collateral Underwriter and Freddie Mac’s Loan Collateral Advisor, represent a new generation of appraisal quality control software that is revolutionizing the process.
Increasing speed at every step
“If you look at a valuation, it occurs in about three or four stages,” Kelly says, explaining how technology is speeding the process at various junctures for CoreLogic, which has about 700 staff appraisers.
“First, the AMC gets the order – and although that might sound really simple, there’s a reasonable amount of data and analytics used to determine how that order is assigned. For example, if it is a unique property – over $1 million or waterfront, for example – we’re looking for appraisers who have experience with that type of property. You can’t do that manually, at scale, so we do that through an automated algorithm that helps assign either a staff appraiser or a panel appraiser,” she explains.
Also saving time is the fact that most ordering systems allow for appraisals to be custom-tailored to the job. This way, the appraiser can simply review the information the AMC or lender provides.
“Once the appraiser gets the order, [he works] with the homeowner to set up an appropriate time to do the inspection,” she says. “But ahead of that, [the appraiser] is looking at comparables – and that’s an area where data and analytics is playing a huge role. That can really save some time.”
The next stage in the appraisal process – the actual inspection – is an area where “there is a huge amount of opportunity” for automation, Kelly says.
“There are new tools that are emerging – such as drones – that will help appraisers do their jobs more quickly,” she says.
The use of laser technology is also seeing increased adoption in the field for accurately measuring dimensions.
“Typically, to sketch the footprint of an average-sized home takes about 45 minutes – on a complicated property, it can obviously take longer than that,” Kelly says. “But today, there is a lot of iPad opportunity – a lot of [Microsoft] Surface opportunity – and there’s a laser device that integrates with those tablets and does the majority of the sketching. So, we are looking to leverage those tools and help our appraisers be more productive.”
Other technologies that are being considered, in order to improve appraiser productivity in the field, include voice recognition and automated editing tools. For example, appraisers could automatically populate forms using voice commands. Also, using voice recognition, an appraiser could, in theory, dictate the entire narrative and then edit it using automated editing software.
“These are technologies that have not yet been widely utilized by the industry, but we’re looking into all of those,” Kelly says. “This could help appraisers write their reports more quickly.”
Other technologies that hold great promise for the valuation industry include AI and virtual (or augmented) reality.
“AI and augmented reality are very interesting for the future of valuation,” Kelly says. “Augmented reality would allow us to augment the appraisers – while they are in the home – with data and analytics that will help them do that valuation correctly. I have not seen an actual application of it – for now, it’s theoretical. But I can definitely see a use case for it [in valuation].”
After getting augmented reality into the process, the next logical step would be to “move into AI,” Kelly says.
Humans need not apply?
But are we talking about the elimination of human appraisers? Not a chance, Kelly says. Human appraisers will always be needed, especially in rural areas of the country.
“If you look at the larger ecosystem of valuation, you have, in certain areas of the country, largely cookie-cutter homes where you could automate valuation more readily,” she says. “But there’s also areas that are rural, where it really does take a human to identify what the valuation might be.
“They’re looking for smells, sounds and other indications of the condition of a structure – things you currently can’t train a drone to do – things that are hard to even train a human to do. A property can look perfectly fine, but it can have mold and other problems that only a trained appraiser might be able to detect,” she notes.
Kelly points out that even though the GSEs are now getting comfortable with moving forward with alternative valuation products, nonetheless, “With the trillions of dollars that they have under management – and considering what happened in 2008-2009 – they like to have a human set of eyes on the appraisal to make sure there isn’t something working in the background that they’re not aware of.”
Shawn Murphy, executive vice president at ValuAmerica, the appraisal division of Clayton Holdings, says, “We definitely have seen originators in the market that are focused on speeding up the appraisal cycle.
“Some institutions may pinpoint the appraisal process as one of those major roadblocks to achieving that faster closing time – but I’ve seen statistics showing that the average time to close a loan still ranges between 47 and 50 days,” Murphy tells SME. “The point we make with our clients – and this is where we feel the need for an appraisal management company comes into play – is that communication between the lender and the appraisers in the field is critical. From our view, it’s all about proper communication and setting of expectations.”
Murphy says the appraisal is often unfairly singled out as being the main thing holding up the mortgage process when, in fact, it is a set of actions that occur throughout the process that have a cumulative effect of slowing things down.
“We are often engaged simultaneously on the title and settlement side, as well,” Murphy says. “An appraisal is just one settlement service. But it’s often viewed as the wildcard of the services when you’re comparing other components like credit, title or flood services.”
Murphy adds that, in his opinion, “a service that may, on average, take five to 10 days out of a 50-day cycle shouldn’t really be targeted as a wildcard or roadblock impeding [a lender’s] ability to close loans in a shorter time frame.”
So, in Murphy’s view, what innovations in recent years have helped speed up the appraisal process?
“At our firm, we have mostly focused on two types of integrations: integrations with portals such as the Uniform Collateral Data Portal and Electronic Appraisal Delivery portal – for appraisal submission to the government – and also into the loan origination systems or third-party middleware platforms that are communicating with our lenders for delivery of product status and transparency on the status of the deal,” he says.
“The other thing we see is the advancement of the technology available to AMCs, appraisers and lenders – the big data companies that have just a tremendous amount of access to public record data, MLS data, etc.,” Murphy adds.
Technology and the ‘appraiser shortage’
One factor that cannot be overlooked when considering technology’s potential impact on the appraisal industry down the road is the so-called “appraiser shortage.” Although there are some who maintain that no shortage exists – that the problem is that appraisers will not take on jobs due to the low pay – most people in the industry agree that a shortage is looming, regardless, due to an aging appraiser population (the average age of an appraiser is now around 57, according to the Appraisal Institute) and a lack of new entrants.
“This is not something that any single company can take care of,” Kelly says. “One of the things that I think the industry is really well-aligned on is that there is a shortage, especially in some parts of the country.
“And there are a number of ways to attack that problem,” she adds. “For example, do you need to have a college degree to become an appraiser? Or would a two-year degree suffice? Or would four years’ service in the military with honorable discharge suffice?”
Proposed new education and training requirements recommended by the Appraisal Institute’s Appraisal Quality Board (AQB) task force would do just that. Instead of requiring that appraiser trainees have a four-year college degree, they could instead pass a college-level program equivalent to 21 semester hours of coursework (basically, an associate’s degree) in order to qualify.
In addition, under the AQB’s proposal, trainees would be able to complete their training online, via a Capstone-like training program. (In fact, the AQB has already created digital training modules that can be used for online training purposes.) This is being viewed not as a lowering of education and training standards, but rather as bringing education and training into the 21st century.
“The second thing is opening up the use of trainees,” Kelly says. “Right now, if I am an appraiser and I have a trainee, [he] can’t really do anything – all [he] can really do is follow me around. That makes it difficult to bring a larger number of trainers on. If we change the rules so lenders can allow trainees to do things like inspections – which is an easily trainable skill – then we could have the trainees be more productive; plus, they would learn more.”
Murphy says he, too, has noted a “decrease in the number of new entrants into the appraisal profession.”
“And I have spoken with many other appraisal firms and AMCs, as well as industry trade groups, about the need to make the profession more attractive to new entrants,” he says. “I think there’s a couple things that will do that. One is the use of trainees in the creation of appraisal reports. [It will be] more realistic for someone to take on an apprentice and trainees if there is a possibility for them to be actually generating revenue for the firm or make their own living. Today, you’re taking them on and paying for all their costs, and that’s a real burden.
“I also heard talks about getting trainees more involved in these alternative products, which are more desktop-oriented, to get that experience,” Murphy adds. “I think that’s going to lead to a lot of innovation.”
Murphy says lately he has seen some firms “getting aggressive in their willingness to take on trainees.”
“But it’s really geared to specific markets and where there is demand,” he says. “That’s a great first step, but it’s probably not going to address the problem [of a shortage] industry-wide. But at least it lays the groundwork and could be replicated elsewhere.”
So, what is the relationship between the appraiser shortage and technological innovation in the valuation industry? Well, for one thing, if there is a serious appraiser shortage coming, it is likely that lenders will become even more reliant on AVMs and alternative appraisal products, which generally carry greater risk. That, in turn, could result in the loss of appraiser jobs. Additionally, it could accelerate the industry’s unstated goal of replacing human appraisers with data, analytics software and virtual reality.
“The automation of the appraisal process is well under way with the sophisticated AMC,” Kelly says. “And although that’s creating some pressure for appraisers, the main pressure they feel is directly related to the health of the market. They feel pressure in the areas where the number of appraisers is dwindling – including Colorado, Oregon and Washington. Those markets are bustling – and it’s much more difficult to find an appraiser to take an order, just by the sheer number of them.
“That’s really what’s creating the immediate pressure appraisers feel today – more than the pressure of technology taking peoples’ jobs,” she says.