During the pandemic, the use of digital assessment has skyrocketed to new heights, but the impetus for assessment technology is now different.
According to the American Enterprise Institute Housing Center, the average share of loans granted by Fannie Mae and Freddie Mac has jumped dramatically from nearly 30%, the pre-pandemic level, to 50% at one point. However, since the assessment flexibility of inspecting the interior in an automated way was rolled back, that number has dropped to nearly 40%, but still significantly higher than it was before the pandemic.
What can shape how the use of automated valuation evolves is what happens in the overheated buying market, whether the pandemic-intensifying shortage of appraisers improves, and how, or Discussion of government-supported corporate policy Affect model development and use it more widely.
Current motivations for growth and new baselines
To understand why the average use of standalone digital valuations is changing beyond the potential driven by contingency rollbacks, how the exemption share varies by loan product type Helps you understand.
Prior to the February 2020 pandemic, 44% of non-refinancing cashouts were exempt from valuation, with 10% of cashouts and only 6% of purchases. By June 2021, the exemption had been applied to nearly 70% of non-cash outs, 34% of cash outs and 10% of purchases.
These numbers represent some significant increases in refis, but the use of exemptions has not increased due to the increase in purchases. Some researchers believe that another large catalyst for technological development must emerge before further progress.
“So we knew what the maximum was based on current technology and data levels,” Edpinto, senior fellow and director of the AEI Housing Center, said in an interview. “These numbers can be even higher, but in general, we need more and better data for that.” (Fanny Mae and Freddie May use appraisal data and models to appraise. Exemptions are granted only if they are deemed sufficient to support the value without the intervention of a technician.)
After the pandemic subsided, some motivations and market conditions to drive the use of digital verification have changed, but other factors may drive continued growth in their use.
Shortage of appraisers Intensified during a pandemicFor example, given the increasing number of purchase loans with low levels of GSE exemption usage, it may continue in the short term.
Kenon Chen, Executive Vice President of Clear Capital, said:
The aging appraisal industry is working to open up tightly regulated requirements to more people, but that requires policy changes that can take time, said Georgia’s appraisal firm. The owner, Daniel Freeze, said.
“They did more testing and [amount of mentorship time required]But it’s fluid now, “he said.
Digital appraisals and other related technologies can be attractive when it comes to quality control, as appraisers are likely to do so, even in situations where appraisers are involved, as long as purchases are increasing. ..
For example, if the score is high enough, Cornerstone First Mortgage may use an automated valuation model in the loan submission summary report uploaded to GSE’s Uniform Collatoral Data Portal. Higher scores indicate that reviews may be needed.
“If the SSR has a high rating, we use AVM as a support tool for the rating,” said Sean Cahan. He said a score of 5 is the cornerstone threshold for additional reviews.
Obtaining an appraisal is especially important in today’s market, where buyers are consistently overbidding and willing to pay more cash than the valuation of the home, which has a combined impact on home prices.
For example, if a series of home sales in the neighborhood rises by 3% each time, home prices starting at $ 300,000 after bi-monthly sales in the home market could rise to $ 590,000 in just one year. there is. Bill Reese, senior vice president of Evolve Mortgage Services, said appraisers can limit the rate at which such bubbles form with the closed sale data used to provide ratings.
“Forecasting until the bubble bursts and home prices fall to affordable levels, many mortgages can once again exceed the market value of homes, leading to another default crisis,” he said. .. “Appraisers play an active role in mitigating the severity of these market restructurings by flattening the valuation curve.”
on the other hand, May overheat According to Fries, the market is emerging rapidly through channels that traditional data sources, such as multiple listing services, cannot easily track. Lack of unified data can affect the accuracy of decisions made by automated evaluation.
“When dealing with off-market sales, things need to be low gear,” he said. “You’re probably talking about 15% of sales that aren’t represented in MLS.”
Online data sources have improved significantly over time, but they are not perfect and the information provided may not be completely accurate. This is one of the reasons why appraisers are still so involved in valuing the buying market, Fries said.
Another challenge in obtaining an appraisal / real estate inspection exemption is that loan officers and processors are not familiar with some of the relevant nuances.
For example, for investment property, using rent to offset the cost of a qualified mortgage would prevent PIW from being used because the appraiser would have to do a rent analysis on the market. Consumers are more likely to be able to use the exemption if they do not need rent to qualify and their mortgage loan-to-value ratio is 75% or less.
“Half of the reasons why PIW doesn’t make up a large percentage [of GSE loans] It’s not just enough education, “Cahan said.
Policy makers have also recently begun discussions on whether measures need to be taken to address them. Evaluation bias With an automatic evaluation model.
The Urban Institute analyzed past samples of automated valuation models and found that it did not incorporate a distinction such as whether real estate was devastated, which could contribute to an imbalanced error rate in the majority of black settlements. I found that there is.
“Most algorithms [used in AVMs] Don’t take property conditions into account, “said Linna Zhu, a researcher at the institute. According to this study, AVM “has great expectations” to reduce valuation costs, but if the error rates are different, adjustments may be needed.
What could change in the short term
Digital valuation may need to be restructured with more information and analyzed in new ways before it can be used more widely to evaluate purchased mortgages, but some other short-term innovations Is in progress.
Gillian White, collateral officer at Better.com, said that while the private market may simply follow the GSE initiative, it can take advantage of certain valuation flexibility allowed during a pandemic to streamline the process. He said he could. These may include technology that allows appraisers to remotely measure the interior of a home and use geocoding or other stakeholders to prove the location.
“When COVID was flexible, the average time it took to complete the appraisal was a bit shorter because the appraiser didn’t have to actually go to the property,” White said. “It was like a relief valve for an industry that is now fairly thin and widespread.”
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