Value Acceptance + Property Data option means someone with a handheld device is going to stroll through your house.
By JEFF LAZERSON | firstname.lastname@example.org | MortgageGrader.com
Article originally posted in Orange County Register on March 30, 2023.
Homeowners and buyers, come April 15, mortgage giant Fannie Mae will have you and appraisers by the throat when it launches a new home valuation program.
The launch of “Value Acceptance + Property Data” means someone with handheld technology is going to stroll through your house and around the property. It could be a real estate agent, a home inspector or even a part-time Uber driver looking for some easy money. What it won’t need to be is a state-licensed appraiser.
Because the program is new, we don’t know what this new appraisal system will cost a borrower.
But what we do know is this gives even more power to Fannie, which will largely dictate home values across America once this program is fully implemented. As it is, roughly two-thirds of residential property valuations are aimed at Fannie and Freddie Mac mortgages.
My hunch: The mortgage industry likely will fall in line as it has for other programs instituted by mortgage giants Fannie and Freddie Mac.
But what if Fannie’s algorithm determines the average home in your neighborhood is worth $750,000 but you know very well it’s worth $900,000? And, what if the mortgage lender then says to you, “but Fannie said so”?
Will stakeholders be hard-pressed to find experts willing to audit and challenge Fannie’s appraisal conclusions?
The appraisal valuation process is a black box at Fannie Mae. And transparency with borrowers or industry types such as myself is not a priority for the Washington bureaucrats. For example, the agency guards its banned condo list like Fort Knox. But the VA- and FHA-approved condo list is there for the public to peruse.
So, what’s at stake? Only your family’s net worth and generational worth.
To be sure, the “value acceptance” disintermediation will speed up the appraiser’s demise. The average age of an appraiser is about 65, according to Lance Siegel, president of HVCC Appraisal Ordering Service.
Ten years ago, there were 11,968 licensed California appraisers, dropping to 10,560 five years ago and 9,118 today, according to Monica Vargas, deputy director of communications at the California Department of Consumer Affairs.
You don’t need to be a rocket scientist to hypothesize there will be few newcomers to the industry while many more appraisers age out of the industry.
So, let’s ponder the obvious questions regarding Fannie’s new appraisal algorithm …
—Will it be a faster process than the traditional appraisal? Yes.
—Will it be cheaper than what an appraiser charges? Probably.
—Will it be more accurate than the current system? Maybe.
—Will it get rid of the many recent headlines of residential appraisal racial biases? Let’s consider that a little more…
Fannie and Freddie have bragged for years about their seemingly bulletproof internal appraisal risk assessment tools, Collateral Underwriting and Loan Collateral Advisor, respectively. What of appraisers? In some cases, Fannie has been known to ban certain ones, sort of like a do-not-fly list.
The mortgage giants often have touted the accuracy of their internal appraisal analysis. Many appraisers also have told me this is true. Yet there is a rising call to address racially biased appraisals in the open market as 95% of the industry is White.
In recent headlines, a couple in Marin County settled a lawsuit alleging their appraisers supplied them with an appraisal $500,000 under market value because they are Black. In another lawsuit, a Black couple in Maryland sued their appraiser and loanDepot, alleging the appraiser undervalued their home by $300,000 when their family photos were displayed. After “whitewashing” their home, a new appraisal came in significantly higher.
To address this bias in appraisals, the White House, under President Joe Biden and the Department of Housing and Urban Development, created a task force to look into disparities in home appraisals.
So, why would an appraiser risk a Fannie Mae ban for appraisal bias? Everybody knows big brother is watching. He or she is getting paid to appraise, no matter the value.
Regardless of political affiliation, partisan politics can easily play a role if Fannie Mae wields too much power. Maybe a conservative president orders his or her lieutenants to throw a wet blanket on California property values, for example.
Don’t forget Fannie and Freddie are still under government conservatorship. Who will control them when they are eventually released from government control?
The residential real estate appraisal history includes a physical inspection, measurements, photos, analyzing comparable sales and coming up with a value, all done by a licensed appraiser. Then came property inspection waivers or PIWs.
Next up were desktop appraisals for home purchases. Now it’s going full force into “value acceptance” as the latest option in lieu of an appraisal for certain transactions.
Value acceptance will become the standard bearer soon enough. The traditional appraisal will have gone the way of the horse and buggy.
On March 15, Fannie said it had chosen six initial vendors to use this new value acceptance program, trading the in-person process for an automated appraisal portal. The vendors are Solidifi, Class Valuation, Clear Capital, Mueller Services Inc., Accurate Group LLC and Collateral Analytics LLC.
I was given a demonstration recently by a vendor trying to get on Fannie’s shortlist. I was certainly impressed with the speed and accuracy of the front-end data collection process of measuring my mortgage company office using an iPad Pro equipped with a lidar sensor. No value estimate was provided as that determination will be according to Fannie.
I contacted Solidifi and Black Knight, the owner of Collateral Analytics, for more details. Solidifi declined to comment. Black Knight sent me its press release which states the program SCOUT, a cloud-based property inspection app, would allow users to “easily collect property data using a mobile device.”
It was nearly 30 years ago that the FICO score monopoly began for mortgage shoppers. The middle FICO credit score has since been used to determine, in part, if you get a mortgage and at what rate.
Soon enough Vantage Score will be a FICO competitor. Do we really want to go down that same slippery monopoly slope of hardwiring the mortgage world with Fannie Mae’s value acceptance program?
Freddie Mac rate news: The 30-year fixed rate averaged 6.32%, 10 basis points lower than last week. The 15-year fixed rate averaged 5.56%, 12 basis points lower than last week.
The Mortgage Bankers Association reported a 2.9% mortgage application increase from last week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $726,200 loan, last year’s payment was $751 less than this week’spayment of $4,504.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.5%, a 15-year conventional at 5.375%, a 30-year conventional at 5.875%, a 15-year conventional high balance at 6% ($726,201 to $1,089,300), a 30-year high balance conventional at 6.625% and a jumbo 30-year fixed at 6.625%.
Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $726,200 in LA and Orange counties.
Eye catcher loan program of the week: A 30-year FHA fixed rate at 4.875% with 2.25 points cost.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or email@example.com. His website is www.mortgagegrader.com.
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Jeff Lazerson - Mortgage Columnist since 2011