ComplianceJuly 16, 2019

Streamlining the appraisal process for an enhanced borrower experience

(National Mortgage Professional magazine, June 2019)

Buying a new home is a major milestone in a person’s life, but it can also be a highly stressful and emotional time. Because it is often considered such an intimidating process, every step along the way is critically important to the borrower’s overall experience. While timely and compliant loan closings are the goal of any successful lender, sometimes a roadblock or two appears along the mortgage origination journey.

When one of these roadblocks does occur in the mortgage process, it’s typically during the appraisal stage. In 2017, the National Association of Realtors reported that the appraisal process was responsible for approximately 21 percent of closing delays. But, providing the customer experience that consumers today demand is challenging given the current state of the appraisal industry, which finds itself struggling with manual, duplicative processes and a shortage of appraisers.

The question, therefore, is how do mortgage lenders and appraisers come together to improve the quality and speed of the appraisal process for a better customer experience? The answer is to implement technology that streamlines workflow and catalyzes appraiser operations.

You never get a second chance to make a first impression

In J.D. Power’s 2016 Primary Mortgage Servicer Satisfaction Study, 63 percent of customers say they would leave their mortgage servicer for a better customer experience. With fewer opportunities for lenders to differentiate themselves based on product and pricing, mortgage lenders must focus on delivering a better customer experience through improved loan origination turn times to stay competitive.

Under traditional methods, the appraisal process can be a long, drawn-out affair. In a typical scenario, the mortgage lender orders a property appraisal after the borrower applies for a loan. From there, the order goes to an individual appraiser or more likely, an appraisal management company (AMC). The AMC finds an individual appraiser to do the work and deliver the appraisal report back to them. The AMC then sends the report to the lender, who shares it with the borrower. In fact, the average appraisal order has between eight and 12 manual touchpoints, including contacting multiple appraisers to find someone to take the job, following up with status checks, and verifying that the appraisal will be completed on time.

While banks typically set the due date for the appraisal, this step doesn’t guarantee that the deadline will be met. Because of the sheer number of appraisals being ordered as well as the shortage of qualified, licensed appraisers, it is becoming increasingly difficult to obtain an appraisal in a timely manner. And, when coupled with today’s complex regulatory rules and frequent requests for additional information, appraisal wait times can go from days to weeks. As a result, the original date must be modified which, in turn, creates a delay with the closing.

In response to these delays, Fannie Mae and Freddie Mac in 2018 began accepting home purchase loans that carry no formal property appraisal. However, these loans are only for highly select properties with previous appraisals on file, and for deals where home buyers were making a sizable down payment of 20 percent or more. Although this option is popular with some lenders because it not only saves time and money but leads to shorter interest-rate locks and quicker closings—appraisers contend that it places undue risk on the housing market.

All these challenges put lenders in a difficult position. Their desire to shorten turn times and decrease operational costs directly conflicts with the importance of providing accurate collateral valuation. Long appraisal wait times also negatively impact the customer experience, resulting in lost referral business and lower loan pull-through rates.

The move toward automation

Every industry goes through a transformational period at some point, whether it’s incited by regulatory change, technical development, or the evolving preferences of customers. The appraisal industry is no different. It has experienced significant change in recent years and appraisers continue to face demands to perform more appraisals, faster. Since cutting corners on collateral valuation isn't an option, the best place to save time in the appraisal process is by revolutionizing the workflow using technology.

The bottom line is that appraisers can’t keep doing what they’ve always done and expect to stay relevant. Delivering timely and accurate appraisal services to lenders and borrowers today requires automation. The end results are greater efficiency and transparency throughout the appraisal process, leading to increased confidence that a mortgage loan will be funded on time. Appraisers who embrace modernization are able to use their time more effectively and bring their customers more accurate valuation reports, faster turnaround times, and a better experience overall.

While some worry that technology might replace appraisers, that’s not the case. The value of having a qualified appraiser actually walk the property cannot be ignored given that accurate valuations depend on current physical state attributes, which may significantly differ from stale data repositories. To quote from an appraiser mentioned in the Washington Post in May 2018, “computer programs cannot smell 20 cats living at the property or spot other value-depressing conditions or severe, deferred maintenance.”

Instead, utilizing modern communication and tracking methods to complete appraisals faster and more accurately will benefit all parties and suppliers in the lending process in several ways. First, technology provides lenders with an avenue to offer more competitively priced products to consumers and create adjacent business relationships with them. In addition, appraisers will find themselves with less re-work to do, giving them the opportunity to complete more appraisals and grow their businesses. And, most importantly, consumers benefit from a transparent lending process that enables them to walk away from the experience feeling positive and gratified.   

The next generation of appraisers

As previously mentioned, there is currently a shortage of qualified, licensed appraisers. With the average age of appraisers in their late 50’s and getting older, the Appraisals Qualifications Board of the Appraisal Foundation recently reduced the requirements necessary for certification. Some of the reductions include lowering the amount of college hours from 30 to zero, as well as the amount of time needed for field training. These changes were the result of a three-year process and became effective in May 2018, with the goal of making the industry more attractive to a younger generation of appraisers.

Conclusion

Customer experience is the greatest differentiator in an increasingly competitive mortgage market. The modernization of the appraisal fulfillment process creates a lasting benefit for borrowers, lenders and appraisers. Lenders have the opportunity to offer more competitive products and shape the mortgage origination journey into one that enables borrowers to feel more empowered through all stages of the lending process. And, appraisers are able to maximize their capacity while increasing the volume and quality of their work. 

Technology plays such a major role in almost every transaction in consumers’ lives. It should be no different when it comes to more complex transactions, such as buying a home. The marriage of technical capability and human expertise is the best recipe for lenders to provide the highest levels of customer experience.