Understanding Desktop Appraisals: Takeaways from Fannie Mae and Freddie Mac
With desktop appraisals gaining post-pandemic permanence, lenders and appraisers have been moving at rapid speed to understand the process, their responsibilities, and compliance requirements. As expected, there’s a lot of initial confusion, questions, and concerns among stakeholders.
At Reggora, we’ve been hard at work partnering with industry leaders to learn the nuances of desktop appraisals to provide guidance and answer questions. Recently, we hosted a webinar to provide clarity on the why and how of desktop appraisals. Our panel consisted of leaders in appraisal modernization: Lyle Radke, senior director of collateral policy at Fannie Mae; Scott Reuter, chief appraiser at Freddie Mac; Brian Zitin, co-founder and CEO of Reggora; Scot Rose, chief innovation officer at Class Valuation; and hosted by HW Media CEO and founder Clayton Collins.
It was evident well before the webinar began that there are still plenty of questions to be answered on this important topic, as we received 150 questions submitted by more than 1,500 registrants. Both Radke and Reuter were clear in their messages that lenders and appraisers alike should refer to the respective selling guides for each entity when seeking to understand desktop appraisal requirements for loans delivered to Fannie Mae or Freddie Mac.
Here we will recap the key takeaways from this informative discussion from industry subject matter experts, such as why Fannie Mae and Freddie Mac are bullish on new appraisal-related technology, why desktop appraisals are such a controversial subject across the industry, and why desktop-eligible appraisals are still permitted to be completed the traditional way.
Why Desktop Appraisals, and Why Now
Scott Reuter of Freddie Mac kicked off the webinar explaining why government-sponsored enterprises (GSEs) Freddie Mac and Fannie Mae felt confident about introducing desktop appraisals as a permanent fixture in appraisal fulfillment at this time.
For one thing, he said, it’s part of their appraisal modernization efforts. “We’re helping to build out product offerings on the spectrum between waiver and full appraisal,” Reuter said.
Products, of course, need to be tested and fine-tuned before release. Desktop appraisals inadvertently experienced an accelerated widespread trial period as a result of social distancing and restrictions on in-home assessments due to the COVID-19 pandemic. This provided insight into whether this innovation could become a long-term offering.
“We are right off of all of our learnings from COVID flexibilities with desktop and exterior-only reports,” Reuter noted. “Appraisers really did a tremendous job. We didn’t see any increased risk. In fact, when appraisers were completing these reports, they were typically going a little bit above and beyond the minimum requirements.”
GSEs Collaborated on Guideline Development
In a rare occurrence, Fannie Mae and Freddie Mac collaborated to develop a desktop appraisal policy. Lyle Radke of Fannie Mae explained that this was done at the behest of the Federal Housing Finance Agency (FHFA) to ensure alignment between the GSEs, and their final proposal was thoroughly vetted. Radke detailed that Fannie Mae and Freddie Mac are separate business entities and while they both have similar business models and missions, they are required to maintain independence from one another when establishing policies in many circumstances.
The introduction of desktop appraisals is, of course, a significant change for the industry that presents new, different risks that the GSEs had to take into account when developing policy. For example, the third-party data requirement stems from the need to mitigate the risks associated with the appraiser not being physically on-site.
“How do you compensate for that lack of personal observation by the appraiser,” Radke posed. “That was a big consideration for us. How are we going to get the appraiser enough information to perform the assignment? That influenced some of the parameters around this.”
In an effort to ensure the audience had all of the information available from the GSEs, both Radke and Reuter pointed to documentation from their respective entities. One such resource is the desktop appraisal form itself, which can answer procedural questions such as reporting requirements and necessary certifications. Fannie Mae made the uniform residential appraisal report for desktop appraisals available to show, rather than simply telling appraisers what to expect. For further questions, Fannie Mae updated its fact sheet on desktop appraisals to outline appraiser and lender responsibilities.
Desktop Appraisal Requirements Could Benefit Appraisers
The condition for desktop appraisal reports to include a floor plan showing interior walls was one of the foremost concerns leading up to the discussion, outlined by our own Ken Dicks in an article for Appraisal Buzz. Radke addressed this key provision, stating that its intent is to help the appraiser evaluate a property without physically visiting it.
“If the appraiser hasn't been in the house, how do they know whether or not there's functional obsolescence, and how do they analyze the market impact of something that they don't know about,” Radke posed. “So the floor plan is intended to be a supplement to the appraiser's information, so they can do their job.”
This new required document presents challenges for the appraiser, such as finding a reliable source for a floor plan, and the fact that there is no universally accepted floor plan standard. Reuter acknowledged that floor plan availability varies by market, and appraisers feel obligated to source it when it's not available. However, he crucially highlighted that just because a loan is desktop eligible does not mean it’s desktop mandatory. The option is there, but only when the conditions are right.
More likely, instead of driving appraisers away from performing desktop appraisals, the floor plan requirement may give rise to positive change and technological innovations. “It's kind of pushing the industry to give us more because it'll also support the appraisal process,” said Scot Rose of Class Valuation. “In order to avoid the risk of losing time by waiting to see if that exists or not, why not just supplement it right out of the gate?”
Operating in this way will not only provide appraisers with more information so they can complete their job with higher confidence, but it will also enable lenders to hit optimal cycle times.
The push forward for the appraisal industry additionally provides an impetus for companies to bring better tech solutions to market that will further drive efficiencies in the process. Brian Zitin of Reggora noted that technology is already positioned to help with this transition. “One of the rules in the [desktop appraisal] announcement is that, if it's an interested party like the real estate agent or homeowner who comes up with that floor plan, then the appraiser needs to validate it from a disinterested party,” he explained. “But if that floor plan was generated by a third-party software system and not handmade by the listing agent, that is considered a disinterested party.”
Whether it’s a standalone system designed to create a rendering, or a smartphone-based app used to capture photos and dimensions to generate a floor plan, the floor plan must result from information captured within a software and not a hand-drawn sketch to be desktop eligible. Guidance from the GSEs points to a tech solution creating a floor plan — regardless of who captured the information to make the floor plan. Zitin further expanded on this topic on his LinkedIn page.
Adapting Will Take Time and a Mindset Shift
Not all appraisers are ready to welcome desktop appraisals with open arms. Rose explained that part of that is due to misconceptions in the market about the process or the technology solutions that support it.
“We've worked with a lot of appraisers who came in necessarily out of the gate feeling as though they were against this process,” he said. “When they all of a sudden see and understand what can be delivered to them and in such a comprehensive fashion, it really inspires confidence in all of our appraisers.”
Zitin added that liability is a crucial area of concern for appraisers: “That’s because they’re still liable for using the information that is potentially provided by someone [else]. So they have to trust this information or verify it.”
However, Zitin drew a parallel between the floor plan liability issue and an existing practice to illustrate that the challenge is not without solutions. “[Appraisers] use MLS photos they did not capture for comps, and they have to try to validate those and verify that they’re accurate,” he explained. “There’s a slightly different version of that with these floor plans and other things like that on the subject property. I think it's a liability concern that eventually will hopefully get remediated over time through continuous messaging and education.”
Advanced technologies that mitigate liability risk will also help appraisers gain more trust in the process.
“It’s important that we augment the process for our appraisers, with the right amount of data and information that they can depend on,” Rose said. “I think you will get pushback from appraisers if [the desktop appraisal] is not supplemented with the right tools, the right process, and the right information. And rightly so — they still have a liability. And as lenders, they still have repurchase risks. So ensuring that the process is augmented with the right tools is critical for us all to be successful and gain long-term adoption.”
Without travel time needed for an appraiser to visit each property, desktop appraisals present a more-efficient approach that helps address the ongoing appraiser shortage. More work can be completed in a day and some appraisers who are nearing retirement age may decide to stay in the workforce longer, given the flexibility that this remote opportunity provides.
“We’re seeing a lot of adoption and even excitement for some appraisers who like to be at home,” Rose said. “They like the idea that they could go from Michigan in the freezing winters and spend some time in Florida and still continue to receive work.”
Desktop Appraisals are an Important Step in Appraisal Modernization
Desktop appraisals are helping to drive more change in an industry that has been historically slow to evolve. “I'm personally very bullish on all the emerging tools in tech,” Reuter said. “I think they're going to be the absolute backbone of what innovation and modernization is going to look like.”
Zitin added context around why desktop appraisals specifically are an essential opportunity for the industry as a whole: “As everything else in the mortgage process continues to get better, in the last two years, appraisal turn times actually got worse. Appraisal continues to be a bottleneck around the ideal one-click mortgage.”
He continued: “By unlocking a new option that has the potential to have faster turn times, it’s going to remove that bottleneck from the overall digital mortgage process. That’s why for lenders who are looking to optimize speed to close, appraisal has to be on that checklist. Otherwise, you’re never going to get there.”
Desktop appraisals are paving the way for the future of valuation and appraisal to gain momentum. It’s not every day that GSEs and industry stakeholders align. Now that it’s happening and the benefits are coming to light, the adoption of desktop appraisals is only the beginning.
Webinar Wrap-up
In a poll conducted during the session, we discovered that 98% of participants are likely to carry out desktop appraisals in the next year. This is evidence that there is an appetite in the industry for such advancements and that once the green light is given, stakeholders will follow closely behind in implementing changes.
The GSEs are focused on modernizing the appraisal process, and desktop appraisals are a crucial addition. They add efficiencies to a workflow that has been a notorious bottleneck in the ideal one-click mortgage. Many in the industry are also optimistic that some of the new requirements, such as floor plans, will have the unintended positive effect of driving innovation. It’s an opportunity for tech leaders to develop new ways to equip appraisers with more information, mitigate liability risk, and streamline the process. Given the potential to improve industry standards and practices, appraisals need to be part of the conversation around mortgage modernization efforts.
This is just one phase of many to come as the GSEs work to improve the overall process. While Fannie Mae and Freddie Mac continue down this road, we at Reggora will work with the GSEs to educate the appraisal community to help build confidence in and the adoption of new systems and technology.
Click over to the recording page for "Understanding Desktop Appraisals with Fannie Mae and Freddie Mac" and watch the webinar in its entirety. Or, if you already saw part one, be sure to check out part two when the same thought leaders regrouped one month after desktop appraisals were implemented by the GSEs.
