How digital home valuations are impacting closing times
September 15, 2022 2:34 PM
During the pandemic , the share of mortgage originations based on digital appraisal alternatives rose to record highs due to low interest rates and policies related to social distancing — but today's market is different.
Rising interest rates are changing theloan mix . An increasing share of originations are purchases, which have lower appraisal-waiver eligibility rates than refinances. But at the same time, there's increased willingness on the part of government-sponsored enterprises to accept digital valuations.
In addition to allowing desktop appraisals permissible on a permanent basis byadding them to automated underwriting systems , the government-sponsored enterprises have also introduced new hybrid waiver options that allow for ancillary submission of property information from certain sources to potentially facilitate a faster valuation process.
"COVID helped spur ideas, like, 'Hey, let's keep looking at things differently in the appraisal world,'" said Melinda Wilner, chief operating officer at United Wholesale Mortgage. "We do watch turn times quite a bit and generally speaking, they do help borrowers and brokers today, but I would say in differing amounts of impact."
Below we weigh how the use of automated valuations is impacting closing times.
Rising interest rates are changing the
In addition to allowing desktop appraisals permissible on a permanent basis by
"COVID helped spur ideas, like, 'Hey, let's keep looking at things differently in the appraisal world,'" said Melinda Wilner, chief operating officer at United Wholesale Mortgage. "We do watch turn times quite a bit and generally speaking, they do help borrowers and brokers today, but I would say in differing amounts of impact."
Below we weigh how the use of automated valuations is impacting closing times.
The eligibility issue
Given that lenders are more commonly processing home purchase loans today, the share of all GSE mortgages with waivers sank to just 15% in June from a peak 34 percentage points higher last March (49%), and it's about level with what was seen pre-pandemic, according to the American Enterprise Institute.
However, while waivers may be less available for purchase loans, lenders and borrowers seem no less eager to use them when they can, even with reductions in loan volume potentially reducing appraisal delays.
A separate Recursion analysis found that the share of eligible mortgages with waivers recently started to rise in all three major loan categories, based on unpaid principal balance.
Waiver share of eligible mortgages by category in July was for home purchases, 36.2% — up from an 11-month low of 16.1% in March — for no-cashout refis, 36.7% — from 32.3% last month — and for cashout refis, 45.4% — since May, when it was 38.1%.
Those numbers are much different than 11 months ago. In August 2021, the share of eligible purchase loan volume with waivers was 31.4%. In a comparison, the share of eligible cashout refis that got them at that time was 63%, and for no-cashout refis, the number was 76.6%.
"You can see the share picking up for purchases in recent months in line with sharply rising interest rates," said Richard Koss, chief research officer at Recursion.
However, while waivers may be less available for purchase loans, lenders and borrowers seem no less eager to use them when they can, even with reductions in loan volume potentially reducing appraisal delays.
A separate Recursion analysis found that the share of eligible mortgages with waivers recently started to rise in all three major loan categories, based on unpaid principal balance.
Waiver share of eligible mortgages by category in July was for home purchases, 36.2% — up from an 11-month low of 16.1% in March — for no-cashout refis, 36.7% — from 32.3% last month — and for cashout refis, 45.4% — since May, when it was 38.1%.
Those numbers are much different than 11 months ago. In August 2021, the share of eligible purchase loan volume with waivers was 31.4%. In a comparison, the share of eligible cashout refis that got them at that time was 63%, and for no-cashout refis, the number was 76.6%.
"You can see the share picking up for purchases in recent months in line with sharply rising interest rates," said Richard Koss, chief research officer at Recursion.
Faster appraisals, but alternatives still in demand where available
With anecdotal accounts of lower volume reducing appraisal delays, one might wonder whether using an alternative for valuation remains as important as it was in the recent past.
However,a recent study by this publication's parent company, Arizent, shows faster closing times would improve customer satisfaction for almost half of borrowers, and appraisal alternatives remain a key lever to pull.
Closing times are typically scripted by sales contracts, and that does make deadlines more important to meet.
"Appraisal timelines have been relieved, but there are still a lot of buyers out there with aggressive closing timelines," said Ryan Hayes, senior vice president of residential lending at Mortgage Network.
Appraisal waivers can only be used if a loan is eligible, and the GSEs typically make that determination based on, in part, whether sufficient comparable property values in the area are available.
"If you're in a subdivision with 200 houses based on three models then it may be very easy to find comparable property data to support a waiver. If you're in a town where you need to go a mile or two away to find the next house, and it's very different property, then the GSEs' models are likely going to say, 'no,'" said Hayes.
And even when borrowers can get a waiver, some don't want one, and their wishes need to be honored. Changing customer-provided property information without consent in order to obtain waivers can bea fireable offense , as it recently was at Wells Fargo.
However,
Closing times are typically scripted by sales contracts, and that does make deadlines more important to meet.
"Appraisal timelines have been relieved, but there are still a lot of buyers out there with aggressive closing timelines," said Ryan Hayes, senior vice president of residential lending at Mortgage Network.
Appraisal waivers can only be used if a loan is eligible, and the GSEs typically make that determination based on, in part, whether sufficient comparable property values in the area are available.
"If you're in a subdivision with 200 houses based on three models then it may be very easy to find comparable property data to support a waiver. If you're in a town where you need to go a mile or two away to find the next house, and it's very different property, then the GSEs' models are likely going to say, 'no,'" said Hayes.
And even when borrowers can get a waiver, some don't want one, and their wishes need to be honored. Changing customer-provided property information without consent in order to obtain waivers can be
Keep an eye out for compliance risks
The Wells Fargo incident and data analysis suggest "potential gaming" to ends other than an accurate valuation may be an emerging concern related to whether to get a full appraisal or use an alternative, according to the AEI Housing Center.
"With a human appraisal, we found you do always get a little bit more than with a waiver in terms of the value," said Tobias Peter, research fellow and assistant director at the center.
Over- and undervaluation are risks that could cut both ways, with the former potentially putting a loan in a negative equity position in a housing market downturn, and the latter potentially pointing toracial bias now on policymakers' radar screens.
The full body of research to date suggests whether digital alternatives are more or less prone to compliance issues than appraisals is subject to debate, but suffice to say that the Consumer Financial Protection Bureau thinks it's a concern forboth types of valuations.
"With a human appraisal, we found you do always get a little bit more than with a waiver in terms of the value," said Tobias Peter, research fellow and assistant director at the center.
Over- and undervaluation are risks that could cut both ways, with the former potentially putting a loan in a negative equity position in a housing market downturn, and the latter potentially pointing to
The full body of research to date suggests whether digital alternatives are more or less prone to compliance issues than appraisals is subject to debate, but suffice to say that the Consumer Financial Protection Bureau thinks it's a concern for
The current limits to hybrids
Hybrid valuations might be one way to hedge differences between appraisals and waivers when it comes to trying to ensure accuracy while still saving time.
Researchers who study GSE data say quantitative information on them isn't available, but anecdotal accounts suggest so far the uptake is slower than for the faster, cheaper waiver process, which is more established.
"The tough part seems to be that inside the appraisal, the appraiser has to provide a sketch of the floor plan with measurements that may be from a third-party provider, and I hear there's some hesitancy based on the limited information and potential liability," said Evan Swanson, a mortgage loan originator at Cherry Creek Mortgage and branch manager in Portland Oregon. "But it is early in the rollout."
Comfort with the process could grow over time if a purchase market with less access to waivers persists.
Even with particularly strong access to traditional valuations through a firewalled internal unit supplemented by an appraisal management network and waivers, UWM has found a need for a third option that can improve customer satisfaction related to closing times and costs in a small but potentially growing number of cases where it's the right fit.
"It's not like people are lining up right now for the desktop appraisal," said Wilner. "It might eliminate a day or two, so it's not as significant as a waiver where you don't need [an appraisal] at all, but it is great to have it as an option."
Researchers who study GSE data say quantitative information on them isn't available, but anecdotal accounts suggest so far the uptake is slower than for the faster, cheaper waiver process, which is more established.
"The tough part seems to be that inside the appraisal, the appraiser has to provide a sketch of the floor plan with measurements that may be from a third-party provider, and I hear there's some hesitancy based on the limited information and potential liability," said Evan Swanson, a mortgage loan originator at Cherry Creek Mortgage and branch manager in Portland Oregon. "But it is early in the rollout."
Comfort with the process could grow over time if a purchase market with less access to waivers persists.
Even with particularly strong access to traditional valuations through a firewalled internal unit supplemented by an appraisal management network and waivers, UWM has found a need for a third option that can improve customer satisfaction related to closing times and costs in a small but potentially growing number of cases where it's the right fit.
"It's not like people are lining up right now for the desktop appraisal," said Wilner. "It might eliminate a day or two, so it's not as significant as a waiver where you don't need [an appraisal] at all, but it is great to have it as an option."
