As Fannie Mae and Freddie Mac look to standardize the mortgage process at the request of their regulator, it has brought about new appraisal and data delivery standards requiring lenders to lean on technology vendors to ensure they are compliant at a time when vendors are already strained.
Elizabeth Green, chair of the property and valuation services workgroup within MISMO, says this move by the GSEs will enable the industry to achieve, among other benefits, high-definition comparables. "We as an industry will have access to granular appraisal data. We have the ability to name a data source on a per-data point basis. This gives both the appraiser and his client a clear view of every bit of information that went into the appraisal and where the appraiser got that information.
"If you think about it, most lawsuits today come from invalid information or a lack of information reported on the appraisal. This new approach-given that the GSEs have chosen to standardize around MISMO Version 3.0-makes it clear from the appraiser's perspective how to delineate factual information from their own analysis. Today that is all mish-mashed together. We've moved beyond that. We need more. We need more verification sources. The appraiser needs to feel confident delineating his data from his analysis. That allows us to further support the goal of getting to a credible valuation report."
This initiative, being called the Uniform Loan Delivery Data Specification, includes both appraisal data delivery and loan data delivery. The FHFA expects that by October 2010 there will be a joint system for the electronic delivery of appraisal data. By Jan. 1, 2011 new data standards for all single-family appraisal forms required on all loan applications will be put in place. By April 1, 2011 electronic delivery of appraisal data will be required. In terms of the new loan data delivery component of the initiative, by June 2010 new joint GSE data-set specifications through MISMO Version 3.0 will be available. By Sept. 1, 2011 it is likely to be required that all loans delivered to the GSEs comply with MISMO Version 3.0 standards.
While none refute the benefits of this move by the GSEs, some doubt if lenders will be compliant in time for the deadline. Brian Coester, chief executive officer of Coester Appraisal Group, says, "The top 29 lenders are ready, but the 10,000 other lenders have not even started. They don't even know what MISMO is. There are smaller, regional lenders that don't even know how to spell MISMO and they're not totally ready. They still write to Fannie and write to Freddie.
"I think the GSEs are going to have to push it back and the responsibility is ultimately going to fall on the AMCs and the vendors."
Scott Stern, CEO of Lenders One, a national alliance of mortgage bankers, calls the initiative "just another item in a long line of issues around appraisals that will ultimately hamper loan closings. We have a lot of appraisers undervaluing houses, which is stopping a lot of loans from closing and now you have a process change requirement. Overall it's a significant time and resource drain without a lot of benefit."
However, Stern acknowledged that if the new requirement will improve the quality of the actual appraisal, it is something that will benefit the mortgage industry in the long run after all participants adjust to the change.
"One of the biggest shortcomings of a traditional appraisal is that the appraiser only has access to the exterior of the comps and the MLS data. If you had a process whereby you could improve access to both the subject property and its comps-that has value. From that perspective I think it is a good idea."
In the end most of the burden of complying will fall on the lender's systems. Those systems will have to be upgraded to handle the new MISMO Version 3.0 standard. This will put a strain on technology vendors that are already strained given the fact that industry consolidation continues, yet these same vendors must still invest in upgrading their systems to comply with new regulation.
"The appraisal will be delivered prior to loan delivery, not prior to loan decision. So, lenders do have some work to do, but it will be fairly transparent to the loan officer or the broker," said Green. "Vendors are being engaged by their lender clients right now to see if they'll be ready. Vendors will do what they need to do to support their clients."
