Editor's Note: This is part four of a four-part series on the mortgage industry's response to the housing inventory shortage. Read part one, part two and part three.

With thin inventory and soaring prices, getting accurate and timely valuations that support sales is a growing challenge best met with quick access to acceptable data — and there's the rub.

Even with considerable technological advancement, the market can still move faster than available data can, and lenders don't really want to risk funding or selling a loan with an unsupported valuation.

"“When market values are increasing at unprecedented speeds, the data may lag the pace of the market," said Kevin Wall, president of First American Mortgage Solutions.

With hot housing markets like the Pacific Northwest's boosting U.S. home prices beyond pre-crisis highs, it's a growing problem. The average national home price was a little more than $250,000 in 2007 and it looks likely to drift slowly toward $300,000 now, according to Black Knight Financial Services' home price index.

Technology is being introduced that will help reduce the lag between the initiation of a sale and its recording, but it could still be a concern for a while, Wall said. Aggregated, real-time data on completed sales available is coming in less than two years, he predicted.

Quote
"When market values are increasing at unprecedented speeds, the data may lag the pace of the market."
— Kevin Wall, President, First American Mortgage Solutions

In the meantime, the first thing a lender can do if a valuation looks like it's outpacing the market is to ask for a re-examination to see if the appraiser was aware of conditions unsupported by the public record.

A lender may find that an appraiser based the valuation on not-yet-recorded pending sales. While this may not be enough to support a compliant valuation on its own, it could help underwriters who consider a broad range of factors when making a decision.

Compliance and cost sensitivities prompt most lenders to work through appraisal management companies, unless they are large or otherwise have the resources to manage appraisal ordering in-house. That makes it difficult for them to directly address the challenge of needing to cultivate local talent in a shrinking appraiser workforce.

But they can make sure the AMC they choose to work with does.

"We really urge our AMC partners to reach out to the appraisers," said Benjamin Goodwin, collateral administrator for Churchill Mortgage.

And as much as public records can call into question an appraiser's opinion, an appraiser also can call into question a public record.

"Public records are notoriously inaccurate when it comes to square footage," Goodwin said.

Lenders should be prepared for a low appraisal as well as a high one in a hot market, said Clint Hammond, branch manager at Mortgage Network.

Lenders should have "a contingency plan," he said. "This can be anything from a borrower bearing the difference out-of-pocket to relinquishing some portion of the seller-paid closing costs."

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