Transcription:
Announcer (
Hi, everyone. Thank you for this final panel of track three today. The topic is why appraisal alternatives are here to stay and ready for the future. And it's a topic that's near and dear to me at figure. We've originated almost 4 billion of HeLOCK mortgages and we do leverage ABMS. I know that some of our panelists here will have some comments. but our moderator today is Kenon Chen from From Clear Capital. We also have as a panelist Jody Bishop from the Appraisal Institute, and Danny Wiley from Freddie Mac. So I'm gonna hand it off and I look forward to hearing their comments. Thank you.
Kenon Chen (
Thanks, Dan. Hey, everybody, getting to the end of the day here. So we'll try to make this somewhat lively and standing in between you and drinks appraisal alternatives. I think we're gonna try to get through, this session and, and answer some of these questions about, is this a flash in the pan? Are these things actually here to stay? Over the past year we've heard appraisal be a pain point, right? For You number of stakeholders within the mortgage industry. But the market's changed quite a bit, right? We're no longer seeing the same sort of elongated turn times from appraisals and we're seeing, different conditions. So we wanna kind of explore a bit on this panel. You know, we keep hearing the words appraisal modernization, What does that really mean?
(
We're at a digital mortgage conference, and so, is there something to the idea of digitizing appraisal as well? And and hopefully when we get to the end of this, we'll hopefully answer some of your questions as to what modernization is, is it still worth adopting? And what does it take to do that? So, I want to kick it off for everybody and start with just the basic question. You know, I'll start with you, Danny. What is appraisal modernization? What are we actually talking about here?
Danny Wiley (
That's a great question. I mean, I hear the term a lot and seems like when people say it, they're often talking about different things, right? I guess I should have said, I'm Danny Wiley. I'm an appraiser coz we're, like 40 years in the business this year. So I like to start by saying what it's not. I know a lot of my appraiser kind padres think that my single goal in life is to eliminate their job, right? That's not our goal. And I would point out like through the rush of the last three years, the GSCs, some of the best FinTech companies in America, according to the two presentations ago we ordered more appraisals than we ever have. You look at what we're doing right now, we're ordering appraisals on about 85% of the loans, right?
(
So appraisals are a pretty key part of our long term business strategy, right? But I do take a slightly different view now from this seat too. And then it's not just appraisal modernization. It's a suite of things that we need to improve to help us be more efficient and better at how we evaluate the glow collateral, right? I think of three sort of big blocks in that. Number one is expanding the Swedish services that we use to evaluate collateral. If we only go back a year, we were in this binary world where you either got an appraisal waiver or you got the full appraisal, and we have this big space in between that we hadn't filled in, even though we've been talking about a long time. So that's part of that, and we are making progress there, right? Just in the past year, in the past few months, we've seen the desktop appraisal adopted. We've seen the inspection based waiver adopted.
(
So we're working on both ends of that spectrum. And I think we're, we'll see a broader adoption of the hybrid appraisal so called probably next year. So that's step one. It's fill in the gaps so that we have more choices. Number two, we gotta improve how we collect, store, analyze, and communicate collateral data, right? As an appraiser, it's honestly a little embarrassing that we are, as a residential appraiser, we're producing residential appraiser reports on forms that we're designed for typewriters. That's where we are. I mean, when I started we were typing appraisal reports. We had sec, we didn't have administrative assistant, we had secretaries who typed the appraisal reports. And we're still reporting using that basic format. We've got to improve how we get the data, how we collect it, how we store it. And then the third part of that is making all that information more transparent both the report and the data behind the report and the analysis tied to that data.
Kenon Chen (
So I'm hearing these different terms, inspection based waiver, desktop appraisal, hybrid appraisal, to define things a little bit, right? When we say hybrid appraisal, we're not talking about taking the appraisal and splitting it in two, right? We're talking about the idea of bringing the home to the appraiser at their desk instead of the appraiser always being the one to go out to home and gather their own, fetch their own water, so to speak. So the end of the day, the appraiser is doing the desktop appraisal, But Jody, I'm curious, are these really new solutions, new products here? Or how do you see it from your standpoint?
Jody Bishop (
Great question. I'm Jodi Bishop. I'm the 2022 president of the Appraisal Institute. So I represent the appraisers that Danny's trying to put outta work. So keep in mind that I can't jump in with both feet and my hands and just say, Yeah, I'm all in on all this. I have to have a little bit of pushback on it. But really modernization to your question, hybrid desktops there's been products like that around for appraisers. They just haven't been used a lot. And, you gotta gotta remember, appraisers are highly ethical. They're skeptics and they're older. If you look at our demographics, they've been around a while, residential land, commercial. I've been doing this. This is all I did coming outta school. I got 38 years in it. Like Danny, we used to hand write the report on the same form.
(
If you had to white out a number, your secretary hated you because she had to retype the form. So I've seen it all, and I've seen a lot of change. And change is change. It's around, but it makes people uncomfortable. And, and Keenan's comment about, well, I'm hearing all these different terms and all these different phrases. That's what's making most of these appraisers uncomfortable and really pushing back because the way they were trained and the way that they've learned to read markets, look at properties, look at comparables. There's better data and more efficient ways to do it. But the golden standard is to go out, pull up, go through the neighborhood, pull up to the driveway, see the house, feel it, look at it, go through it leave, and they know the house. That's what an appraiser knows when now we're asking them to do something different.
(
Not only are we asking them to do something different, we're asking them to get different types of data. Desktops one thing go find a data, an old appraisal, MLS listing public records. Whatever you could do to find the data on a property, that's what you use. Well, a hybrid would simply be a third party goes and collects the data, and that starts bothering your appraiser worse than a desktop, because who's giving it to me? Oh, well, the homeowner will take pictures and give them to you, right? You're gonna believe the homeowner when he's the bar or she's the borrower, not an appraiser. Who's gonna draw the floor plan? Are they gonna be an appraiser? Is it gonna be this? So the appraisers are asking a million questions and, and they're talking amongst themselves and getting terribly confused. So that's why there's a lot of pushback right now.
(
It's changed and, and they're scared, rightfully so, because it's been pushed on them pretty quickly. Covid didn't help, but Covid did one thing. It taught everyone in a room that we can change, right? Things that I didn't ever do or think I could do, like work from my house. I figured that one out real quick. So did everybody else in all this remote type work that we got pushed into, so that it's good timing for what's going on now, it's the dissemination of the information that in convincing these experienced folks to embrace it, because some of the concepts are almost hairy to them. But I'll tell you, like I tell them, change is inevitable. It happens every day. I look in the mirror and I still see this handsome 18 year old high school kid getting ready to go off to college.
(
Then I look at a picture of myself and I see this old guy that had, many years ago, I was looking like I did when I was in college. So , you can't help it, but it changes real fast. And just to give you anybody here do a little quick math. If you had a lily pad sitting in a pond one, and it doubled every day, and in 30 days the pond was full, how full would the pond be at day 20? Real quick math, Divide by two, about 0.129% full on day 20. So that's how quick change comes. You don't see it, you don't see it, you don't see it in that last 10 days, that pond fills up with Lilly pads. That's changed. By the time we see it's gone. And so it's hard for people to embrace change, and that's part of what we're doing right now. And really the concepts are what's so difficult because it's being bannered about with these terms.
Kenon Chen (
I wanna push on that a little bit and, and maybe Danny you can help, because I think there's perhaps some, some myths on both sides, right? From appraiser's understanding, but also maybe, from lenders that are seeing, like what is coming, I mean, from a Freddie Mac perspective, is this a well thought out, defined thing? You know, let's break down what some of these myth are. Is it the homeowner involved now, or what's going on?
Danny Wiley (
Well, the old thing the missile will travel the internet five times faster than the truth, right? I've seen them, I monitor the blogs and I if I hear one more time that we have Uber drivers inspecting properties, right? I mean, some of you are nodding and you've seen the same things, right? and I'm like, okay, wait a minute. We have it posted on our website. We have our requirements, we have the training requirements for who has to collect this information, right? and we use a property data collector to go out and get property data and prepare a report that's transmitted to the appraisers. I understand the skepticism, but fundamentally, who's ever dealt with a new construction appraisal? We give the appraiser this thing called plans and specifications, which is what? It's a property data report, but there's just a trust in that, right?
(
We have to get to the same level of trust with the data that's collected, right? and then transmitted to the appraiser. And we have that in some data. If I give an appraiser a lot survey, no appraiser's gonna go out there with their own tape measure and try to measure a lot, right? And that's where we gotta, that's why I say we gotta improve the data collection and the security and faith in that data. I spent of my 40 years in the business, 29 years just out in the field field doing appraisals. I averaged 20 to 40,000 miles a year driving around middle Tennessee in the Nashville market at an average of 35 miles an hour. Think about how many hours I spent driving around primarily to identify and collect data, not to conduct the appraisal based on that data, but just to collect that data. That's where we have an opportunity, I think, for a huge efficiency gain.
Jody Bishop (
You see it the same way, Jody? Well yes and no, but see, not every size fits all and to Danny's point, if I were in a rural market, which I'm not, I'd be putting thousands of miles on my car. I hear stories of folks in the Midwest and some of the less populated areas, going two hours to look at a house. And to Danny's point, that's a long way to go in a lot of travel, to look at one property and then back. But then again, you could have the appraiser sitting in a major metropolitan area where they don't travel in their car or might not even have a car. They might be working downtown, and there's enough work in the city for them where they don't have to do that.
(
So it kind of works both ways. And one size doesn't fit all clearly. The rural markets are underserved. How can we do better there? To the data collection point, computers are binary. They're as good as the data that's entered into them. Data is great, but buyers and sellers make the market and appraisers use the facts. The facts are with the buyers and sellers negotiate and pay for a property. We know what it is. It's normally recorded in states that, that have recording deeds. So it's easy to figure out, unless you're in Texas or Mississippi or California, this is a little harder. But anyhow, so we know the facts. We know what they paid for the property, and there's usually data out there that appraisers accustomed to finding. If they dig, they can find better data. If they verify the data, they'll find better data.
(
That's what an appraiser's job is. Then they go and look at one property, well, they gather all the data on that they're accustomed to going on site and seeing it now. So that's the normal job, right? And then they use the facts, sale prices to compare to that one property, that one point in time. And then they make a, they come up with a conclusion, which is an appraisal. That's the value, and it's based on the data that they collect. And so the data's only good, is what you collect. And I tell my guys in my shit in my office, look, if all you're doing is reading MLS and sticking it in this computer and then using it, you're not doing anything that a computer can't do. You gotta make yourself better than a computer. You gotta know more than a computer on the data that they have.
(
And that's the real key to the data. Last time I check buyers they don't have access to the kind of data I have. They're making decisions by what they go and look at. They know what they want, their realtors taking them, and they're looking at 3, 4, 5, 6, some of them 70. So they say, but they're looking at a lot of properties and making a decision on one they wanna buy. That's what we're chasing in terms of valuation. There's data out there, but is the market really using that same data? Exactly. Probably not. And it's probably not as precise as they're using. So it's an appraiser's job to try to figure that out. So again, data's only as good as the person that enters it into the system.
Kenon Chen (
So I want to go back a bit to, maybe the challenges over the past year, and obviously the market's changed, quite a bit. As I mentioned earlier, we're not seeing, elongated turn times in the same way we're not seeing such capacity, capacity constraints, but appraisals a hot topic still as a pain point for, especially for lenders when it comes to things like certainty when it comes to the borrowers experience and helping understand, what's gonna happen in their journey to buy a home. So what are some of the things, why is appraisal modernization seen as the thing that's going to solve some of the concerns, maybe around consistency, certainty of time and then we'll go to some other things later. Why are you investing so much in it, Danny?
Danny Wiley (
Well, I first of all, as an appraiser, I believe in it. I've been honestly, extremely disappointed in what I've seen in my profession in the last 40 years. You look at the advancements we've clearly drug ourselves into the early nineties, currently, right? And I don't, we only get credit for that because we use digital photos in xml, right? And those are from the early nineties, but I started to say Jody agrees with me. He agrees that we need good data, We need good, good consistent data. I think that's part of where it starts, right? Now will there be barriers to that? Yeah, right? The biggest barrier to any change is the, what I call the inertia of the status quo? Talked about it two sessions ago with the market trends for the past two years.
(
It's been so busy, nobody wanted to test anything with me, right? I'm too busy pushing my pipeline to test something new. Are you crazy? Now we have short memories, right? So we're not thinking we've forgotten when it was taken six and eight weeks to get an appraisal in every market. We have to take the long term view. And that's what I'm trying to do and say, okay, how do we prepare for that next cycle? And I get it, volumes are down, your budgets are down, your staff's cut. But if we don't take the long term view, we're just setting ourself up for a repeat of what we saw in the last couple of years where we have this big stall, right? We were kidding earlier. It takes some pain in life generally to generate change. I understand this. I used to weigh 250 pounds. I had one of those events in life that motivates you to start running and taking care of yourself. And if you don't have an event like that, it's hard to change your behavior, right? I'm not saying we need that extent, but I think it's gonna be a real shame if we don't build on the momentum that Covid has created in this area.
Jody Bishop (
So and I agree, Danny, that the change part, what I find curious though about the change is the perception to the general appraiser out there is that it's being forced on them. It's being forced. Don't take this the wrong way by the GSEs. You know, antsy is out there now, and it's a big buzz about antsy. I got my own say about that. We won't go there today, but it's a mandate that's placed on these folks, and then they gotta go figure it out and how to implement it. And really, I look at it like this, just like when a reviewer asks for comments on one of the appraisals, we prepare the, invariably the person that's working with, we, one of my associates, has all been outta shape. It's in the report.
(
Well, they're just asking questions, just answer it. If it's really in there, say, Hey, I set it on page 18, but if it's not enough, I can elaborate. Just answer them. That's all they want is answers. But I think that everybody needs to, all the appraisers and everybody in the room needs to understand it's a partnership between the appraiser and the lender. It shouldn't be us against them. So in order to be a partnership, everybody has to understand and have a level of trust on what they're doing. And for the appraiser the level of trust, if they're smart as, Look, this is happening and it's only gonna get bigger, don't kid yourself, it's gonna make it faster. Technology's gonna help it. If you consistently beat your head against the wall, you're either gonna get outta the lending business and go find another side of the appraisal business to get into, or you're just simply gonna find something else to do.
(
So fighting it is not what we want the appraisers to do. We want them to embrace it because you're the clients, you tell the appraiser, Hey, we want a desktop. It's the appraiser's job to say, Well, I don't do desktops. Okay, who does? I will tell you one thing I'll caution you with this. It would be much easier if the play to the, to the public appraiser would be, Look, we are going to find local people that are geographically competent, have a presence in that market to do these appraisals. If they believe that they would be highly relieved, because right now they see someone in California doing a hybrid appraisal on a property in Charleston, South Carolina. That's what scares them to death.
Danny Wiley (
I gotta jump in on that, our policies and our certifications anybody signing a hybrid is swearing, then that's what you do when you sign that certification that you have prior experience with a similar property in that local market. So I know that non GSE work that's happening, but in GSE land we have that requirement. You can't expand your service by just going and getting licensed in five states and submitting these appraisals to us in states where you've never even been that is a total violation of our policy.
Jody Bishop (
Right. I get that. So when you said they're swearing, is it a swear and a test, or is it a curse word?
Danny Wiley (
Yeah, well!
Jody Bishop (
You know coz they get pretty mad sometimes when they're told things like that. But that's what I see. The thought is all of these stories that they see going on out there and they think that's what this is, and, a ton of appraisers don't do GSE work just by nature of what they do. So we're not talking about all appraisers, we're only talking about the ones that do this. One of the things that modernization, a real concern I have with it, and I think it's legitimate, but it can be overcome, is right now, if the season experience and really quality appraisers are pushing back on it, who's gonna fill the void? The entry level appraiser that doesn't have much experience. And my fear is that person will end up being a desktop kind of like a AVM or a data verification person and not a real appraiser. They'll see the data, okay, yeah, this is good, stamp it and go. If that continues and really happens, that person probably wouldn't be well equipped to go do more standard or traditional appraisal down the road. So I would, I don't know how to wrap my arms around that because I could see the role changing greatly. And the real skill for doing appraisals might not be learned by a lot of people because of that. It's just a, just an observation. Yeah.
Kenon Chen (
So I mean, speaking of stories, and we've got, a little bit of time left, but I definitely want to cover this next topic, which is, earlier this year the White House task force, the paved task force, which is the property appraisal evaluation equity task force came out with an action plan and appraisal modernization was one of the terms that was on the, on the action plan to take a look at, eliminating bias or potential bias in appraisal. And and I think, it's interesting that was back, early in the year, but even recently, we continue to see stories still continue to see stories in the media where this is still an issue.
(
This still a something that's rising to the surface. Appraisal modernization is, is really seen as as a way to maybe create a different process that would be more transparent have better data. One thing I want to do is, applaud actually both of you, the Appraisal Institute and Freddie Mac you're both involved in the appraisal diversity initiative which is bringing a new diverse set of appraisers into the profession. I think that's amazing. That's actually one of the PAV action plan, items. But, when it comes to appraisal modernization, how is that related to this idea of potential bias in the process?
Danny Wiley (
I view it as giving us a tool to use, right? You guys probably know we did a research paper and we identified pretty significant appraisal differences in appraisal outcomes in white census tracks versus minority census tracks, right? And we are spending a lot of time in resources examining why that's the case, contrary to what some have asserted, we haven't reached any conclusions in that regard yet. We are researching it. We are trying to let the data lead us. We are examining could it be bias? Could it be data issues? Could it, what is it? I have a whole team that I've hired recently that is focused on this, but some of this better data will give us better vision into that, right? Quick, I know we're going for it. I'm looking at an appraisal report last week and the house is a hundred years old and the kitchen is 50 years old and the bathrooms are pink and gray tile. You guys can see this house in your mind, right? And I have an appraisal report, I have two of them actually. And one of them, I go and I manually pull the comps and I look at them on Google and the kitchens are all totally renovated and the baths are all totally new. And I go, how did these comps get selected for evaluation of this property? And if we had real good data transparency, we wouldn't have to do that kind of digging and we could settle some of these questions a little better, right?
Kenon Chen (
So I'm curious, how is it could possible that you can have two different, wildly different results on the same home? Maybe walk us through and should we be looking at, at modernization as a way to, bring some more consistency?
Jody Bishop (
You know, the difference in appraisal opinion, it could be a number of things. I explained this to the pay folks, I've met with them twice in DC I also testified in the congressional hearing Maxine Waters had on this. We don't know what the instructions to the appraiser are cuz you could have a different scope of work that could result in a different value. I know I've done some hard money lend, We do work for hard money lenders and they require liquidation value. So that's, what's it worth? A hundred thousand dollars, What would it take to sell it in 30 days? $30,000 deduction. Okay, so the borrower seizes that and then they get mad and they order another appraisal and they don't tell them that it's liquidation value. So the next appraiser says it's a hundred thousand dollars.
(
Well all of a sudden you're $30,000 apart. So there could be a reason, a logical reason for it, the instructions given the apprais or it could simply be a bad appraisal, not because of somebody's skin, not because of somebody's decoration in their house or gender or our neighborhood simply because they just didn't do a good work. There's that to it out there as well. But I can tell you three things real quick, if somebody is bothered by a person's color, skin religion, gender or anything else, they need to be out. We need to find them and get them out. Implicit bias is there, it's real. There are ways we can educate in our educating appraisers to recognize it and get it out of their, out of their thought. Why does it bother me? Doesn't matter. They may, the people over here might like it.
(
So we got to get that out of there. If there's systemic bias it's pro likely a result of what went on 80, 90 years ago with red lining covenants and restrictions on neighborhoods restricting religious people, Jewish people in a neighborhood, people of color in a neighborhood. If that's been going on and that affected pricing then, and that's still present now, buyers and sellers make the market and appraisers interpret what's going on in the market. They're not equipped to address it. So modernization will solve one thing. If there's an appraiser that's bothered by going into a neighborhood, if they're not going in that neighborhood and they're not seeing the inside of that house, if that's going on, this should help. But I don't think it's rampant. I think it's kind of a couple one-offs here and there, but still it, right. It can't hurt if that's going on. We should see a difference as this progresses in these new tools are used.
Kenon Chen (
So we're at the end of the time, but I wanna give you a chance to get some, some closing thoughts. I mean, just coming back to this question, is this here to stay? Is this where things are going are and any other closing thoughts gonna add?
Danny Wiley (
I don't think there's any doubt. Again, we've seen the progress in the last year, right? We've seen us filling that spectrum in you guys probably know we have the new UAD project. We're going to be going away from forms completely and into a data set for the reporting. All that's already in the works and on the way. It's taken me 15 years to see momentum and it's like that rock that it takes a long time to get rolling and now I think it's going to go down the hill very quickly.
Jody Bishop (
Great. I really appreciate the opportunity to talk about the appraisal profession and, how we work with our clients. And if I could offer anything, if you're seeking a really high quality ethical appraisal, consider our members, our sra, members of the Appraisal Institute and our practicing affiliates, they're held to a hired ethical standard. They generally have a higher degree of education and if you run across any of them that do something wrong or you don't like it, call me and let me know and I'll go talk to them.
Danny Wiley (
So thank you very much. I am an SRA member of the Appraisal Institute by the way.
Kenon Chen (
We'll be able to talk after. Thanks so much for listening. Appreciate it. Thanks guys.