The top questions lenders are asking about the new desktop valuation rules
BLOG VIEW: In January 2022, Government Sponsored Enterprises (GSE), consisting of both Fannie Mae and Freddie Mac, announced that they would include a desktop valuation option to its vendors. When this came into effect in March, it opened the door to a potentially permanent change in the way assessments are developed and carried out.
Many lenders see this as a positive move. However, they may have questions about how the changes will affect them. Let’s take a look at the potential impact of the new rules and answer some of these questions.
Impact on industry
The increased availability of desktop computers could affect a large number of loans and impact lender practices. Today, desktop computers can be used for purchase transactions with up to 90% LTV. This makes them much more widely available than expected. As the appraisal profession ventures into more technology-assisted territory, consider the following potential adjustments.
More efficiency over time
Desktops have the potential to be assigned and returned faster than traditional appraisals, making it easier to meet lender deadlines. However, it may take time to get there.
As the industry adjusts to using more desktop computers, there could be some short-term headaches. Among them is the fact that the data required to complete the desks is generally not readily available for evaluators to rely on.
The good news is that this problem can be solved with the advanced technology available today. As this digital technology becomes more widely used, the robust property data it collects will be made available to appraisers at the time of registration, continuing to further streamline the office process exponentially over time. .
When verifying their partners, lenders are encouraged to find out if those partners offer digital technologies, such as the following:
–3D scanning technology that not only produces images, but also interactive virtual tours and highly accurate and standardized floor plan displays.
–Comprehensive reporting tools provide geolocation and timestamp, documenting when and where analysis was performed
- –Comprehensive data collection that brings together all property data necessary for any type of valuation, fungible across all businesses, ensuring that additional analysis and/or site visits are never required
As with any other change, there is bound to be a learning curve with the increased use of desktop computers. One thing that has not changed is that these assessment partners (whether engaged directly by a lender or through an AMC) are still responsible for submitting a credible report.
Ideally, valuation quality control processes will prevent errors that can lead to potential buyouts or other headaches for lenders. Subject to CFPB compliance rules, some errors could become the responsibility of the lender, so this is something to watch out for.
Lenders should seek AMCs or assessment partners with advanced QC systems and a clear and demonstrated understanding of new office rules to ensure they are not exposing themselves to unnecessary risk.
New requirements for learning
The desktop option comes with new loan requirements to even qualify for a desktop computer. Fannie Mae and Freddie Mac have defined several requirements, such as the following:
–A complete subject property address must be included
–The loan must be for a purchase transaction
–Subject must be a primary residence of a dwelling
–The LTV ratio must be less than or equal to 90%
–The loan file must receive an Approve/Eligible recommendation from Desktop Underwriter (DU)
Although ANSI standards do not technically apply to desktop computers, some vendors do commit to the measurement standard and lenders and appraisers should take this into account when aligning with a technology vendor, as this may be needed in the future.
Common questions from lenders
Here are some questions that lenders might encounter regarding the use of desktop computers.
What is the difference between traditional and desktop assessments?
A traditional appraisal requires the appraiser to perform a personal inspection of the interior and exterior of the property. He or she will spend time at the property, measuring the exterior to create the floor plan, photographing any improvements, and documenting personal observations for reporting purposes.
Offices are filled without the appraiser doing a personal inspection of the property. Instead, the appraiser relies solely on data made available to them through MLS, public records, online photos, personal interviews, and possibly a virtual inspection to write a credible report.
Regardless of the assessment approach, the assessor must meet all of the requirements set out by the GSEs. That’s always the bottom line.
Many real estate agents provide the floor plan as part of their MLS photos. Can the evaluator rely on this alone?
As long as the floor plan meets the requirements prescribed by the GSEs, the answer is yes. Exterior dimensions used to calculate square footage, interior walls, stairs, entry and exit points, and room labeling are all required.
Many floor plans provided by builders and agents for marketing purposes will include some, but not all, of these elements. Some appraisers get creative and include both the builder’s floor plan and the appraiser’s sketch to meet these requirements. Assuming both are even available, this can not only be a hassle, but also time consuming.
If the appraiser cannot obtain a floor plan that meets the GSE requirements, then the appraiser must decline the assignment and proceed with a traditional appraisal inspection.
What are GSE’s expectations regarding the technology used to create floor plans?
The concern of GSEs is that lenders and appraisers meet their requirements. If a floor plan ticks all its boxes and is considered reliable, it doesn’t matter what technology was used to acquire that data.
This is why appraisers and lenders must ensure that the tools they use meet GSE requirements accurately and consistently.
Will the increase in the number of desktop computers generate more reconsideration of values (ROV) or allegations of bias?
Maybe not. The main difference between a desktop appraisal and a traditional appraisal is that with a desktop appraiser, an appraiser does not visit the property to collect their own data. Instead, they simply receive data and analyze it to complete the report.
The evaluator and all other parties are looking at the same set of data. This data is exempt from an assessor’s recollection of personal experience.
How will an ROV work with a desktop computer?
The ROV process does not change based on the type of assessment (i.e., desktop versus traditional). However, the difference with an office appraisal is that all parties will experience the property in the same unbiased way.
Ever-changing requirements for desktop computers make it even more critical for lenders to have the latest information and technology available to them. This can help them ensure accurate assessments that mitigate their risk.
John Dingeman is Chief Evaluator at Class assessment.