What a difference a year makes. The Mortgage Bankers Association put on another fabulous show this year in Nashville, TN. While the attendance and show were great, the mood of attendees was a bit down and the market stats we heard could be the reason. There was a lot going on with the appraisal side of the process as well. There was great information and stats that appraisers need to be made aware of so they can prepare for what’s coming.
While I think most appraisers are feeling the slowdown, there are some interesting numbers that can help quantify just what was going on in the industry. Mike Fratatoni, Chief Economist and Senior Vice President of Research and Industry Technology of MBA, mentioned that in 2021 there were over 13.5 million new home loan originations. This year, they are projecting to end the year at just under 6 million, and next year they are forecasting less than 5 million. It’s quite a big drop off. Another area of drop-offs is obviously in the drop in refinance loans which are down 85% according to Bob Broeksmit, President & CEO of MBA.
While the volume has dropped off, there are some measurements that are positive. Joel Kan, Vice President and Deputy Chief Economist of MBA, mentioned that the loan amounts are larger than anything we have seen previously. Marina Walsh, Vice President of Industry Analysis, Research, and Economics of MBA, also mentioned that the foreclosure rate is under 1.9%, which is less than half of the 20-year average. Joel also mentioned that they still see the average home price to raise by 1% in 2022. They do project a small decrease in 2023 for home prices.
One of the things that was interesting was how many speakers were pushing for more rate hikes as the solution for getting the inflation under control. Former Speaker of the House, Paul Ryan, discussed the state of the union and the state of politics today. He made the point that we are in a new era of politics where entertainers are being elected to office. There is less compromising now because of this. Congress used to be a meritocracy where you would come up with good ideas and persuade the other side to agree with you. Today, in the entertainer culture where you can monetize being a public figure, you can’t tarnish your brand by compromising anymore. He said because of this new style of politics, he couldn’t see himself ever running for office again.
Mr. Ryan is staying busy as a senior fellow at the American Enterprise Institute, and he had a lot of ideas for what can be done to get the country back on the right path. He had a several-point plan to get inflation under control:
1. Stop stoking it with stimulus spending
2. Make tax cuts permanent
3. Connect work with welfare benefits
4. Fix the immigration laws that send money out of the country
He said we are going to have to bite the bullet on inflation and raise rates through the next two quarters. If we get in front of it, hopefully, we can get back on the right track. If we can’t, we could be stuck with stagflation that could take us years to get over.
One session that was particularly interesting for the appraisal industry was the Policy and Tech Perspective on Appraisals. On the panel were Jake Williamson of Fannie Mae, Danny Wiley of Freddie Mac, Jeff Hogan of Veros, and Jeremy Sicklick of House Canary. We did an Appraisal Buzzcast with Jeff that will be released later this week, (if you are reading this after Nov. 16th check it out here) so I won’t go too in-depth on this.
Much of the discussion was how we can accelerate the process. Danny Wiley pointed out that Millennials and younger generations aren’t going to wait 45 days to close. We need ways that can speed up the process. A lot of that can be fixed with technology. Jake Williamson, Senior Vice President of Single-Family Collateral Risk Management of Fannie Mae, talked about how Covid policies allowed them to conduct real-world experiments in markets where social distancing was required. The increased usage of hybrid appraisals allowed standardization in collecting data. The results were 5-10 days quicker and the quality was just as good. Another thing that will speed up the appraisal process is the new UAD adjusting the form to get rid of the narrative and turn it into objective data. This allows you to eradicate some of the subjectivity. He also mentioned that the GSEs have policies in place for overvaluation, but there aren’t any for undervaluation risk. That is something they are working on putting in place to streamline the process. Mr. Wiley also talked about the importance of keeping the appraiser in the process even with speeding up the process. He mentioned, “We are in the risk management business – we are not interested in any methods that don’t perform as well as appraisals.”
Racial bias was discussed and whether that it is ingrained in the data and what can be done about it. When talking about diversity in the industry, the consensus was that there are too many barriers to entry for new appraisers. With the education requirements, testing, supervisor and apprenticeship hours, there are too many hoops to jump through before new appraisers can start making enough to make it a full-time job.
There were several other sessions which included discussion on the market, demos of new products, and how technology could improve the mortgage process as a whole. Opteon featured their process to streamline appraisals. They don’t think there is an appraiser shortage. There is an efficiency issue. Their process, which is based on how production in Australia works, has gotten their turn times down to 2.8 days in four different test markets.
Mike Krzyzewski, Duke Basketball and Team USA Coach, discussed with the audience ways that you can lead your team through trial and hardship. Leadership is all about self-accountability and setting standards for yourself. He mentioned he had a 4-step process for overcoming failure. No excuses – find out why you lost and do something about it. Don’t let something that was bad produce another thing that is bad.
Attitude – you are the only person responsible for your attitude
Belief – belief in yourself and belief in your unit
Preparation – anything good must be a habit
Execution – perform at a high level so you don’t lose again
Winners don’t let losing become a habit. People want to win, but not as many people want to prepare to win. He made one statement on how things change and compared it to coaching, but it is something appraisers can take heed of as well. He said there is a reason that it “used to be” like that and it’s not like that anymore. You have to stay up-to-date with new processes to make sure you are putting out the best possible product. He closed by saying that his biggest accomplishment has always been sustained excellence – you must give it your best every time you step onto the court.