Friday, December 8, 2023 | The Latest Buzz for the Appraisal Industry

What we can expect down the road for the mortgage industry?

Just as we were all arriving in Philadelphia for the Mortgage Bankers Association (MBA) Annual meeting, the Fed made a major announcement that they would not be increasing the interest rate at this time. That set the tone at this year’s MBA Annual Meeting. This has been a really tough year for everyone in the industry, with volume at its lowest point since 1985. We heard from some of the biggest names in the mortgage industry about the market and what we can expect down the road. Here are some of the highlights of what we learned.





The MBA Chairman, Mark Jones, kicked the opening session with a plea to make affordable homeownership a national priority again. He stated that homeownership has gotten harder to achieve. It’s time to make the American dream accessible to all. Inventory is still at an all-time low. We need to make it easier to build and reinvest in remodeling. Bob Broeksmit, the President of MBA, continued that topic. He started off by saying, I’m not upbeat, I’m upset. Our government is sowing seeds of profound instability. Washington is pushing us in the wrong direction. Interest rates have lowered mortgage volume to their lowest point in decades. He spoke about Basel III, which is an internationally agreed set of measures developed by the Basel Committee on Banking Supervision in response to the financial crisis of 2007-09. These measures aim to strengthen the regulation, supervision, and risk management of banks. Broeksmit stated that Basel III is a solution in search of a problem. It will create far more problems than it solves. Washington is simultaneously pushing for more regulation on Independent Mortgage Bankers (IMBs). It’s almost like the government wants fewer people buying homes.

There was a great session with John Meacham, best-selling author, and Tim McGraw, country music star, where they discussed their history together and their book, Songs of America. Next, we heard from Patrick Harker, the President and CEO of the Philadelphia Federal Reserve. He had some great comments on why the Fed is doing what they are doing and why they feel it’s the best way to move forward. “I stand here this morning, fully aware of the mood in this room. I am fully aware of our actions, in our efforts to tame inflation, have contributed to the issues you are dealing with.”

Rising rates contributed to the lack of inventory, increasing home sales prices. The way around contracting inventory is to build new inventory. I want to give you a look at where we are going. He believes we are at the point where we can hold rates where they are. Economic activity continues to be resilient. By doing nothing, we are doing something. The rate of inflation in housing prices is similarly down as well. He stated he hoped to see it level it out at 2%. “I will not tolerate a reacceleration of prices.” He doesn’t want to overreact to cyclical effects. While we are six months past spring turmoil, the current turmoil in labor markets will likely display similar downward pressures.

Harker stated that against the backdrop of volatility, he thinks the prudent position is to stay steady with policy. He subscribes to the moniker – higher for longer. If inflation were to rebound, he would not hesitate to increase rates. This economy has proven to be resilient. Harker said not to conflate moderate GDP growth with recession. “I do not anticipate a recession.” He asked, “What in the economy has fundamentally changed since 2018?” While he felt we would not be able to replicate the pre-pandemic economy, the resilience of this economy is making him rethink some of the models. He believes his policy of holding the rates steady is the prudent one to take. He stated he believed we would see the economy take off again, but this time on a clear and stable path.

Next, we heard from Julia Gordon, the Assistant Secretary for Housing and Federal Housing Commissioner for HUD. She mentioned some of the new things they are doing to improve FHA’s operational capabilities and create a comprehensive roadmap to guide the implementation of modernization. Last year, they reduced MIP by 30 points. They also adjusted the treatment of student loans and added positive rental payment criteria. Unfortunately, there are just not enough houses to go around. They have instituted a new policy for single-family homes with ADUs. This will cause more people to rehab existing homes with attached rental units. It will also hopefully help to boost the supply of housing where it’s most needed. Sandra Thompson, Director of FHFA, had some changes coming to appraisal data and modernization. UAD will now be releasing data at the appraisal level. Not just the aggregate level. FHFA is increasing public engagement and publishing historical data. She also mentioned that the affordability and availability of property insurance for natural disasters have stressed insurance issues. In every year since 2020, there have been at least 18 natural disaster items in the US. Some insurers are pulling back from certain regions entirely.

Susan Wachter, Sussman professor of real estate and finance at the Wharton School and Co-Director at Penn, gave us some great insight into the current economics of housing. This has been a historic time for the mortgage industry. We haven’t seen such a decline while having over 4 million in sales. It’s a double hit that this market has taken. Historic highs with mortgage rates. It’s also the housing prices. The average house price is over half a million. Supply and demand issues have been chronic. We have the lock-in effect, so supply stays low, but demand isn’t. Remote work has caused a fundamental shift in demand. The average mortgage payment is almost $2100 monthly, which is double what it was two years ago. Some good news is that she doesn’t see this as a bubble and doesn’t think we will see a bust. We won’t see a tsunami of foreclosures as homeowners aren’t over-leveraged. She thinks home prices will increase when the rates steady. She doesn’t foresee the Fed raising rates further, but the geopolitical turmoil is causing other people to take on rates on top of that. When speaking on our rental markets, Wachter mentioned that the average rents are at $1800 a month while home ownership is only $2100. For the first time in our country’s history, we see an extreme burden on the rentals. We need to see stable markets and a stable mortgage system so that when we ease off on interest rates, once that happens, we will see everything start again. She pleaded to “stay alive till 2025.” She doesn’t see much changing until the interest rates come down again and people are comfortable unlocking those “golden handcuffs” of low-interest rates.

A session of particular interest to appraisers was the final break-out session, “The path to a touchless and trusted appraisal.” The speakers on this panel session were Dan Hofacker of Chase, Blane Kezirian of Wells Fargo, Danny Wiley of Freddie Mac, Jacob Williamson of Fannie Mae, and Shawn Telford of CoreLogic as the moderator. Shawn started out by asking everyone what they were currently focusing on to improve valuation quality. Blane started things off by saying that Wells Fargo was focusing on people, products, and processes. They have invested in education and training to ensure folks knew the uses of the valuation products and why they were being asked for that information. They also looked at their suite of products to ensure the right ones were being used in the right situation and not always deferring to the lowest common denominator. Jake mentioned how much Fannie Mae had focused on the Appraiser Diversity Initiative, including the support of $5M from Wells Fargo, $3M from Chase, and $1M from Flagstar, which they have used to train new appraisers. They are also looking at the program through a different lens and have focused on incentivizing supervisors to take on trainees through stipends and supplementation. Dan mentioned how Chase is focusing on quality, efficiency, and trust. They want the appraisals to speak about the property, not the people. They have built out a repository of words and phrases to be aware of. They have also embraced AI and photo recognition. These tools have been used for a while in disaster inspections but are just now starting to be embraced for mortgages. They have also been focusing on appraisal scheduling technology to streamline that process. Danny Wiley, Freddie Mac, mentioned how they have been focusing on computer vision, language AI, and condition ratings, getting better accuracy, better fairness, and getting the right people in the right place with the right controls. Jake Williamson jumped in and mentioned that they are making sure the AI understands the uses of all language and not just blindly accepting it. He mentioned a case where the AI flagged the use of “Asian,” but the appraiser was talking about the Asian Pear trees producing fruit on the property. They are working to eliminate these issues in their system.

The speakers then turned their focus to valuation. Wiley and Williamson discussed the different valuation options that they were allowing. Wiley mentioned the reason they are changing the system is that even though things are slow in the market now, they are building for a future. They have an obligation to pursue things that increase transparency and equity. We are looking at affordability, which is at a 30-year low. We are looking at how we can lower the cost for the direct consumer. He reminded everyone that they are in the risk mitigation business, not the risk elimination business. They are not comparing the new processes to perfection. They are being compared to the original appraisal process. Since 2018, ACE has saved $2.1 billion in closing costs, and on average, people are closing 15 days earlier. Performance is on par with appraisal. Williamson discussed the scalability of these products. Currently, only 2% of home loans are eligible for VA+PD, but in the future, they would like to get that number to 10%. Existing options for use are pretty contained, but they would like to expand those to other options with a higher LTV. They are working closely with FHFA on how to handle the risk associated with that—things like accuracy, condition, default risk, fair lending, and city vs rural. Data structures on these options are changing. He asked, if we deviate from appraisals, where does the data come from to implement the other options? Wiley discussed some of the hybrid options and how the combining of data sets from Fannie Mae and Freddie Mac is making this a more viable option. All these technology options are required to use ANSI standards, and there have been adopted data standards and independence requirements for all property data collectors. There will be detailed training requirements and background checks. Eventually, through technology, we may get to a place where we don’t need humans to collect the data at all.

In conclusion, there are a lot of changes happening in the valuation industry. It is very important for appraisers to know what’s going on. We encourage all our readers to attend conferences like this to stay in touch and to see the total picture of what is happening in the mortgage industry.

Mark Buhler

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