MReport June 2022

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62 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST GOVERNMENT Report: Appraisal Modernization Equals Profits Here's why the digitization of appraisal data through the Uniform Appraisal Dataset and the Uniform Collateral Data Portal changed the way we think about collateral risk management, enabling new risk- based, data-centric approaches. T ime and time again, proverbs across time and cultures tell a tale of a protagonist who refused to get with the times by refusing to accept modern ways of doing business or new technologies. However, according to Fan- nie Mae's Economic & Strategic Research Group (ESR) appraisal modernization could affect your profits depending on the speed at which it is adopted. Continuing a quarterly survey of mortgage executives that ini- tially started in 2014, Fannie Mae has published its latest Mortgage Lender Sentiment Survey for the first quarter of 2022 finding that lenders see considerable value in modernization. The survey, which was conducted during the first two weeks of February polling 200 senior executives, intends to assess their views and outlooks across varied dimensions of the mortgage market. The 200 executives rep- resent 188 institutions, of which 83 were non-depository mortgage banks, 62 depository institutions, and 40 credit unions. As a whole, the survey revealed that nearly all lenders surveyed believe that appraisal moderniza- tion is valuable to the mortgage industry and that Collateral Underwriter (CU) and other third-party tools have been help- ful in managing collateral risk. Lenders identified inspection- based appraisal waivers and non-traditional appraisals (desktop appraisals or hybrid appraisals) as the most beneficial areas to adopt. As a whole, 94% of respondents say modernization is valuable, while 61% say it is "very valuable." Thirty-two percent say inspection-based appraisal waivers are the most important adoption when considering speed, then in- tegration with LOS (loan origina- tion systems). Thirty percent say non-traditional appraisals (such as desktop appraisals or hybrid appraisals) are the key to speeding up the process. The biggest reported benefit to modernization was shortening the loan origination time, but even then, that is hampered by the lack of industrywide adoption. Respondents ranked appraisal modernization as third on their list of priority upgrade. The most popular (40%) area of modern- ization was consumer facing allowing the applicant to submit documents, sign disclosures, and monitor their status during appli- cation process. The second most popular area (39%) of moderniza- tion was e-mortgages. Placing third was modernization (29%) which entails appraisal modern- ization technology, tools, and pro- cesses (new or updated software, adapting internal processes to take advantage of new options such as desktop appraisals). "Appraisal costs and turn- around times have gone up considerably while UCDP valuation feedback has declined," one anonymous appraiser was quoted as saying. "This points to inefficiency that needs to be addressed. AUD feedback should allow for more appraisal waivers and AVM valuation instead of full appraisals." Another was quoted as saying, "Currently, the appraisal pro- cess is the biggest issue facing the mortgage industry. It causes significant delays, higher costs (due to involvement of AMCs, and there are fewer experienced practitioners that understand more complex collateral assignments)." Those against moderniza- tion in the survey cited different standards from municipality-to- municipality and increased fraud as reasons against it. But by far, the largest amount (59%) of respondents modernized to shorten the loan cycle time in appraisal modernization. The Innovation Challenge is part of Fannie Mae's Sustainable Communities Partnership and Innovation initiative, which fo- cuses on developing collaborative, cross-sector approaches to advanc- ing sustainable communities. IC22 will award contracts to organizations, companies, and individuals implementing or scal- ing projects that remove barriers currently preventing many house- holds, including Black households, from purchasing or renting a home. "Advancing greater equity in housing is rooted in Fannie Mae's mission and integral to our envi- ronmental, social, and governance strategy," Evans said. "We are excited to collaborate with new partners to source innovative ideas that help underrepresented populations find quality, afford- able, stable places to call home." The Call for Ideas window will be open through June 17, 2022. Fannie Mae encourages propos- als that respond to the following questions: • How will you address the insufficient supply of quality affordable housing options by creating, preserving, or increasing the availability of affordable homes to purchase or rent in sustainable commu- nities for very low-, low-, and moderate-income borrowers and renters? • How will you address insuf- ficient funds for security deposits, down payments, closing costs, and reserves for unexpected costs related to renting or purchasing a home? • How will you address the obstacles faced by many households, including Black households, of low credit scores and credit invisibility? Proposals will be evaluated against a predetermined set of criteria set forth in the Call for Ideas and will go through mul- tiple rounds of review, including a semi-final review by an Expert Advisory Panel comprised of leaders from public, private, and nonprofit sectors. Fannie Mae will make final contract decisions.

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