Will Fintech Transform/Disrupt Appraisals?

Bifurcated appraisals is the “tip of the iceberg” in changes coming to lender appraisals

I recently attended Jeff Bradford’s excellent presentation on coming changes in the type of valuation used in the residential mortgage industry. I also attended a webinar “New Valuation Trends Disrupting the Industry” that focused on the lender side, especially loan originations. Both saw significant changes coming in the next 5-10 years, going from legacy to digital lending that will transformational.

Both used the term “Fintech” regularly.
Here are two definitions “computer programs and other technology used to support or enable banking and financial services” and “fintech is one of the fastest-growing areas for venture capitalists”. I have written about several VC funded appraisal companies in this newsletter, both residential and commercial, working on new ways to make appraisals more efficient.

Both presentations talked about many ways, such as using AI, photos and data to evaluate interior condition, estimating square footage without measuring, “real time” google earth, etc.

I will be writing about both presentations in the next month’s issue of the paid Appraisal Today.

For more info, google Fintech and mortgage lending and/or Fintech and mortgage lending appraisals. FYI, I did not know what fintech referred to and had to google it after the presentations;>

My Bifurcated Opinion

By Joan Trice
Excerpt: A huge effort is underway to Modernize the Appraisal Process and is being driven by FHFA, Fannie Mae and Freddie Mac’s regulator. Modernization is a good thing. I have no doubt many appraisers would love to automate areas of the process that are redundant, manual, or should simply just be excised from the process altogether.

Be sure to check out the 31 comments (as of yesterday morning) at the end…

My comment: Fannie is testing who does the best inspections now. I will be writing about it next month’s paid Appraisal Today. Lots of more possible changes and, more important, what it means for you!!

Re-Evaluating the Traditional Appraisal

Excerpts: Effects of raising the threshold for requiring manual appraisals from $250,000 to $400,000:

According to Collateral Analytics, around 19.4% based on MLS (multiple listing service) sale transactions and about 14.6% based on public records would be impacted by the new proposed guideline. Collateral’s study suggests this slight move to eliminate traditional appraisals, from even a modest subset of residential mortgages, is a baby step toward modernizing the regulation and underwriting process for homebuyers. Without traditional appraisals, automated valuation models (AVM) would still be necessary during the underwriting process, performing the same tasks as humans but processing more data. However, AVMs may not reach the target price lenders may be pressured to achieve.

Most lenders still use traditional evaluation processes, even though 68% of all homes are under $312,500 the typical threshold for a $250,000 mortgage, and eligible for automated appraisal methods combined with inspections on property condition. Eliminating the traditional evaluation will require a fresh look at this issue.

My comment: As we all know, changing the deminimus to $250,000 (transaction amount) around 1990 did not have much effect because the GSEs, FHA and many lenders continued to require human appraisals. Where is the future? No one knows, due to fintech. See above.


How midcentury corporations remade the postwar kitchen

Excerpts: In July 24th, 1959, then-Vice President Richard Nixon and Soviet Premier Nikita Khrushchev got into an argument about women, kitchen appliances, and the American way of life. It wasn’t planned. But it was recorded on film and broadcast in both nations.

Nixon: I want to show you this kitchen. It is like those of our houses in California.
Khrushchev: We have such things.
Nixon: This is our newest model. This is the kind which is built in thousands of units for direct installations in the houses. In America, we like to make life easier for women . . .
Khrushchev: Your capitalistic attitude toward women does not occur under Communism.
Nixon: I think that this attitude towards women is universal. What we want to do is make life more easy for our housewives . . .

Was it in fact a “universal attitude” that Americans and Soviets alike wanted to make life easier for women? Corporations were racing to produce the kinds of products and devices that would lighten the domestic workload for women… In the 1950s and early 1960s, companies unveiled gleaming, efficient dream kitchens to get consumers excited for what was to come. “The future” held robots, automation, style, and ease, but it didn’t promise any changes in domestic gender roles-quite the contrary.

My comments: Very interesting article!! Last week I wrote about The History of Modern Kitchens. This week’s article takes it up the 60s with formica countertops. Today, even very old homes have modern kitchens (Wolf range, expensive countertops, Subzero refrigerators, etc.

How to get referrals from real estate agents – your best source of  non-lender appraisals!!

Real estate agents are sales people and understand about marketing. For them, every person who owns, or wants to own, real estate is a potential client.

Always, always, always mention that you regularly give referrals to real estate agents and that you do non-lender appraisals
Many, or most, agents are not aware of this.

When calling agents, always provide your contact information, and get their info. Provide your name and city at least once, plus your
phone number. Get their preferred phone number and email address to contact them if you have a possible referral. I give out a lot of agent listing referrals.

This article was in the February 2019 newsletter, available to all paid subscribers.
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Krzywy Domek, The Very Crooked Little House of Sopot, Poland

Woops!! I forgot to include this in last week’s newsletter!!

Just For Fun!!

Excerpt: In 2004, the Polish architecture firm Szotynski & Zaleski built a wonderfully illusory building in Sopot, Poland that doesn’t quite look real. The design was based upon whimsical, fairy tale sketches of artist Jan Marcin Szancer and is quite aptly named “Krzywy Domek” or crooked little house. The building’s front facade is made up of crooked lines and distorted shapes that recall childhood cartoons, but the back of the building is a rather standard setup that leads to the main shopping area.

Check out the videos and fotos.

My comment: Fascinating!! I think this is the most crooked house I have ever seen. No photoshopping done on fotos!!

The Famous Dancing House of Prague by Frank Gehry

Another Just for Fun House!!

Excerpts: The building is also affectionately known as “Fred and Ginger” due to its resemblance to a perpetually swaying couple. Like the Crooked House of Sopot, Poland, the unusual lines of the building stand out from the rest of the neighborhood.

Lots of fotos at:

Brief summary of details: http://architectuul.com/architecture/the-dancing-house  Can also google it for lots of background info.

My comments: Take a break from writing up your appraisal reports and Take a Look at the photos!! And be glad you don’t have to appraise a house that looks like this ;>

Be sure to scroll down to the bottom of the post to see photos of Ghery’s other strange buildings!!


Most of America’s Rural Areas Are Doomed to Decline

Since the Great Recession, most of the nation’s rural counties have struggled to recover lost jobs and retain their people.
Excerpt: Economic and population declines among micropolitan and rural areas were especially strong in the Northeast and the Midwest. Eighty-seven percent of the micropolitan counties contracted in the Northeast, as did 85 percent of their rural counties. In the Midwest, 61 percent of the micropolitans contracted, as did 81 percent of the rural counties.

Geographically, a large fraction of the nation is struggling to simply maintain the status quo. Yes, there are many struggling metropolitan regions, but there are many more midsized and rural counties wrestling with decline.

Good analysis and infographics, including different explanations

My comments: I used to recommend rural appraising as there was little competition and reasonable fees. But, since AMCs took over and don’t see much difference between rural properties and suburban tract homes, the fees for rural homes are way too low.

I don’t see how Fintech can help much, AVMs are useless, etc. There is definitely an appraiser shortage now. In a catch 22, some rural states are requesting waivers from the GSEs. So, the most difficult properties to appraise will not have appraisals from licensed appraisers.
HOW TO USE THE NUMBERS BELOW. Appraisals are ordered after the loan application. These numbers tell you the future for the next few weeks. For more information on how they are compiled, go to www.mbaa.org 
Note: I publish a graph of this data every month in my paid monthly newsletter, Appraisal Today. For more information or get a FREE sample issue go to https://www.appraisaltoday.com/products.htm or send an email to info@appraisaltoday.com . Or call 800-839-0227, MTW 7AM to noon, Pacific time.

Mortgage applications decreased 0.6 percent from one week earlier

WASHINGTON, D.C. (May 15, 2019) – Mortgage applications decreased 0.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 10, 2019.

The Market Composite Index, a measure of mortgage loan application volume, decreased 0.6 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 1 percent compared with the previous week. The Refinance Index decreased 1 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 7 percent higher than the same week one year ago.

“Purchase applications declined slightly last week but still remained almost 7 percent higher than a year ago,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Despite the third straight decline in mortgage rates, refinance applications decreased for the fifth time in six weeks, albeit by less than 1 percent.”

Added Kan, “It’s worth watching if ongoing global trade disputes lead to increased anxiety about the economy, which could cause some potential homebuyers to put off their home search until the uncertainty is resolved.”

The refinance share of mortgage activity remained unchanged from the previous week at 37.9 percent of total applications. The adjustable-rate mortgage (ARM) share of activity decreased to 6.3 percent of total applications.

The FHA share of total applications increased to 10.1 percent from 9.5 percent the week prior. The VA share of total applications decreased to 10.6 percent from 11.1 percent the week prior. The USDA share of total applications remained unchanged from 0.6 percent the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) decreased to 4.40 percent from 4.41 percent, with points decreasing to 0.40 from 0.47 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $484,350) decreased to 4.24 percent from 4.27 percent, with points increasing to 0.27 from 0.23 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 4.32 percent from 4.44 percent, with points decreasing to 0.49 from 0.56 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.78 percent from 3.81 percent, with points increasing to 0.43 from 0.42 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The average contract interest rate for 5/1 ARMs decreased to 3.82 percent from 3.88 percent, with points increasing to 0.44 from 0.26 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.

The survey covers over 75 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100.

Ann O’Rourke, MAI, SRA, MBA
Appraiser and Publisher Appraisal Today
2033 Clement Ave. Suite 105
Alameda, CA 94501 Phone 510-865-8041
Fax 510-523-1138
Email   ann@appraisaltoday.com

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