Gain insight to:
- Why appraisal modernization is needed in today's market
- Lender considerations for a successful rollout
- What are the results?
Announcer (
For our next case study, sponsored by Clear Capital, please welcome Kevin Chen of Clear Capital and Rachel Robinson of Rocket Mortgage.
Kevin Chen (
Hello.
Rachel Robinson (
Hello.
Kevin Chen (
Put my little water down here. Hey, Rachel. Hi. How's it going?
Rachel Robinson (
It is going. Yeah, it is Vegas. what is the Westgate? Amazing.
Kevin Chen (
We are here to talk about the riveting sexy topic of appraisal and when we looked at this for the idea of a case study when I think about case studies, it is always been short sort of three months of testing and we see how it worked and more of a short burst of things. But for appraisal modernization, this case study really is more of like a long term test drive. When you have a car for three years and then you write your review three years later. That is really kind of where we were at because this has been something that Rocket Mortgage, I think has been leading the way on and working together with us. So, we started this three years ago or so now and of course at that time we did not know that Covid was coming. Did not know that we had this incredible year, last year lots of demand. But, what made you initially start exploring appraisal modernization? And then how has that changed now that the market has changed in terms of its importance?
Rachel Robinson (
Yeah. Well, it is a great question, Keenan. First of all, thank you so much for the opportunity to be here. I am Rachel Robinson. I am the director of collateral policy for Racket Mortgage and have the pleasure of working with Keenan and Clear Capital on, some of these new programs and products. And so, I think initially it was more just around this fundamental question of, Wow, we have been doing an appraisal the same way for a real long time and perhaps there is some opportunity to improve this a little bit, right? clipboards tape measures felt like maybe we could get a little upgraded there. So I think it just was an initial concept of, okay, there is gotta be a better way to do this. But then as we got into last year and challenges with volume and fulfilling appraisal orders, I mean, many of us felt the pain of the six to nine weeks before we can get that back and that'll be $8,000.
(
Thank you very much. So, that is a real problem when you have volume issues. We are in a different market now and so you might say, things are better and we can, we have faster turn times. And so that would be a very short term view because the reality is this workforce of appraisers is aging, and we are getting very close to the vast majority of them retiring with little to no backfill. So if we do not solve this problem of making sure that we have enough people that can complete the valuation skillset portion of the appraisal, and then helping to build out the workforce that can do the process of actually collecting the data, bifurcating that into two different workforces, we will find ourselves back in a similar world of hurt. So, it is basically a necessity at this point.
Kevin Chen (
So and we saw some of those initial challenges, a few years ago when we realized that, we did a time study and realized that we were seeing appraisers spend 30, 40 hours a month just driving in their car and not actually working on the appraisal itself. And so from a capacity standpoint, there is been I think arguments around are there enough appraisers or not or is it a capacity issue? And the question seems like it is that the answer is both, right? It is both a capacity issue as well as a number of appraisers available. But, let us talk a little bit about today is market, right? And some of the benefits and things that you are looking for to have a competitive edge especially when it comes to borrower certainty, right? We re in a purchase driven market. Now, what is important when it comes to certainty for the borrower?
Rachel Robinson (
Well I think it is probably obvious that the value component is the big question mark at the beginning of the process, right? We have gotten real good at being able to understand income and assets and credit and having certainty in the approval of the human and where they fall on the scale of, is this loan gonna work, right? But the valuation piece of it still tends to have a lot of question marks, right? And so when you think about a purchase transaction, yes the borrower cares but so does the seller so does the realtor. There is a lot of moving pieces in these transactions, right? And so, what we hear from realtors is, yes, we need to meet the closing date. That is important but what is even more of a challenge is finding out that a value came in low in the 11th hour.
(
The sooner you can know the answer to that question the less stress it causes this situation, it is already a stressful situation, right? Nobody wants the value to come in. Well, it is not the goal, right? However, when it happens we need to renegotiate and it is a better conversation to have that at the beginning versus boxes packed, moving trucks trying to figure out where the kids are, right? It is just a real busy time, so I think it is helpful in interacting with the realtor community, all of that helps bring certainty sooner in the process and just makes us smoother transaction, we know with hybrids and with inspection based waivers which we will talk about in a minute, that we in general can get those reports and complet it faster and get certainty on that value faster.
Kevin Chen (
Yeah. So let us hone in on that because appraisal modernization is more than just any one particular product or one particular thing. It is this idea of number one u utilizing a risk based spectrum of options when it comes to appraisal. We have been in a world where there is been a binary set of options for either you get an appraisal waiver or you go through the traditional process. And where I think it is clear that things are moving with the leadership of the GSEs is, the idea that there is multiple options based on risk available. One of those being the idea of an inspection based waiver which is where an a non appraiser is actually doing the data collection but you already have value certainty.
(
So you have your waiver as you would have today. So you are good on the value but someone still needs to go and collect data from the home and they are using technology to do that. So it is not someone with a clipboard and a tape measure. It is someone utilizing a mobile device and actually collecting the home in a digital format and bringing it back. So, this has been of course in test and learn for a few years, but just recently Freddie Mac actually brought this type of product to policy. It is the ACE plus PDR program. Let us talk about that a little bit. What does that mean for the way that you look at things in terms of appraisal?
Rachel Robinson (
Yeah, it is interesting. I think Thelen community is very familiar with the concept of a waiver. And it is a great tool to leverage because it gets us to that speed to certainty that helps really just smooth the transaction out from a from a collateral perspective. And when you think about the longevity of being able to offer those waivers we can understand for the most part what is happening in market trends and pricing. But what we do not always understand is what is happening with the condition of the property and the consistency of the condition in the community and all of those things inform the value, right? And so if we wanna live in a space where we were continuing to leverage waivers where they make sense, the way we have to do that is continuing to collect data around the property condition. And so that information is gonna continue to feed those models and perpetuate the longevity of being able to use waivers and expand the usage of waivers into the future.
Kevin Chen (
So this is a different thing sending a non appraiser to the house. Let us talk about some of the challenges for adoption here. First of all, I mean seems like you can not work with your same appraiser workforce. So how do you think about vendor selection and the way you have had to rethink your, who is gonna actually fulfill this product?
Rachel Robinson (
Well it is interesting because there is an appraisal component that you need to think about, right? Because if you are gonna end up being in the hybrid space or the desktop space or you wanna think about being able to have that appraiser workforce. But now we have this other component of well how do we go about collecting the data? And there are multiple apps out there technology that is available to meet the data standards that the GSE is set to collect the data. But it is not just that, right? You need the humans to be able to do it. And I think when we were thinking about vendors it is that scale. It is the ability to accommodate the workflow and make sure that the folks that are interacting with our borrowers are they have their representation of our brand, right too, right?
(
So is that the workforce that is gonna be out there directly interacting? What does that look and feel like? And is it more accommodating to the borrower than maybe thinking about how appraisers have been in the past? Right? Nobody wants to take a day off work to have to like, get the appraisal done. That is not fun, so now thinking about what kind of flexibility does this workforce offer can we do things that are different and meet our borrower where they are at and help make their life easier, all goes into thinking about who our vendors are. Yeah.
Kevin Chen (
This is not Uber drivers than talking
Rachel Robinson (
About it is not Uber drivers.
Kevin Chen (
These are actually certified trained people that know what they are doing.
Rachel Robinson (
That is correct. And competency is a must.
Kevin Chen (
So in this current market, I mean every deal counts and change is still difficult, right? We were talking earlier about how just fill in the name of the group of people, appraisers real estate agents the sales force or loan officers. No one likes change and it is hard to get people especially large groups of peoples to change and do something different. So how what is important to think about when it comes to someone utilizing a product that's different that might get the blame if the deal goes badly. So how do you think about that?
Rachel Robinson (
Well, it is funny because I think about it from a risk perspective. So I am the one staring at the data and all of that great stuff, but that does not always speak right? When people are comfortable with what they know because they know when it goes wrong. They know how to control that outcome, right? And so I think transparency into how everything is working it takes education. Why is not it an appraiser that is coming out to the property and why do we feel okay with that? And it is so critical to make sure when you roll these types of things out that you have the education behind your sales force the workforce that you are working to educate the realtor community, the broker community. So everybody understands what, when, how, why, if you do not and that deal goes wrong or the value comes in low or maybe everything went just fine, but it is not the outcome they are looking for. The first thing that happens is we blame the new situation, right? So it is so important to be able to have a great communication stream and transparency into the process so that everybody who's involved understands what is happening and why and feels comfortable.
Kevin Chen (
Yeah. I love this idea of transparency for this modern approach where, it the way that the scope has been set up for these products is that the data is really digitized. It is not just someone doing some observations in their head or on a couple notes written down. But it seems like the whole property in a way is being brought back to be able to look at and because of that, if you see at least with these different policies we were seeing that there is now a shelf life, right? For this property data report or this property data collection where hey if this could actually be utilized later on to support o other deals. So there is a lot of promise in the fact that there is a transparent data package that can live with this property. So I want to dive into a little bit whether the, I guess whether the results have proved out. So, we are just talking about a property data collection here our property data report and not a full blown appraisal. So what does that mean for the borrower? What are they experiencing differently?
Rachel Robinson (
Well, so when going back to what we were talking about and having that speed to certainty on the valuation, when we have these inspection based waiver type programs what you are seeing is answers on the value, the condition entire collateral package. Actually more and more we are starting to see those results in 24 hours. Wow. Being able to get somebody out to the property to collect the data and get it back in and reviewed is actually a relatively quick process Now, like anything, we have gotta scale this thing out so that we have the workflow and all of that running at a fast clip, but I do not think that we are far away from being able to have this kind kind of value certainty in 24 hours on a repeat basis.
(
That is pretty exciting.
Kevin Chen (
I think you were actually on this stage three years ago and you got asked a question by a president, like what do you think the future of appraisal, what do you want Rachel? What is it that you want? And what was your answer?
Rachel Robinson (
I want certainty on my collateral in 24 hours.
Kevin Chen (
Oh my God. We are we really here? Yeah,
Rachel Robinson (
We're
Kevin Chen (
Here. I mean, I am honestly, I am kind of flabbergasted that we would, this was kind of a coincidence that we ended up here together today. And we have used that as a rally and cry over the past three years when you said that we want same day property approval, we want same day evaluation. We are like, Okay, we are gonna go after this thing. And to see it actually come to fruition where this is now possible. That is pretty incredible.
Rachel Robinson (
Just put it out in the universe. Case
Kevin Chen (
So, I am sorry, I am just rambling in that moment for a second. So let us talk about also the borrower, the cost to the borrower a little bit because, obviously homes continue to appreciate mortgage rates are up right now. Affordability is an important topic. It is what are we talking about here in terms of cost to the borrower types of products
Rachel Robinson (
When we were leveraging an inspection based waiver type of program? Yeah, you are looking at a third of the cost of an appraisal. It is a much better outcome for cost for time and you think about cost from an internal review perspective from underwriting, right? And so when you are collecting a standardized data set and basically the reports look identical we are eliminating this free form text concept, right? It turns into number one, a much faster, easier review for your underwriters. Two revision rates end up really improving dramatically. Cause you are capturing the data the same way over and over. Oftentimes the technology can catch those errors before the submission even happens. And so it is no longer about this, Let me send it to the underwriter. Thanks for paying you for the thing. You are missing these five things. Send it back. Right? And so it is, we see much better revision rates, much better qc, and we see that these reports end up performing similarly when we do end up with a hybrid appraisal to our 10 0 4 appraisals, right? So, from a quality perspective, from a risk perspective everything. In fact, sometimes we see the hybrid reports outperform. So,
Kevin Chen (
Wow. When maybe what is some advice you can give other folks looking to try this out in terms of how do you think about data, right? And measuring success because as you roll these things out, you could have one product in one geographic area, it is not always an apples to apple's comparison, right? So what is some of the mindset, I guess for seeing whether something is working and not just dipping your toe in but going for it.
Rachel Robinson (
Yeah. I think you have to take a market by market approach and I think you have to be thoughtful that this, these types of products work better at scale, right? And so data collections are one component and if you have a workforce that is only doing data collections that works really well, you start to get into the hybrid space. Now you have gotta make sure that your appraiser workforce is doing only those types of appraisals because the last thing you want is somebody completing the valuation at their desk in their office, right? And then heading back out to go do a 10 0 4 traditional prison. Like, it does not work great that way, right? So, market by market, you need to make sure you have the right approach. You also need to be flexible If you do not have the right coverage, maybe that is not the right area to start. You may have to continue to do traditional appraisals by market until you get that scale built up and it is now able to run effectively.
Kevin Chen (
Yeah. Yeah, that is a huge point. The idea of keeping the same type of product and assignment funneled to people so that they can actually stay at their desk it, you lose all of the scale and all of the capacity gains if you have someone kind of doing one or the other. And what we found is that if we can keep an appraiser at their desk into doing the desktop appraisals whether it is part of the hybrid or just desktops, we are seeing four to five times the capacity from an appraiser. We had someone last year doing like a hundred appraisals a month from our desk. So, that means better turn time but also I think consistency, right? So I am gonna ask you a another challenging question, okay. So that when we are on stage, three years from now, we have something that we can actually look back and see if we got there or not. But like what does the next three years look like? What, where do we need to take this thing next to actually really make a lasting difference?
Rachel Robinson (
Well, I think that you touched on it a little bit, right? We talked about having a data package that is reusable and so the time consuming component right now is getting out there and collecting the data. But if we do not need to make that dependent upon the transaction and we can move that up earlier before we have even thought about a mortgage, right? And then reuse that package over and over, now we move to more of an instantaneous approval type of scenario.
Kevin Chen (
So you are no longer happy with same day now? It has to be
Rachel Robinson (
Instant. No, I want instant.
Kevin Chen (
Okay. Well you heard her and we will see if we can pull that off here in the next couple years. But thanks so much for listening. Appreciate it.