One of the things the CoreLogic valuation team is researching is if the proliferation of appraisal waivers from the GSE’s leads to more complex appraisal assignments. In other words, is it a case of the lesser the complex assignment, the more likely it is that one gets the appraisal waiver?
Intuitively, the experts Valuation Review spoke with said one would think the loans that didn't qualify for a waiver may be those where there is a lack of current and fresh data in the markets. This would result in the waiver models not having enough confidence to offer the waiver and thus indicating the appraisal assignment may take more work than typical for an appraiser to complete.
“Areas that are new, rural, or located in markets with little real estate transfer activity seem likely to not have a waiver and can be the more complex assignments,” CoreLogic Chief Appraiser Shawn Telford told us. “Using CoreLogic’s appraisal complexity score—a measure of the difficulty or complexity of the appraisal assignment—we can see that in certain areas, the complexity score has increased. For reference, nationally, the average complexity score today is 304 on a scale of 0-1000, with 320 as the median, in January 2018 the national average was 288 and median 269.
“In January of 2018, for California, the complexity score was 304; today, it is 356, a 15 percent increase,” Telford added. “For Colorado, the score in January 2018 was 250, and today the score is 299, a 16 percent increase. For the same period, Texas moved from 244 to 254, a 4 percent increase. Arizona, from 233 to 258, a 10 percent increase. We started out in an effort to explain the factors impacting appraisal turn times. Of course, we know the volumes have significantly increased; however, the utilization of waivers is also way up, so we are interested to see if this will be a future where appraisers are doing the more complex assignments.”
Who primarily uses appraisal waivers?
“While most lenders utilize appraisal waivers, there are some that are more risk-averse than others,” CoreLogic Valuations Principal George Paquette said. “Some will only use them when the risk is minimal, while others will take the waiver option every time it is offered. The COVID restrictions and preference likely created an increased willingness to forgo the appraisal.”
Telford emphasized that their research is preliminary, and there are many factors that impact the complexity score, and if valid, this means we may continue to see pressure on turn times and fees—beyond the supply and demand factors of the past year resulting from the historically high mortgage demand.
“It may be appropriate for lenders, AMCs, and all stakeholders to take these factors into consideration as they set expectations with borrowers and internal stakeholders,” he said.
We asked Telford if an appraisal waiver valuation is subject to appraisal review? He said today the process of determining if a loan is eligible for an appraisal waiver is largely a black box, thus, there is a limited understanding of the process behind the curtain.
“We do understand which loan types are eligible; however, how the respective GSEs make the decision about the value of the home is unclear,” Telford said. “The general understanding is they take the owner’s estimate of value or sales price and attempt to confirm its reasonableness using the respective waiver models. Anecdotally, we understand Fannie requires a prior appraisal, while Freddie may not. We also understand there needs to be enough data about the subject and the market in order for the waiver models to work.
“Waivers are essentially an AVM. The output is based on data inputs. As we understand the workflow today, noting that the waiver process is a black box, there is no human analysis or review of the model output for each transaction,” Telford added. “Having a process where an appraiser completes a ‘review’ of the waiver model output is an idea that has been mentioned. The waiver review by an appraiser idea could provide an added layer of confidence in the credibility of the model conclusions at a nominal cost in dollars and time. In the end, any additional transparency would likely lead to a higher level of trust.”