Wednesday, July 29, 2015

Increased Turn Times and Fees Because of Lender Requirements

In 2015, appraisers who do a lot of residential lending work have seen a large influx of requirements that are taking their toll on the industry.  These requirements have cost borrowers, extended turn times, and caused deals to fall through.  Let me explain.

When you do a lot of work in one area, you get a feel for its market.  So when I recently received two assignments in the same area from two different lenders, I noticed something interesting.  Lender A's client specific requirements were less than a page.  Lender B's client specific requirements were 28 pages long!  Putting that into perspective, the report itself could be between 15 and 23 pages.  Lender A's report took about 8 hours to complete which included travel time, data gathering, analysis, and reporting.  Lender B's report is currently at 15 hours spread over 7 days, and it still isn't closed.  Sometimes these requirements are so stringent that it is not possible to complete the assignment.  This directly effects borrowers three ways: they pay more for the appraisal, it puts a tighter squeeze on their time frame, and the deal could fall through due to the strict requirements.  Sometimes it could take me 2 hours just to get a quote back to a client because you have to read through all the requirements and determine if there is sufficient market data for what they are wanting.  I've even had to charge an additional complexity fee for some of the requirements.  
  Three areas I've noticed that are causing these problems are: lenders are mixing conventional and FHA requirements, reviewers not reading the reports and relying on scrubbing software, and the Collateral Underwriter (CU).  The CU is Fannie Mae's portal application that screens all incoming appraisals, and it has been causing problems since it's implementation in January of this year.  Without getting into the details, lender requirements have spiked since the CU has been rolled out.  It is not mandatory to submit to the CU, and I've personally had only 1 run in with it since January.  The other area concerns the type of loan that is applied for. 

Traditionally, if a borrower is pursuing a conventional loan, then the requirements were cut and dry.  Not any more.  The lines are being blurred between Fannie and FHA to the point that appraisers have to use both sets of requirements to complete an assignment.  One of the unintended consequences of this is one set of requirements causes the other to be out of compliance.  For example, Fannie has done away with the line, net, and gross adjustment guideline, but FHA hasn't.  If I'm working on a conventional assignment, I'm not required to comment if these guidelines are exceeded, but if the lender has an additional requirement needing me to comment on line, net, and gross adjustments, then I've got to comment because of the FHA guideline.  This is only one of many instances, but they all cause the assignment to take longer.  Not only that, they cause additional problems for reviewers.

The length of a report varies with the assignment, but recently they have been growing due to all the additional documentation and addenda that we have been adding. This has caused almost all my reports to be delayed between 2-7 days once the report hits the QC or review department.  I can't tell you how many times I get revisions from reviewers asking for comments or information that is already in the report.  This is because QC and reviewers no longer read the reports but rely on software programs to scrub the reports looking for their requirements.   I have one client that has 80% of its revisions kicked back because this, which caused the whole process to be delayed.

In spite of this, there is hope.  I have a handful of clients that receive priority scheduling and lower appraisal fees because they: don't mix lending requirements, keep their loans in house, and have review departments that take their time and read the report which results in almost no revision requests.  These lenders are a pleasure to work for!  I believe these lenders have a fair advantage over its requirement laden competition because the can deliver a quality product quicker.  Does this mean the appraisal that has less requirements is inferior?  Not at all.  An appraisal that is developed and meets one page of requirements is just as accurate as the report that is developed and meets 30 pages of requirements.  

In conclusion, appraisal turn time and fees will likely continue to rise because lenders are demanding more and more out of appraisers, it's simple supply and demand.  The increase in lender requirements, blurring of loan types, unnecessary revision requests, and the CU will also take its toll on the mortgage industry.    While lenders who have concise lending requirements and a QC/review department that actually do their job will enjoy an edge over the competition.  


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