The HVCC is nigh upon us. What will your Mortgage Broker clients do?
Will they roll over and die? Will they quit the business? Will they all submit employment applications to direct lenders so they can work on salary? Will they file a lawsuit to try and halt the HVCC?
Some of them may choose one of the above, but I'm betting that many of them will choose "none of the above". The incentives for a productive loan originator are substantial; and let's be real here - many of them have no viable options outside of what they're already doing.
What about the direct lenders? Are they all going to close their wholesale lines and migrate to a retail-only loan production programs? Again, some will but many of them will try to avoid it if they can figure out a way to do so. After all, hiring and employing a loan production staff involves a lot of work and a lot of overhead. These are costs that are difficult to justify even when volumes are high - and can easily gut the bottom line volumes are down. There's a lot of work involved in trying to constantly balance capacity with demand. All else being comparable (which is not the same thing as being equal), it's more cost effective to run a wholesale line where they only pay on what they fund.
Okay, so the HVCC doesn't necessarily have to result in the demise of the wholesale production lines at these lenders. What does that mean to fee appraisers?
In a word - opportunity.Depending on how fee appraisers choose to approach new environment we may be looking at the beginning of a new market niche for residential appraisers. The effects of the HVCC are ostensibly intended to remove the loan originators from the mortgage lending appraisal engagement loop. However, just because these loan originators lose control of the appraisal doesn't mean they have to lose control over their borrower. It only means they won't be able to know in advance whether their loan package will fund. They have to build their package, submit it to their target lender, and wait for the lender's appraisal to be completed before the collateral value is "known."
What's tough about this for the loan originators is that they have to put out the same amount of time and effort to build the loan package without having any idea whether there's any equity or what program will best suit the borrower+collateral combo in that deal.
Unless....
They get their own valuation that's specific to their decision making process. This is a completely different type of intended use than what we assert for mortgage lending appraisal assignments. A loan originator won't be seeking an appraisal that will actually be used to underwrite the loan; they'll be seeking an appraisal to help them decide whether to spend their time and resources to build a wholesale loan package, how to price that loan application, and what programs would best fit their situation. When compared to an appraisal that is intended to be used to actually underwrite a lending decision, this pre-loan package appraisal involves very little risk to the loan originator - all that is at stake is the time and overhead it costs them to build and submit a loan package, not the collateral of the loan itself.
Now these loan originators have options when it comes to the "valuations" they will use. Some will obviously decide to go commando and fore go all valuations; some will go with AVMs, some will go with BPOs. These all present varying degrees of reliability that will detract from their odds of successfully landing the big fish. Some loan originators will choose to roll the dice and go with a less reliable "guess". But some loan originators may be open to increasing their odds. They might consider obtaining an appraisal from a competent local appraiser, including those appraisers with whom they already have relationships. Like you.
To be sure, the appraisals they would use under these circumstances don't necessarily have to be just like the appraisals you'd prepare for a direct lender. After all, the intended users are different as are the intended uses of these appraisals. Appraisers may end up offering their MB clients several different appraisal types depending on the situation. Perhaps they'll start out with a "desktop" appraisal that doesn't involve a physical inspection; or go to an exterior-only scope of work, or for the real complicated situations maybe it's worth their while to get an interior/exterior appraisal. Perhaps if things look marginal they can defer the cost of obtaining the more comprehensive appraisal to their borrower - after all, the chances of having to rebut the lender's appraisal with an MB appraisal of similar or better quality would probably be higher.
Report requirements would also be a lot different, too.These MBs probably don't need a detailed market analysis or a diagram of the improvements or location maps or lengthy narrative explanations. We're talking about single use/single user assignments where the conclusions may be the thing rather than all the supporting documentation that a direct lender would require. Think in terms of Restricted Use Appraisal Reports rather than Fannie's "Summary Appraisal Report - Form 1004".
For starters, most of these MBs probably have no use for an appraisal reported on a Fannie form of any type.They probably don't need gridded comps or quantified analyses protocols that involve making line item adjustments. They probably don't even need single point value conclusions. You may end up keeping all your data and analyses in your workfile and only state your conclusions in your report.
Anyways, if there is a niche to build, fee appraisers will have to step away from the rigid Fannie mindset and try to tailor what they're doing to what these MB clients really need to make an informed decision. Trying to sell them too much may backfire on you, but but not doing enough to cause you a lot of problems too. Rather than hitting these MBs with "this is how much I charge to do the same old thing", appraisers will have to engage in a little Q&A with these clients to identify exactly what they do and don't need so as to build the better mousetrap for that one client's use. This is not a job for junior form monkeys; it's a process that will require the savvy of a skilled and knowledgeable professional - one who both understands the minimum requirements as well as how to render a cost effective and meaningful work product. To be sure, not every appraiser out there has what it takes to make something like this work for them.
In summary, I'm sure that some appraisers have already decided that the MB relationships they have built over all these years will evaporate with the HVCC.But I'm also sure that some appraisers can actually strengthen those relationships and make them even more profitable by stepping away from the Fannie model and building an MB-centric appraisal product that is specific to the actual needs of a loan originator - sans any unethical assignment conditions that may/may not have prevailed in the past. It requires an adaptation on the part of the appraiser, but with just a little imagination it can be an easy transition. This market niche probably won't be big enough to replace the business lost to the AMCs but it might take some of the sting out of it.
It's something to consider, anyway.
Author: George Hatch - [email protected] See a prior Appraisal Scoop article and Free 1004 MC Excel spreadsheet from George - click here.
Recent Comments