Trump Shakes Up the Mortgage Industry | Upcoming Changes in the Appraisal Process

The Trump administration has called for substantial changes in the country’s financial and mortgage systems that would affect industry technology, the current regulatory environment and mortgage lending and appraisal processes. The Department of the Treasury released the broad-ranging report last Tuesday, which addresses non-bank financial institutions and industry innovation.

Of particular note, the Treasury recommends Congress consider changes to Title XI of the Financial Institutions Reform, Recovery and Enforcement Act, which governs property appraisals. The report recommends more widely implementing automated or “hybrid” appraisals in lieu of employing appraisers to review properties.

In an automated appraisal, data-analysis software quickly determines a property’s valuation by comparing home sales and other factors.

The report states, “these [automated valuation engines] offer borrowers upside through lower cost originations and faster closings, without sacrificing accuracy.”

There’s been increasing concern in the appraisal industry over what role automated appraisals will play — will they completely replace appraisers, or will they play an auxiliary role?

For homes in subdivisions with identical residences, automated appraisals will undoubtedly play a significant role if they don’t replace appraisers altogether. But the picture becomes fuzzy in neighborhoods with significant variation between houses. Automated models are less likely to provide an accurate valuation when there are few sales of similar homes available.

Joseph Lynch, a certified residential appraiser and owner of Joseph Lynch Appraisal Services, notes, “in general, the more complex the property and market, the less reliable the automated valuation model.”

The appraisal industry is heading toward a shakeup. But how significant the role automated appraisals will play, only time will tell.

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