A Portal to a Better Appraisal System
The appraisal process has traditionally consisted of a mix of art and science. With the help of standardized data, that’s changing.
A home’s value is based on the age-old fundamentals: location, location, location. Increasingly, it’s also about data.
While the financial industry has always excelled at number crunching, appraising a house has traditionally involved as much art as science.
Until now. At long last, the housing appraisal process is getting its data fix, with the creation of the Uniform Collateral Data Portal (UCDP). This is the newest initiative by Fannie Mae and Freddie Mac, two of the largest institutions that help people finance their home purchase, to implement standardization across the lending industry.
The portal takes aim at the lack of consistency and efficiency in the appraisal process by providing a single entry point for standardized electronic appraisal data. The system represents a data-fueled leap forward for a traditionally cumbersome piece of the lending process.
“The appraisal piece, in my mind, has always been one of the last frontiers,” says Rob Reider, director of technology account management at Fannie Mae. “This has a dramatic and significant impact on the industry.”
An Appraisal With Integrity
A hallmark of the appraisal submission form is a set of predefined fields with standardized definitions — known as the Uniform Appraisal Dataset (UAD). For example, you may use the words “updated” and “remodeled” interchangeably in casual conversation. But the terms carry very distinct meanings in the appraisal process, since remodeling involves a structural change to the property that could have a bigger impact on its value.
When the homeowner describes the improvements they made to their home, the appraiser can cross-reference the standard definitions and decide whether it has been remodeled or updated. Since the standards for reporting are backed by data, the homeowner, lender and appraiser are all working from the same playbook.
“The portal provides consistency in the appraisal process and reporting of appraisal results,” says Dawn Molitor-Gennrich, a certified appraiser and co-owner of Heyn, Molitor-Gennrich LLC, which develops appraisal-related education material.
A More Efficient Ecosystem
In one sense, the portal is like a tollbooth, with UAD standards acting as payment. After the appraiser uploads a submission form to the portal, Fannie Mae checks for data integrity. If certain data fields are missing or inconsistent, the appraisal will be flagged before the process can move forward. Appraisal reports must meet minimum UAD standards to pass through the portal without future consequences.
Once the appraisal request is submitted and completed, with all flagged items addressed, lenders have the comfort of knowing the report meets the UAD standards.
The portal is already helping to catch appraisal reports that don’t meet industry standards, says Molitor-Gennrich. She even suggested that if the system had been in place a decade ago, many of the over-inflated appraisals “likely would have been caught when the market was escalating.”
By streamlining the appraisal process, the portal is benefitting the whole housing ecosystem, enabling lenders to more quickly analyze collateral and other factors.
The time lenders and appraisers spend reconciling is already decreasing.
“We’re able to analyze data and actually provide data back to our customers that will help them in their underwriting of the collateral,” says Reider. “It helps us manage risk.”
Now that a data-driven approach has been introduced to the appraisal process, he adds, that could “open a lot of doors” for even more efficiency gains in mortgage lending.
Finally, data consistency helps ensure that appraisal information will be more complete, improving the credibility of the appraisal report. This all has the potential to translate into improved terms for the borrower.
“There’s a better appraisal being done on the property due to standardization,” says Reider. “And if lenders can be more efficient in writing collateral, there will hopefully be a trickle-down in cost savings to the consumer.”