Friday, March 29, 2024 | The Latest Buzz for the Appraisal Industry

Data Analysis and the Fourth Annual International Conference on Housing Risk

At the end of last month, the Fourth Annual International Conference on Housing Risk was held in Washington D.C. The conference, sponsored by AEI and CRN, was teeming with presentations from professionals in lending, valuation and data analysis. Among those professionals was Yanling Mayer, housing researcher for FNC. She joins us with more on her thoughts regarding the conference and the data that’s been gathered regarding housing.

Buzz: Yanling, thank you so much for joining us, could you first tell us how you came to be a part of this profession?

Yanling: Absolutely. Thank you for having me. It’s a pleasure. And thanks for a nice warm-up question.

Before I joined FNC, I was with the global shipping company FedEx’s business and industry-forecasting group, where I focused on industry and macroeconomic analyses.

When I think about it, it is interesting that we all consider FedEx to be this bellwether for the economy, but the strategists and economists in FedEx pay very close attention to the development in the U.S. housing market, looking for its own set of bellwethers.

I was very fortunate that in 2010, FNC’s chief data & analytics officer and co-founder, Bob Dorsey, had an opening for a housing researcher. So here I am, and it has been nothing but enjoyment. It’s an analyst’s dream come true to have so much data and information at their disposal. But, of course, the challenge is to take advantage of all that data and information to better serve our clients in their collateral underwriting process, and to provide good and useful insights to participants in the housing market.

Buzz: Could you give us a summary of your presentation at AEI’s Fourth Annual International Conference on Housing Risk?

Yanling: It is no industry secret that appraised market value of the collateral is often “anchored” at the sales price or higher. Of course, there is a whole array of institutional factors behind that. In fact, one of the distinguished speakers on the panel and Buzz’s very own, Joan Trice, discussed some of the challenges for collateral valuation from that aspect.

What I focused on was the underlying data from actual appraisals (ie: the ways in which comparables are selected and adjusted) as to what was driving the persistency in appraising at or above the sales prices.

Also, I felt the data would bring some clarification regarding some misconceptions about the appraisal profession. I am sure many Buzz readers would recall that during the housing recession, there was no shortage of front-page headlines pointing to low appraisals as impeding a much-needed housing recovery.

But what the data showed was that despite challenges of distressed sales and frequently inadequate comp selections, the number of low appraisals was not that significant. In fact, during the five-year period from 2010-2014 (which witnessed both downturn and recovery) the proportion of low appraisals has stayed relatively the same, at about 10%.

I think given our collective interest in sustained housing prices and homeownership, it often can be too easy for anecdotes on a few “bad” appraisals to distort the facts.

Buzz: What surprises you most about the data that was found?

Yanling: We often hear a lot of narratives about how there are certain pressures surrounding the appraisal process and the fact that prescriptive rules, whether from industry regulations or best practice standards, are in place to ensure the appraisal independence. These are just reminders of how vulnerable the process could become, particularly when confronted with unrestrained risk appetite.

But data is all factual and descriptive, and it will tell a story if there is one. So, that’s what motivated me to turn to our data for clues.

I think one interesting piece of data that emerged was that more-leveraged homes seem, at margin, more likely to be appraised higher. Why is that? I don’t really have an answer right now. It is possible that the leverage effect is picking up the effect of something else, which I didn’t look at. Or, could it be due to certain segments of the housing market, where high-LTV loans dominate, are likely less efficient? These are all interesting questions and deserve some real attention.

It’s an ongoing effort to look into it. I would be very interested if Appraisal Buzz readers have some unique insights to share on the issue.

Buzz: You mentioned in your presentation that you hoped to bring visibility to what’s really going on underneath the appraisal process. Why do you think in the past, that information hasn’t been so easy to find?

Yanling: That’s a great question.

Today’s lenders are increasingly concerned with compliance and valuation risk pertaining to appraisal. Did I mention repurchase risk?

So, I see increased demand in the past few years for appraisal due diligence tools as a key driving factor behind mortgage technology companies, such as FNC and others, offering powerful appraisal review engines, to inform lenders and streamline collateral underwriting.

And a great outcome from all this – give credit to the Uniform Appraisal Dataset (UAD) that sets common appraisal data standards for appraisals submitted to Fannie Mae/Freddie Mac’s Uniform Collateral Data Portal (UCDP) – is that such information from appraisal reports has turned into usable and valuable data like never before, and is only limited by what we could do with it.

Buzz: Was there information from any of the other speaker’s presentations that you found important?

Yanling: The conference was informative, thought provoking, and really challenged us to think beyond the status quo on many housing issues. Many distinguished panelists offered observations and insights into the many facets of managing and sharing housing risk for a better-functioning and more affordable housing market.

In particular, former FHFA director, Edward DeMarco, spoke in great detail envisioning “re-creating” a private capital market for managing the housing risk more efficiently and in greater capacity. One of the items on his list of essential market is concerned with appraisal. He remarked on the importance of collecting meaningful and accurate measures of collateral data as part of information disclosure and transparency to investors in this private secondary mortgage market.

And echoing his views were calls from a number of panelists, from industry as well as academic background, to shrink or eventually phase out the GSEs.

An innovative mortgage instrument that has garnered increasing interest and adoption by the mortgage industry particularly fascinated me. It is called the Wealth Building Home Loan, developed by Stephen Oliner and Ed Pinto at the AEI. This new mortgage product is designed to offer a more prudent and sound way to build equity and homeownership over a 15 or 20-year span. One mortgage banker and panelist shared his bank’s successful experience with the product and I found it to be pretty amazing.

Buzz: Why do you think having presentations like the one’s at the AEI’s Fourth Annual International Conference on Housing Risk are so important?

Yanling: I feel very honored to have been invited to the AEI conference, and to have the opportunity to share some observation on the appraisal process that is more than meets the eye.

In the past, because of data availability and limitations, there hasn’t been much of a close-up look into the value development aspect of the appraisal. I was pleased that I had something to bring to the table, which I hope would contribute to the ongoing dialogues on building a more effective appraisal process in collateral underwriting.

Buzz: What changes to the appraisal process need to occur?

Yanling: The appraisal process in the past few years following the housing fallout has changed greatly and for the better. Lenders are increasingly taking advantage of low-cost, efficient automated appraisal review tools for quality control and risk-minimizing purposes. Today, some of the industry’s leading appraisal review software on the market is capable of providing powerful analytics for compliance and valuation risks.

I think a lot more can be gained from changes that would ensure more objectivity, accuracy, transparency, and confidence in the appraisal process, to which no regulations or dedicated human reviews could realistically address. Maybe these changes could come particularly from the technology side, with the benefits of today’s predicative analytics and data sources.

If I may, I would highly recommend interested Buzz’s readers check out presentations by Ed DeMarco, former director of the FHFA, Ed Pinto, co-director at AEI’s International Center on Housing Risk, and Buzz’s own Joan Trice, for their innovative take on addressing collateral risk and the appraisal process.

Buzz: Yanling Mayer, thank you so much for joining us. If you missed her presentation you can see it, as well as other speakers’, here in the second day’s video.

Have any comments or would you like to submit content of your own? Email comments@appraisalbuzz.com

 

 

Brent Bowen

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