Alternate Reality: What if the GSEs Tried with Appraisers?

While I was at the most recent meeting of the Appraisal Foundation Advisory Council (TAFAC), someone asked me if I was going to write about recent expansions of both appraisal waiver usage and property data collection informed hybrid appraisals.

My first thought was, “what else is there to say?” If it wasn’t clear before that we’d entered a new world of collateral risk assessment, I had little new or novel to offer in the way of perspective. This feeling only grew after a discussion led by representatives of Fannie and Freddie talking through the changes and their strong assurances that appraisals would always be needed. Great talking points, but hollow against a backdrop of further use of alternative collateral risk solutions.

I’m past beating up the messenger – we’ve all got a job to do, and sometimes that job is going out and trying to sell an idea to an audience that is already hostile to what you’re trying to sell. That there was no yelling or finger pointing demonstrates either a robust amount of professionalism by everyone, or tired resignation about the way things are today in AppraiserLand. And let’s be honest, it’s not the decision of these folks to move in this direction – it’s someone way up the chain who sees appraisals and appraisers as friction against an efficient mortgage capital liquidity machine.

But the more I thought about this topic, the more I realized what the real problem has been all along with “appraisal modernization”: It was never framed from the perspective of appraisers in the first place. The language, data fields and values, and processes were all driven by the desires of the GSEs to obtain more consistent collateral data in service of building robust QC and, eventually, collateral risk assessment platforms. The fact that appraisers wind up effectuating these programs is almost accidental to the core idea, and that realization set off a light bulb.

The real problem is that Fannie and Freddie never truly sold this as a benefit to appraisers.

I know, a blasphemous statement considering how anathema it is to consider that UAD, PDC-informed hybrids, and appraisal waivers could be beneficial to practicing appraisers. My point here is not to express the idea that they are helpful, but rather that they could have been positioned as solutions to actual problems confronting the 30,000 or so (and shrinking) appraisers who perform GSE-facing work today.

Start with UAD itself. Rather than allow for diversity of practice around data values and what fields they live in (or as expressed long ago, the “good vs. brick” problem), the GSEs instead provide a standardized set of values for use in specific fields. Consistency goes up and allows for a true apples-to-apples peer comparison and identification of common issues where the GSEs can better educate. Setting side how the UAD data gets subsequently used, this is more beneficial than harmful to practitioners, right? But this wasn’t how UAD was sold at its sui genesis – a missed opportunity to better message major change.

With the new hybrids, the sales pitch should have been simple: Complete more assignments with less runaround, backed by a scope of work that covers off the risk of relying on third party provided information. Instead, this was about solving around the traditional way of appraising with one party doing all the dance steps – seeing appraisers as a problem rather than integral to the solution.

Even appraisal waivers could have been more effectively positioned. Rather than use the limited capacity of the appraiser workforce on non-complex properties purchased by high quality credit risk borrowers, the GSEs instead refocus appraisers on truly complex questions of value – and the typically higher fees associated with that kind of work. Every other occupation has pared down on routine non-complex tasks after all – why not afford appraisers the same benefit? Yet again, though, the messaging has focused on time and cost efficiencies for lenders and the GSEs themselves and not given one whit of attention to messaging to the appraiser workforce.

My core point is this: Like every other business, Fannie and Freddie are entitled to change how they operate with an eye on becoming more efficient for their benefit and the benefit of their customers (yes, even under the interminable conservatorship of the federal government). It’s how they’ve messaged these changes over time that leaves me baffled. If you’re always going to need appraisers doing appraisals, shouldn’t you make even a cursory effort to get buy-in when the universe of assignments will inevitably shrink?

It’s that lack of consideration of the appraiser as a partner that betrays the true ends of the GSEs throughout the “appraisal modernization” process. Partners work collaboratively to make each other’s work lives better and show consideration for how changes will affect the other. (I pause here to acknowledge yes, the GSEs did involve appraisers in the UAD/Forms redesign effort – the extent to which it was truly collaborative versus performative is a decision I leave to you, dear reader.)

Instead, the language and decisions of the GSEs make clear that they see the appraiser as someone tolerated in the near term as they effort to reduce – or eliminate – them over a longer time horizon. While the right things are said on occasion, the long arc of actions and statements indicate something else entirely. That no one at Fannie or Freddie thought to better sell these ideas to appraisers exposes a major blind spot (or willful ignorance) to an audience who, at the very least, deserved a better effort to be wooed.