Brian Zitin: Appraisals—The Final Frontier in Digital Mortgages
Brian Zitin is Co-Founder and CEO of Reggora, Boston. Reggora is an appraisal technology company that gives mortgage lenders and real estate appraisers two-sided software that streamlines the appraisal process. The firm’s software automates manual processes from automatic order allocation to comprehensive quality control, freeing up time and decreasing costs for both parties.
While not as glorious as space travel, when it comes to achieving the “One-Tap Digital Mortgage,” the appraisal is quite likely the final frontier.
To back up a bit, I recently caught up with mortgage industry expert Rachel Cameron (formerly at Cross Country Mortgage and Union Home) and had a great conversation about the future of mortgage.
One really interesting concept that she brought up to me, that I think is a common misconception, is the difference between the actual time it takes to close a loan versus the time it takes to get approved for a loan.
With the average time to close a mortgage transaction still 40+ days, the experience of a “one-tap” digital mortgage seems distant to most onlookers. In reality, however, the important measure of efficiency is how long a borrower actually spends in the mortgage factory line—in other words, how long it takes to get approved and complete all of the necessary requirements and paperwork before closing.
Why the distinction?
Because for a number of reasons borrowers don’t actually close right when they get approved. If you are a first-time home buyer, you might want to push the closing out so that you close right after your current lease expires. If you are moving to a new home, you likely want to sell your current home first so that you don’t have to pay two mortgages at once.
In fact, a lot of iBuyers and startups such as Opendoor or Redfin are working on business models to reduce this friction by verticalizing this process and combining the purchase, sale and mortgage process all into one.
Regardless, the goal of the mortgage industry is for borrowers to be approved quickly, because that’s what matters for a prospective homebuyer when it comes to peace of mind, staying competitive in regard to an offer and a reduction in overall headaches.
In that vein, there are lenders today that can approve borrowers (depending on the loan and borrower) within 5-10 days, which is amazing. There’s a lot of inequity in this regard, as larger lenders who can spend more on research and development, and work with best in class fintech providers have a huge head start over smaller community or local banks. However, I expect that as off-the-shelf technology continues to improve and become more accessible, this gap between lenders will get smaller and smaller.
So, what is stopping a mortgage from getting approved even faster than 5-10 days? Let’s look at the various criteria that matter:
–Credit score: This one is pretty easy. Most of the systems out there today can get this info on a borrower instantly.
–Income and employment data: A greater number of payroll providers, fintechs and banks are creating robust integrations that allow for the borrower’s information to be automatically verified by the lender based on a few inputted data points. Once again, easy.
–Assets: This one seems to be a bit tougher but similar to the above two. Assets already exist and so one can envision a world where as long as they are registered to a borrower somewhere, integrations can be made to those systems and similarly verified instantly.
Now let’s think about appraisal.
First of all, an appraisal doesn’t already exist. Most borrowers aren’t preemptively getting their own appraisals ahead of a transaction, and even if that were the case, it likely would not be viable because lenders aim to ensure that appraisals are current and completed by a neutral party (no shenanigans, if you know what I mean). For the foreseeable future, appraisals will still be ordered at the time of the loan inquiry in order to maintain appraiser independence and ensure present-day value.
It’s worth noting that there are some initiatives happening in the industry focused on speeding up the appraisal, such as appraisal waivers. The government-sponsored enterprises and other secondary market investors are working on ways to use existing data to create a new, rapid valuation and still feel secure about the value. However, I can tell you that when it comes to widespread application of this across the majority of loans, this still has a long way to go.
With that in mind, in the present day, we still need a new appraisal ordered on most transactions which requires a human to physically inspect the property.
That means there needs to be a coordination of logistics between the lender, an outside third-party appraiser (and sometimes an appraisal management company as well) and the borrower or broker—on millions of loans, all at the same time.
The industry doesn’t do an amazing job at this right now for a variety of reasons, including:
–reliance on legacy technology
–fragmented players (over 70k+ individual appraisers and 100s of AMCs)
–lack of efficient information sharing (calendars, allocation of orders, etc.)
–poor supply/demand matching
In a nutshell, it’s a really hard problem to solve. As a result, the average turn time for an appraisal is certainly more than 5 days (more like 10-15 days, especially during high volume times) across the industry. Once again, for some small number of lenders, this may not be the case but generally speaking, this usually holds true.
Furthermore, most lenders don’t want to order the appraisal until the borrower is already a decent chunk of the way through the process (typically once Intent to Proceed is given) because they don’t want to be on the hook for the appraisal fee in case the deal falls through.
So, as one can see, the appraisal is a huge bottleneck, both now and in the future, to be solved.
We’re excited to be working on solving this problem from both angles (logistics optimization and the actual modernization of the appraisal process itself) because we know that in order to get to the future, we must solve the realities of today.
So, thanks, Rachel, for inspiring the thought process here. I think it’s important for the industry to have a clear distinction and to know that solving these problems is possible if we can all keep our eyes set on the goal and continue to push forward.
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