Earlier this year, to the widespread relief of the credit union industry, the National Credit Union Administration (NCUA) increased the residential appraisal requirement from $250,000 to $400,000. Interestingly, at the same time, the NCUA also passed a separate interim rule that temporarily allowed credit unions to defer appraisals of all properties for up to 120 days after closing of the loan.
Many in the industry might have simply overlooked this temporary rule and assumed it was nothing more than NCUA offering some flexibility during the Covid-19 pandemic. Instead, this is just one of the many indications that the appraisal industry is rapidly changing as regulators are loosening the once-stringent requirements around in person appraisals. More importantly, credit unions should recognize the value that a digitized appraisal process will provide both their internal loan processes and their members’ experiences.
It is widely acknowledged that the mortgage industry is rapidly shifting towards a fully digital mortgage experience. The appraisal, often one of the lengthiest and costly components of the loan cycle, is key in this endeavor. Mortgage lenders – and borrowers – today are demanding faster appraisals and fewer compliance requirements in an effort to speed up the often arduous appraisal process. There are a handful of fintechs innovating in this space to make both desktop appraisals and automated valuation models a reality. In a nutshell, if the appraisal can be automated, then the journey towards the one click digital mortgage will be quickly realized.
Many lenders understand the value that automated appraisals will provide for their internal operations. Particularly smaller credit unions in more distant regions of the country will benefit from not having to wait for the one or two appraisers in their area to become available before an appraisal can be completed. Additionally, lenders will be able to reallocate internal resources away from the labor intensive appraisal management process towards more valuable tasks.
However there are also a number of benefits that automated appraisals will provide home buyers as well, which is partially why member-focused credit unions should push for this change.
First, and perhaps most obviously, borrowers will no longer have to wait for weeks for the appraisal to come back to the bank. Loan officers in particular understand that this period of time is frustrating for borrowers as the entire loan process effectively goes on hold until the appraisal is completed. Additionally, the current appraisal process often lacks transparency, so borrowers are often in the dark about what’s going on.
Second, with access to accurate, digital data on various properties, homeowners will potentially be able to check in on the value of their home instantly. The countless people who Google their home daily to see if it has appreciated will finally have a reliable source of information about their most prized possession.
Third, in the same vein, because both credit unions and their members will have an ongoing accurate valuation of the home, both parties will be better informed as to when is a good time to refinance or seek a home equity line of credit. Among other things, both of these transactions rely heavily on the current value of the property. With the ability to automatically access the appreciation or depreciation of a given residence, both parties will be able to make better decisions.
There is no doubt that change often comes slowly in the mortgage industry. This may be even more applicable to the credit union industry specifically. However, over the past several years both credit unions and the relevant regulatory agencies have recognized that the existing laws and rules around the current appraisal process are restrictive and stifle any innovation within the space. Over the next several years, expect this trend to accelerate as more allowances are made for non-traditional appraisal methods. As this happens, all savvy credit unions should be there to capitalize for both themselves and their members.