PERSON OF THE WEEK: Tim Berners-Lee, the inventor of the World Wide Web, when once queried about data technologies, said, ‘Data is a precious thing and will last longer than the systems themselves.’ This could easily apply to appraisal data for the mortgage banking industry – a precious thing, to be certain, but also a commodity with a history of being misused. To understand how today's appraisal data is being used, MortgageOrb spoke with Phil Huff, CEO of Platinum Data, based in Aliso Viejo, Calif.
Q: Earlier this year, the Appraisal Institute issued a ‘don't shoot the messenger’ plea in regard to declining home values. Do you believe it is fair to say that appraisers are not at fault for problems relating to the housing market's distressed conditions?
Huff: There have been plenty of discussions throughout the last few years as to who's at fault for the housing market's distressed conditions. There's no one segment that's to blame. A lot of folks contributed to the situation that we're in – that includes the rating agencies, the government-sponsored enterprises (GSEs), private investors, originators, mortgage information vendors and, to a degree, appraisers.
It is always dangerous to generalize and state that all individuals in any of these categories were to blame. There are certain unscrupulous ‘professionals’ in all of these categories who share the blame for a good portion of today's distressed housing conditions.
The appraisal segment's actions contributed to the problem, so appraisers need to be included as part of the solution. We need to look at how we can use what we learned from our actions to help ensure that we use the resources available to us – and that includes technology – to help ensure we never have to suffer losses like this again.
Q: How would you categorize the data quality of today's appraisals, and how does it compare to data quality from the pre-2008 period?Â
Huff: Data quality has gone up considerably compared to pre-2008, when speed of loan closing was more important than loan quality. With the introduction of the Uniform Collateral Data Portal (UCDP) and tools that check the appraisal's data before appraisals are submitted to the UCDP, there is no question that we are now seeing better quality data from appraisals.
Q: Did the wave of new regulations that followed the 2008 crash help to improve appraisal data quality, or have these regulations made life more difficult for appraisers to do their work?
Huff: Many of these regulations came about with the intent to enhance the transparency in the appraisal process. With the addition of the UCDP and the requirement to be able to submit the MISMO XML GSE extension to the UCDP, there is now the opportunity to zero-in on the issues surrounding appraisals. So to a degree some of these regulations are helping because lenders are more prudent in their review of appraisals.
Using technology tools to check the data in the appraisal before submitting to the UCDP helps the lenders or appraisal management companies (AMCs) enhance their understanding of what they are submitting to the investors and ensure they protect themselves against repurchase demands. With adoption of regulations ramping up, we see that opportunities are being created with some of these new regulations at the expense of creating some headaches as well.
Q: In your view, does appraisal data quality play any role in the continuing problems relating to mortgage fraud?
Huff: Absolutely. The use of prior appraisal data within appraisals in order to artificially inflate property values is an issue.
For example, by manipulating the living area, proximity to subject or misstating the actual recorded sales price of the subject property, a fraudulent appraised value can be generated. This is why it is imperative for the appraisal data to be reviewed and verified before funding or closing a loan. The bottom line is that it is unwise – in any business situation – to make a decision based on inaccurate data. By tracking the appraisal data that a lender or appraisal management company generates over time, they can put in place a systematic and consistent quality control process that creates confidence in the appraisal data being submitted to investors.