Two weeks ago, the Federal Housing Administration (FHA) announced that in light of the ongoing COVID-19 coronavirus pandemic, appraisal relief will be extended through the end of 2020 which will allow the continued use of an exterior-only option in order to mitigate the spread of the virus. However, a previously-available desktop-only option was allowed to expire at the end of October.
Appraisal professionals who work in the reverse mortgage industry expect that the exterior-only option will be more valuable to continue conducting business during the affected period, while also sharing that the actual use of the desktop-only option was low enough that its discontinuation will likely make little difference as the nation continues to grapple with COVID-19.
Desktop-only usage rates, impact of expiration
Overall, only a small amount of FHA appraisals used the additional flexibilities handed down by the agency, and of that share only a minor fraction made use of the exterior-only option. This is according to John Dingeman, chief appraiser for Class Valuation based in Troy, Mich.
“In April, at the onset of the pandemic, less than 15% of FHA appraisals were completed using appraisal flexibilities,” Dingeman tells RMD. “Of that subset, the ‘desktop’ option accounted for just 20%. Over time, while the number of appraisals utilizing flexibilities has remained steady, the number of ‘desktops’ have declined to less than 10%.”
The outlook for the use of the desktop option was even lower for national appraisal management company (AMC) the LRES Corporation, according to company president Mark Johnson.
“HECM loans very, very rarely used a desktop [appraisal], and the exterior [were used] virtually never, with maybe a couple of exceptions here and there,” Johnson tells RMD in an interview. “And when I say that, I’m talking about originations there. Sometimes, we have different paths for servicing, depending on the properties which are occupied or not occupied. So, you might do an exterior, so you don’t disturb the occupants. But that’s not really a result of the pandemic. It’s just [due to] workflow.”
Desktop appraisals a ‘non-issue’
In its reasoning for allowing the desktop-only appraisal option to expire, FHA specified that the the decision was largely due to material data indicating that it is not required to continue in pursuit of its original purpose, which was to mitigate the spread of COVID-19 as much as possible. Johnson agrees with that assessment, he says.
“When you look at this – and I spoke to a lot of appraisal professionals – I didn’t fully appreciate why the desktop would even be a viable solution,” he says. “I think exterior is a better solution [under the circumstances]. And actually, when you look at the way HUD and the GSEs ranked and stacked them, they thought desktop was equal to and in certain cases, maybe better than exterior. But, a lot of us in the industry felt like the exteriors are a better solution. So, its impact during the pandemic I would say [has been] marginal at best, and taking [the option] away is a non-issue, in my view.”
Because of the low rate of desktop use, the overall impact of the desktop-only option’s expiration should have a negligible impact on appraisal operations, but there are other factors in play that could make its expiration a bit more complicated for the full continuation of appraisals, he says.
“FHA did not make the ‘desktop’ option available for all assignments, so the overall impact should be minimal. The United States Department of Agriculture (USDA) did not permit the ‘desktop’ flexibility with very little problem—and these are rural areas where the subject property and sales comps are often less proximate to the appraiser’s office and each other.”
Similarly to government-sponsored enterprises (GSEs), FHA identified challenges related to the guidelines within some of the new flexibilities, and how appraisers have been completing their reports, Dingeman says.
“I am sure there [are] a multitude of reasons why FHA would discontinue the use of ‘desktop’ appraisals,” he says. “Similarly, appraisers have challenges, the least of which being how to address MPRs and MPSs without an inspection. Historically, appraisers are much more comfortable completing a traditional appraisal with an interior and exterior inspection rather than a ‘desktop’ or ‘exterior-only.’”
Exterior-only’s sufficiency during COVID-19
“The ‘Exterior-Only’ option should not present any risk to the consumer since the appraiser is making observations from the street (often inside their vehicle) and is not making direct contact,” Dingeman says. “The removal of the ‘desktop’ appraisal will undoubtedly cause some delays, as completing a ‘desktop’ appraisal is faster than an ‘exterior-only’ appraisal. Locating an appraiser who is willing to complete a ‘Desktop’ appraisal is one challenge.”
Removal of the desktop flexibility may potentially streamline the process of getting to an exterior appraisal, he explains.
“Once the appraiser accepts the assignment, the next challenge often comes when we are faced with upgrading to an ‘exterior-only’ or traditional appraisal anyway (due to a lack of information or cooperation from the builder or sales agents),” he says. “Eliminating the ‘desktop’ option may offset these specific reasons for delay.”
The exterior-only option is also perfectly sufficient for accomplishing the goals inherent to social distancing and other virus mitigation guidelines, Johnson says.
“Certainly, speaking as a non-scientist, if we’re trying to promote this concept of social distancing, the exterior by definition does that, and does that well,” he says. “So, I think it certainly would contribute to lessening the likelihood of a problem. I think it’s also interesting because if you look at the entire market, we’ve got the lowest interest rates on record. And I don’t know if you’ve seen this published by Freddie Mac, but the volume of appraisals that the GSEs have published almost doubled in the summer months.”
That doesn’t directly apply to appraisals for HECM loans, but the same appraisers can be used between GSE loans and HECM loans, indicating the possibility of a crossover increase, he says.
“Just the sheer volume of appraisals spiking like that makes everybody much, much busier,” Johnson says. “And so, an exterior inspection generally takes a little bit less time, so there’s a little bit of benefit there to the overall industry. Less time means slightly less money, or maybe perhaps a little bit less of an increase in fees as a result of doing an exterior. So, I think the exteriors [present] a good alternative. It makes sense to continue this until we get our arms around the bigger issue.”
That issue being the pandemic. According to the latest figures as reported by the New York Times, the United States hit a new record of daily infections last Thursday with a rate of 121,000, the largest single-day national total since the pandemic’s official declaration and accompanying emergency as declared by President Donald Trump. Both Wednesday and Thursday recorded new case numbers at or above 100,000.
