Magazine article Mortgage Banking

How Technology Is Transforming Appraisals: Lenders Have Come a Long Way in How They Order and Obtain Appraisals for Commercial Real Estate

Magazine article Mortgage Banking

How Technology Is Transforming Appraisals: Lenders Have Come a Long Way in How They Order and Obtain Appraisals for Commercial Real Estate

Article excerpt

Like most industries, financial institutions have long relied on technology to increase efficiency and profitability. But even today, many of their processes are far from fully automated. [paragraph] Chief information officers might hope for a day when their respective institutions have integrated technology in all aspects of their operations--but what precisely would that look like? [paragraph] A review of the mortgage lending industry's current state reveals the types of technology of utmost importance and indicates the technological improvements needed for what's currently in use to move closer to the ideal. [paragraph] This article narrows its focus to a particular slice of the business where technology could be of tremendous additional help--in the appraisal of real estate for mortgage lending. This segment of the business offers a great example of how technology improvements could greatly enhance operational efficiency. [paragraph] For banks today, the steady increase in commercial mortgage originations represents a source of pressure in terms of timely turnaround and efficiency. Commercial and multifamily originations may have plummeted during the prolonged economic malaise that began in 2008, but they began increasing in earnest in the second quarter of 2010 as credit requirements started to loosen and the economy expanded (see Figure 1).

Commercial mortgage issuance has increased measurably, once again putting pressure on lenders and appraisers to process appraisals more efficiently.

The expanding economy, lower unemployment and low interest rates have all contributed to a nationwide increase in real estate investment. With the increased competition for assets has come some of the same pressure that occurred before the last origination peak in the second quarter of 2007.

While there are similarities with the previous origination build-up, the current market backdrop for lenders looks different. Increased regulations are requiring more oversight over loan portfolios. This poses a real challenge as the data submitted by some appraisers is frequently in unusable formats and not easily manipulated.

Lenders face higher costs for compliance, which only has become more burdensome as the federal government seeks to impose more controls over the lending process. Lenders and appraisers need a solution that allows them to compare their data quickly with the market, from the content of the appraisal to valuations across portfolios.

Just when it seems as if the dust is about to settle, technological demands are forcing change once again.

To lend on real estate collateral, banks, appraisers and other key industry players necessarily operate within an intricate workflow in their lending and appraisal practices. Much of this complex, multistep process was shaped a while ago by the passage of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) in 1989.

Yet, change is again coming for the mortgage lending and appraisal industry. This time, advances in financial information technology, not federal legislation, are fundamentally changing the way banks and appraisers approach their day-to-day lending activities.

Industry veterans are asking how technology will change day-to-day mortgage lending activities, including workflow management of the appraisal process. To understand what the future might hold, it helps to begin with an examination of the workflow practices of yesterday, today and tomorrow when it comes to obtaining an appraisal. If we can map out where we need to go (and where we've come from)--it could help us all get to a better process in the future.

The following sections provide processes and procedures that apply to how appraisals are done for commercial mortgage loans.

Requesting the appraisal

The following processes and procedures apply to how appraisals are done for commercial mortgage loans. …

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