Your Mortgage : Should Lenders Opt for On-Line Appraisals?

The nation’s real estate appraisers want home buyers and sellers to get involved in a dispute they’ve just kicked off with major mortgage lenders:

Whether lenders should use electronic databases on home values as substitutes for traditional appraisals performed by real, live human beings.

The appraisers, not surprisingly, want mortgage companies to keep relying on them for property valuations needed for the millions of home loans made every year.

Lenders, by contrast, say they can increasingly come up with “alternative” valuations quicker and far cheaper by accessing on-line tax assessments, multiple listing services, and proprietary resale and appraisal data.

So who’s right? More to the point, should you even care who’s right? After all, appraisals exist to serve the lender’s need for solid collateral to back the mortgage. Why should you care how the lender comes up with the magic number?

Well, you should. For starters, you shell out the money for the appraisal. The bill often comes to $300, $400 or more. Second, the appraisal not only governs the size loan you can get, but could well determine the selling price of the house itself. Big bucks are involved here.

The immediate target of the appraisers’ wrath is a little-publicized but potentially far-reaching organization called the National Property Data Service Work Group (NPDS). The executive committee of NPDS reads like a Who’s Who of American mortgage finance with representatives of Fannie Mae, Freddie Mac, Countrywide Funding, GE Capital Mortgage Insurance, Norwest Mortgage Corp., PMI Mortgage Insurance Co. and Household Mortgage Services. Another 21 large firms are listed as members of the group.

The purpose of the organization, according to its own description, is to form a nonprofit, cooperative “single source” of electronic appraisal, real estate and public records data covering all 50 states. For annual subscription fees, lenders and other participants will be able to tap into a vast data pool of prior appraisals conducted for member lenders, home resale prices, local tax data and other information relevant to making decisions on valuing properties. NPDS is still at the formative stage, having sent out its first letters to potential database suppliers in late July.

The key to the service, say its proponents, will be that most or all of its data will be available on a real-time basis: With the proper software and codes, participants will have virtually instantaneous access to it through a personal computer. Rather than waiting for days--or even weeks--to get appraisal results, lenders should be able to obtain at least rough valuation numbers in minutes on their laptops. The decrease in time, paperwork and physical effort should save everybody money--the consumer and the lender.

So what’s wrong with that? Potentially plenty, says Douglas C. Brown, president of the Appraisal Institute, the industry’s principal professional trade organization.

“If you start limiting the role of the professional who has the expertise to go out and value properties,” Brown says, “then you’re going to get into trouble.”

For example, the all-electronic database envisioned by NPDS wouldn’t pick up short-term environmental or market changes that might drastically reduce a property’s value. Local newspaper readers--and appraisers--might know that underground contamination was discovered near a subdivision and threatened to pollute houses’ water supplies, says Brown, but the computer-derived appraisals wouldn’t tell a regional lender about it.

Similarly, argues Brown, a homeowner in a tract who had made extensive improvements far beyond the neighborhood norm--worth tens of thousands of dollars--might be denied a higher sales price “because the (NPDS) machine says, well, the typical house here is worth this amount, and therefore your house is worth the same” for mortgage lending purposes.

Brown and other appraisers concede that NPDS worries them in part because it could cut down sharply on the need for appraisers. “That’s part of it,” he says, “but the fact is that appraisers add real value to the (home financing) process. Consumers and lenders stand to lose that.”

Hogwash, say NPDS members. “Appraisers have nothing to fear,” says Lewis J. Allen of GE Capital Mortgage Insurance Co. “This is going to help them” because much of the information available on-line will be grounded on appraisals contributed by participating lending firms and government agencies. The efficiency and accuracy of everyone in the business--appraisers included--should be improved by pooling huge quantities of currently scattered property appraisal data for quick retrieval and analysis, according to Allen.

“The fact is,” said a prominent mortgage executive who asked not to be identified, “that (traditional) appraisals now cost too much and often don’t tell us a whole lot that we didn’t already know. Making buyers pay $400 for someone just to validate the purchase price is a waste, given the data we already can access electronically.

“Appraisers,” he said, “are going to have to join the move to high-tech, or get run over by it.” Stay tuned.

Distributed by the Washington Post Writers Group .