In early September, United Wholesale Mortgage (UWM) (NYSE: UWMC) announced that it would no longer be requiring brokers to use appraisal management companies for their appraisals. Instead, the wholesale lender intends to coordinate appraisals using an in-house committee, called Appraisal Direct, that will connect brokers and appraisers directly for any loan that will be purchased by UWM.
Mat Ishbia, UWM CEO, clarified that this is not a requirement of lenders but is instead an additional option to help speed up the appraisal process by eliminating the appraisal management companies that act as middlemen and gatekeepers. Instead of paying the appraisal management companies to contract with an appraiser, the appraiser would be paid quickly and directly, sweetening the pot even more.
Appraisers and independence requirements
You may not be aware of this, but there was a time, not so long ago, when lenders could simply pick the appraiser they wanted to work with. Usually they had a list, but they tended to stick to the same people time and time again because they knew these folks could get the job done. Then a lot of indiscretions happened in the boom years before the real estate market collapsed in the mid-to-late 2000s. One of the many issues uncovered was that appraisers were being influenced by some lenders and other real estate professionals.
That’s why the appraisal management company came into being in the first place, to help increase the distance between appraisers and those for whom they’re appraising. After all, an appraiser should be independent of the transaction and only appraise a property for what it’s worth, not for what the bank needs it to be in order to make the loan. If a lender is attempting to bribe or intimidate the appraiser, well, that’s not really great for the real estate market overall.
For UWM to be acting as its own appraisal management company is for UWM to be walking a very fine line when it comes to potential regulatory headaches. The potential for abuse is immense, especially with the company holding 35% of the wholesale lending market and with an eye to controlling a third of the overall mortgage market.
Certainly, if Appraisal Direct is given perfect autonomy and there’s a clear delineation between it and the lending part of the business, it could speed up appraisals and help reduce the backlog that’s been created with so much demand for housing. But if it’s not, well, it’s going to be 2005 all over again -- backdoor deals with brokers to get the numbers to work out just right and a risk of blackballing in the industry if they don’t.
The Millionacres bottom line
When taken with the recent announcement that UWM is exploring allowing borrowers to pay their mortgages using cryptocurrency, it’s easy to jump to a couple of different conclusions very quickly. One, UWM has lost control of the ship and everything is chaos and madness, or two, UWM is really looking for ways to innovate and disrupt banking, rather than just saying that.
After all, so many businesses claim they want to disrupt their industries. Usually it’s with their recently color-changed logos or very slightly overhauled websites. UWM, on the other hand, is doing things to directly impact their customers and stay ahead of the competition.
As for UWM loans and the bank working directly with appraisers, well, that’s a sticky wicket. I absolutely understand the sentiment, and if I were an active player in today’s real estate market, I’d certainly want to be able to reach my appraisers more directly. However, I’ve also been an active player in the real estate market when that was still commonplace. While it helped me as an agent, it did not help the market overall.
I mean, it helped the real estate market overheat, and it helped the real estate market sell houses that should have been underwater. And in a climate where above-full-price offers are common, I imagine having an appraiser or a dozen in your pocket would certainly help more of the numbers work out.
I’m not saying this is the goal for UWM at all, but as it is a wholesaler and not a direct lender, it has very little control over what those brokers who sell its loans do. They could use this Appraisal Direct process for good, speeding loans along and making sure appraisers get paid what they’re worth, or for evil, ultimately inflating local markets to the point that everything is set to pop (again).
Appraisal Direct is either innovation or destruction, I don’t think there’s any other option … but with so many regulatory measures in place since the Great Recession, hopefully the bad players will be minimal and the impact will be positive for real estate buyers everywhere.