Emerging Trends in Lending: Real Estate Appraisals for Social Distancing

By David Chiappe, JD., President, SharperLending Mortgage Technology

As a mortgage and financial technology provider for banks, mortgage companies and credit union, SharperLending has never encountered a challenge as all-encompassing as COVID-19 and its impact on lending.  COVID-19 is rapidly changing the way we work with borrowers during the loan process.  Technology is going to have to move rapidly to minimize that impact for both the borrower and financial institution in ways that will hopefully be beneficial even once we are past these challenges. 

It is quickly becoming apparent that technology that promotes social distancing can not only help facilitate lending transactions, but it can do its part in minimizing the spread of COVID-19.

A Common Theme

There is a common theme rising from this pandemic.  Each day, as we learn more, we have more questions.  We look at the shaken-up state of our operations today and we compare it to what we were doing yesterday.  Should we keep doing that?  Is it even possible to keep doing it?   If yes, are we sure?  If not, what can we do differently?  And in this challenging time, we realize our questions are all about how to bring more clarity to tomorrow so we can protect our members, teams and families.

Can Mobile Technology Help Protect the US and Help Lending Business?

Safety and health are top of mind right now, both for people and for businesses.  Thankfully, there are many digital and mobile technology advancements that promote social distancing and streamline transactions, especially at the lending technology level.  From remote notary services, e-signatures, online applications and more, great strides have been made.

But there are some areas of lending that have not benefitted from all these technological advancements to help people stay safe.  One of those is real estate appraisals because traditionally, there has been the need for a homeowner to open their residence up to an appraiser.  This has forced lenders to make tough decisions.  Do we take advantage of the GSE’s appraisal flexibility and only get a Drive-By inspection or Desktop appraisal in lieu of a full appraisal?  Or do we use an automated valuation model, property condition report, or possibly a tax assessed value and forgo and appraisal?  What if there are issues with the property only a closer visual inspection can reveal?

Exterior-Only vs Complete Appraisal Inspections

A simple solution is to not do an interior inspection and rely on a drive-by or exterior only inspection.  Is this a suitable solution and does it provide enough information to make a lending decision or is it just curb appeal?  Shouldn’t you know what the current interior looks like for safe and sound practices to maintain loan quality?  Additionally, these still require a stranger to interact with homeowners while moving around their property. 

Lenders of all kinds must look for alternatives to appraisals that can still provide them with valid first-hand information regarding the current condition of the property and market reporting.   These alternatives need to be more efficient than an appraisal yet provide them with the same type of data while keeping homeowners and appraisers safe. 

Mobile Appraisal Solutions for Complete Appraisal Inspections

Many FinTechs are providing mobile appraisal solutions to lenders, appraisers and homeowners.  These mobile appraisal solutions are web pages or apps on mobile devices that allow lending departments to request that the homeowner collect interior and/or exterior property data – such as photos and descriptions – and then transfer this information to the lender or the appraiser to complete their process.  These mobile appraisal solutions also verify the site/subject property to deter fraud.

Other solutions allow lenders to place a regular appraisal order to their appraiser, and the appraiser can request that the homeowner provide the interior inspection information needed.  The appraiser then gathers this information for their report for completion and submission back to the lender.

The mobile nature of these appraisal solutions promotes social distancing by limiting in-person contact, so appraisers and homeowners stay safe.  And borrowers get their loans.  And loan pipelines keep moving. 

Best Practices: Instant Fraud Prevention

As with any new or emerging trend, the opportunity for fraud is rife.  The proper mobile appraisal solution will combat this right out of the gate, so fraud is easily prevented.  A common situation that may happen is based on the homeowner’s motive: they want their home value to be high, so maybe they fudge a little bit on the pictures they are providing to the appraiser or the lender.  Maybe instead of the kitchen flooring or countertops in their home, they snap a picture of their neighbor’s or family member’s home, or of pictures out of a magazine. 

In a mobile world, how do you prevent this? 

Separate the Photos Taken from the Smart Phone

The best mobile appraisal solutions will deter fraud with mobile app technology and alert the lender instantly.  The best solutions will be mobile apps installed on phones or iPads.  Why?  Because web-based solutions can request that the homeowner take pictures from their phone, and the picture can be manipulated.  A mobile app will separate the phone’s stored photos from the pictures taken within the app.  All pictures taken in the mobile app will have the benefit of geo-location and 3D room validation.

Applying Geo-Location Technology to in-App Photos

Geo-location technology is available on all modern mobile devices connected to the internet. Mobile apps must take advantage of this to prevent fraud.  By separating the phone’s camera roll from photos taken with the app, all photo locations can be tracked down to approximately 2 feet of where the photo was taken.  With this information, the exact location of the picture taken of the property can be plotted on a subject property map to bring assurance that the pictures were taken at the property. 

Utilizing 3D Picture Validation

Another key fraud prevention feature that apps need to utilize to be a first-class offering is to scan and validate the depth of a room.  This will prevent against the so-called “taking a picture of a picture” which always has a 2-dimensional outcome.  When an app applies 3D room validation to a picture, it verifies that the room has a third dimension, proving that the picture is an authentic first-generation picture of a real room, reducing lending risk, and keeping loan quality high.

Simple and Easy to Use

Validating locations and 3D room scans sounds complicated.  To make this easy on a homeowner or other non-appraiser, these fraud prevention features must be a default function of the app, so they don’t interfere with ease of use, because these mobile appraisal apps must be simple to use.  Ideally, they will walk the user of the app step-by-step through what pictures need to be taken of which room of a property’s interior.  This simple, wizard-like approach helps to round out the first-class offering for mobile appraisal solutions.

The Preferred Mobile Appraisal Solutions

Solutions that offer all these features are going to be any lender’s first-class choice for safe and healthy appraisal practices during the COVID-19 pandemic.  The premium feature set is your starting point for best practices in mobile real estate appraisal solutions that promote health and safety through social distancing. 

These solutions encompass the requirements a financial institution would need to pursue high-quality, complete appraisals for lending departments that keep loan pipelines moving and maintain safety and health for borrowers, homeowners, appraisers, and communities. 

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