So-are we headed towards extinction – or are the best times just around the corner?

I recently attended two difference conferences and the view each painted about the future of the appraisal profession could not have been more diametrically opposed.  Let me tell you what I learned at each one and then let’s talk a bit about which one we believe was right.

The Predictive Methods Conference 2010

After a one-year hiatus, the Predictive Methods Conference (PMC2010.com) was held May 17-19 at the Ritz-Carlton in Laguna Niguel, California.  The event has historically focused on collateral valuation and specifically has examined the role of analytics in providing critical information to clients in the financial services sector.  I was glad to see PMC return-they always do a first class job and this year was no exception.

Academic Keynote Peter Navarro was an energetic presenter and explained how the Gross Domestic Product (GDP) worked in less than 60 minutes and demonstrated to attendees how the current economic problems could have been predicted if everyone had just paid attention.  Navarro gave the audience some key tips on making sure they weren’t asleep at the wheel in the future.  Navarro also indicated the urgency in dealing with the national debt.  “The increase in debt in the last year eclipses anything that has ever been seen”, he noted.  Navarro underscored the current problems and emphasized the importance of proper home valuation to ensure that we avoid a housing bubble in the future.  Check out his predictions and thoughts at Economy.com.

In my presentation “Implementing Interactive Analytics in Appraisal”, I spoke extensively on the need for appraisers to utilize interactive valuation products.  “It’s not about faster forms of shorter forms” I noted, “It is about providing appraisals that are credible, transparent and consistent-redefining what the appraisal process should be.”  I also expressed my conviction that the new class of Alternative Valuation Products (AVP) could provide new opportunities for appraisers.  I continued with the theme that appraisers can offer more than a 1004-and we need to make our clients aware of that fact”.  I also sounded a cautionary note on the partnership between the National Association of Realtors™ and LPS, a data provider.  “The stated goal is to make brokers the gold standard in valuation. When you take AVMs-analytics without people and BPOs-people without analytics and blend them with a database of unprecedented power-you have the potential for a huge and unregulated competitor for appraisers”.  I will devote several blog postings on this topic in the near future.  I closed by stating that appraisers were at a cross roads. The industry needs to evolve to provide valuations services that meet client needs. I said as much at an interview in New York the following week.  Check out what a group of appraisal industry thought-leaders said (PDF) at the collateral risk roundtable.

I liked what Sue Potteiger had to say in “Re-Engineering the Valuation Process for New-Era Interactivity and Analytics”.  Sue is now the National Appraisal Manager for MetLife, after a stint with Fannie Mae, working on their new MISMO initiative (which has been joined by Freddie Mac as well).  Sue spoke on the importance of data and data standards and how Fannie Mae and Freddie Mac would take advantage of standardized electronic data.  Noting that the appraisal and financial services industries were facing a “systemic process change”, Sue noted that Government Sponsored Enterprises and HUD will be requiring electronic data delivery in 2010/2011 and have become very interested in what data means and how they can ensure that it is usable in their analytics.

In the session entitled “The Renaissance of Risk from an Agency Perspective”, panelist Deborah Slade-Horsey, Vice President of Single Family Risk Policy for Fannie Mae, used the panel title as the springboard for her presentation, noting that the current economic environment was nurturing a focus on analytics. “This is a renaissance of judgment and decision making.  People can make good decisions from good information” she concluded.   Amen.

OK-here comes the incendiary part of what I saw and heard:

In the session “Knowing the Score: Automated Qualitative Assessments in Appraisals, BPOs and Other Valuations”, the panelists re-affirmed that the future of property valuation is going to be based in analytics and business will go to the groups that provide the valuation services that the clients need and are seeking. Brian Quinlan, Senior Vice President of Capital One Bank, noted that BPOs have increased from a 15% market share just a few years ago to a current market share of 50% of all valuations.  One thing I found very troubling about Quinlan’s presentation was his essential conclusion that BPOs were just as relevant a valuation product as appraisals, and additionally, that the time of the appraisal had come and gone.  What?  When I asked several people what they thought his message was most of them answered “that the time of appraisals is over”.

That was what I heard as well.
What a terrible message.

An Opposing View and Viewpoint

The following week, I attended two Mortgage Banker’s conferences:  Multi-Family/Commercial Servicing and Technology Conference and the Government Housing Conference (PDF).

Attendance at both was huge, with all of the movers and shakers of the servicing market, and lots of cabinet and sub-cabinet members of the Administration there to talk to attendees.

There was also an announcement that was made about the adoption by Fannie and Freddie of the MISMO data standard and their requirements that all appraisal reports be submitted via MISMO XML starting in 2011. Follow this link (PDF) to get more information on that.

Here is a link to Tony Garitano’s excellent Mortgage Technology column which says the same thing but makes it, well-pithy and cuts through the bureaucratic fog.

At the Servicing Conference, I had the chance to talk to a number of industry participants.  This conference was interesting from the perspective of the focus on analytics.  MISMO and data standards were all the rage at the conference, beginning with the Fannie/Freddie announcement, and the panels that had numerous sessions on the topic.

XML acceptance

A well-attended special session focused on the proposed new Fannie Mae and Freddie Mac regulations and the servicer’s response.

After a fair amount of discussion on what the changes entailed, the moderator took a survey of which firms were in favor, opposed or indifferent to reporting in XML. For the first time, not one servicer stated they were opposed to reporting in XML (a few were in favor and most voted indifferent).

There were two dedicated MISMO panels and a MISMO meeting. I attended all three sessions and spoke on the last panel entitled “Developing and Employing Standards:  How an Idea Goes from Inception to Reality to Use”

While I would not say attendance was bursting at the seams, all three sessions generated fairly good crowds. People actually asked questions and showed interest in learning more about standards and XML.

At this same conference in 2009, there was virtually no discussion about MISMO and XML standards. Everyone was focused on servicing issues as opposed to reporting/transparency issues. This year, the focus and sense of urgency provided a much-needed boost of energy to all the folks who have been working on data standards.  I think that having Fannie and Freddie on board has caused us to move to a tipping point for data standards.

The Dilbert Cartoon

The most important thing that happened at the conference, though, was a recognition of the importance of analytics in the servicing and valuation sectors of the profession.

Later that day, I was being interviewed for an article in Mortgage Technology Magazine by Anthony Garritano, the magazine’s editor.

Mark Linne, EVP at AppraisalWorld, is on the cover of Mortgage Technology magazine

Tony asked me what I thought about a new term that had been bandied about that day:  The Renaissance of Appraisal.  I told him I loved the term.  I think it expressed my view and the other appraisers at the table that day.  What a great concept.  Think about it-a renaissance after wandering through the dark ages.  What a great way to think about our future.

They faced challenges in the Renaissance 500 years ago too.  We look at our challenges, AVMs, BPO’s,  HVCC, AMC’s and we think that as an industry it simply isn’t possible to get back to what we perceive as that “golden age” of 5 years ago when the sun shined, the grass was green, everyone made a good living and everything was going great.

So which is it? Feast of famine.  Expansion or contraction.  The golden years or a shadowy and dark extinction?

We have a number of stakeholders at two conferences giving us their prognostication on where the industry is heading.  I like to think of it in terms of Robert Frost’s “The Road Not Taken”.  Which road do we have to take as an industry to ensure that we do, in fact, go through a Renaissance and avoid the repudiation that some suggest is our due?

I’ll tell you where I stand.

I think the future is as bright as we choose to make it.  I think we have the ability to enjoy significant success.  I think the window is still open and I think we are standing at a tipping point of unimaginable potential.

OK-that’s me.

Where do you stand and why?