Rob Frazier is the acting director of the valuation policy division of the Office of Single Family Housing at the U.S. Department of Housing and Urban Development (HUD). Previously, he served as chief appraiser and director of special projects for CoreLogic; chief appraiser for Citigroup’s Chesapeake Appraisal and Settlement Services Inc.; regional chief appraiser for Long Island Savings Bank; and chief appraiser for Maryland and Washington, D.C., for the Ahmanson Mortgage Co.
MortgageOrb recently interviewed Frazier to learn more about the launch of the Federal Housing Administration’s (FHA) Electronic Appraisal Delivery (EAD) portal, which all FHA lenders and their third-party service providers were required to start using on June 27. The portal offers a swath of new capabilities; for example, upon uploading appraisal reports, it automatically delivers messages with real-time feedback on compliance with FHA appraisal file format and data integrity policies. It also leverages industry data standards, systems and processes – plus, it links reports to data via FHA Connection, which facilitates direct, secure, online access to HUD’s computer systems. Lenders and their vendor partners have the option to do a full integration with the portal for the purpose of automating the uploading of reports, as well as system feedback, or they can use the portal to “manually” upload reports.
Q: Of the lenders that have registered for the new EAD portal, about how many would you say were submitting appraisals electronically to the FHA previously? What percentage will submit electronically after it has been in place for a few months? Will it be all of them?
Frazier: Prior to the mandatory effective date, 67% of the lenders were submitting appraisals electronically to the EAD portal. The FHA conducted a phased rollout process that started in October 2015. Lenders were able to reserve a 60-day “phase” in which to complete the onboarding process, with staff members dedicated to this project. The process linked the identity of the users in the FHA Connection system to the EAD portal hosted by the contractor. Once a lender was “boarded,” it had the option to begin delivering appraisals through the portal.
Appraisals for new case numbers created on or after June 27 must be delivered through the EAD process (100% participation). The phasing plan allowed lenders to begin earlier than the compliance date, so most of them completed their rollout and began delivery over the past months.
As of June 30, more than 115,000 appraisals had been received electronically. The daily volume of appraisals uploaded electronically grows exponentially every week.
After a few months, 100% will be EAD because there are some in the pipeline that lenders still can manually process if desired. Because we are hitting 5,000 to 6,000 per day now – and 76% of those are coming as a direct integration rather than a manual upload – that “few months” may well be more like “a few weeks.”
Q: How much will the launch of the new portal – and the requirement to use it – result in lenders and appraisers upgrading their systems?
Frazier: Because Fannie Mae and Freddie Mac rolled out this process a few years ago, this is not a new or dramatic change. The FHA tried to accommodate lenders and appraisers by following the trail blazed by the government-sponsored enterprises (GSEs). Most lenders receive their appraisal reports electronically from the appraisers (or through their designated service providers) and for the FHA; we were then printing the case to paper for placement in the case binder. Paper copies are no longer required for those cases in which the appraisal was delivered through the EAD.
Some lenders found it necessary to augment or improve their systems or workflow. The EAD portal allows lenders to use the manual upload process – or, if they desire to automate, they can upload through a direct integration. Typically, larger volume lenders take the advantage of direct integration either directly or by authorizing their service providers to do so on their behalf.
The FHA worked directly with the major appraisal software companies to ensure that they would know the formats required. During the phasing, they made adjustments and improvements to their systems so that the appraisers just need to keep their software current and utilize the tools provided to them by their own choice of software company. To provide appraisals for FHA-insured mortgages, appraisers must be qualified and apply to join the FHA Roster of Appraisers.
There may be a few lenders that are not selling to Fannie Mae and Freddie Mac, and thus, the FHA cases are their only required electronic format. We don’t know which of them are in that category or how many there may be. On a volume basis, 98.4% of lenders representing combined fiscal year 2014 and fiscal year 2015 FHA endorsements are registered and prepared to use the EAD portal.
Q: What are the main differences (advantages/disadvantages) of the new portal in comparison with the GSEs’ portals? What are the important ways that they are different?
Frazier: The FHA deploys format and business rules to check the incoming appraisal data. These are limited to data formats to ensure that the incoming appraisal data can be imported into the FHA Appraisal Logging function. The FHA eliminated a manual data input process that is now completed electronically with the XML data uploaded by the lender.
The FHA Direct Endorsement underwriters are responsible to determine if the property is acceptable for insurance and if the appraisal provides credible proof of the value. This is not a change from the FHA’s policy or the lender’s process.
Q: About how many of the lenders/appraisers/appraisal management companies using the new portal have direct integration with it? Is it always necessary to have a direct integration?
Frazier: Direct integration is an option and solely the choice of the lender. As of July 6, 31% of appraisals are received through manual uploading, and the rest are through a direct integration process.
Q: What do you think are the top challenges for lenders and appraisers that have difficulty using the new portal? Although a whole other ball game, when lenders first started using the Uniform Collateral Data Portal (UCDP), some faced loan processing delays – could lenders potentially face delays with the launch of this portal?
Frazier: The FHA has benefited from the experience of Fannie Mae and Freddie Mac and the lenders that have participated in their UCDP. The FHA has some data format requirements slightly different from Fannie Mae and Freddie Mac that are required by its legacy systems and the underwriting process. The FHA is an insurance company, not a secondary market purchaser of loans, as are the GSEs, so there are bound to be some differences. Pull up HUD.gov, search EAD, and you will find a wealth of information about the EAD process, training, desk guides and quick tips, etc., as well as a list of the FHA “Hard Stops” that deal with the formatting issues.
The FHA has had in place a process by which lenders have to fill in an online “appraisal logging screen” as part of the endorsement process. The EAD prefills that screen, and many of the Hard Stops ensure that the data is consistent and formatted correctly. The streamlining of this process has garnered praise from processors and underwriters, which no longer have to type in the data. If a correction or change is made to the appraisal, the new data flows to the processing screen and can quickly be accepted and corrected.
Q: What are the advantages for the FHA in launching this new portal? How will electronic collection, analysis and feedback help the FHA better manage its risk?
Frazier: This is the first step toward a full electronic case binder and a fully integrated data model to assist the FHA in validating and verifying compliance with its policies. Once the data is collected and analyzed, FHA risk analysts will have much better support for quality assurance.
Q: What was Veros’ role in developing the EAD portal and/or the integrations with it?
Frazier: Veros built the portal and provided technical support for those lenders and venders that established a directly integrated solution for uploading appraisal to the portal. Veros provides a level of customer support for calls that are related to the technical finality of the portal.