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36 MANUAL APPRAISALS IN AN AVM WORLD After the Mortgage Bankers Association (MBA) proposed raising the threshold for requiring manual appraisals from $250,000 to $400,000, Collateral Analytics examined how raising this threshold would impact the mortgage industry as a whole. e MBA originally wrote a letter to the US Comptroller of the Currency, the Chairman of the Federal Reserve Board of Governors, and the Chairman of the FDIC, requesting the elimination of manual appraisals from the mortgage underwriting process when mortgages are $400,000 or less, stating "MBA supports the agencies' desire to raise the threshold for appraisal exemptions as a means of leveraging technology to better serve consumers, while also preserving crucial safety and soundness standards." According to Collateral Analytics, around 19.4% based on MLS (multiple listing service) sale transactions, and about 14.6% based on public records, would be impacted by the new proposed guideline. Collateral's study suggests this slight move to eliminate traditional appraisals, from even a modest subset of residential mortgages, is a baby step toward modernizing the regulation and underwriting process for homebuyers. Without traditional appraisals, automated valuation models (AVM) would still be necessary during the underwriting process, performing the same tasks as humans but processing more data. However, AVMs may not reach the target price lenders may be pressured to achieve. According to a study from Calem, Lambie- Hanson, and Nakamura (July 2017) from the Federal Reserve Bank of Philadelphia, the current system of price disclosure (to appraisers) creates a flaw in the risk management system. According to the study, when appraisals exactly hit the purchase prices or refinance target prices, no real information is gained by lenders and that "…we find that appraisals are less predictive of default than automated valuation model estimates." Most lenders still use traditional evaluation processes, even though 68% of all homes are under $312,500 the typical threshold for a $250,000 mortgage, and eligible for automated appraisal methods combined with inspections on property condition. Eliminating the traditional evaluation will require a fresh look at this issue. THE FINANCIAL IMPACT OF NATURAL DISASTERS Research from Colorado State University (CSU) has revealed that 2019's hurricane season may be slightly lower than average due in part to a likely weaker El Niño. With weaker risks of storms, homeowners and servicers can expect lower home damage, but climate change-driven natural disasters, including tornadoes and wildfires, still pose a risk to financial health. Homeowners impacted by natural disasters may fall behind on their mortgage payments and enter delinquency, eventually leading to foreclosure. According to a report from the Urban Institute, natural disasters leave a negative impact on homeownership long afterward. It notes that the negative effects of disasters persist, or even grow over time, for important financial outcomes. Urban's report calls for lenders and government-sponsored enterprises to update existing mortgage delinquency and foreclosure policies to account for these long- term financial burdens following disasters. As part of a plan to further address affordable housing issues, and possibly address some of the issues put forth by the Urban Institute, House Financial Services Committee Chairwoman Maxine Waters included a plan for pre-disaster mitigation funds in a bill introduced recently. Part of the bill contains $5 billion to support mitigation efforts that can protect communities from future disasters and reduce post-disaster federal spending. e additional funds may act as insurance for homeowners affected by natural disasters. According to CSU's data, there is a 48% chance of coastal areas being hit by hurricanes making landfall this year, just slightly down from the century-long average of 52%. Homeowners without proper insurance in these areas are at high risk for default or foreclosure. According to Frank Nothaft, Chief Economist for CoreLogic, "e disruption of a family's regular flow of income and payments, as well as substantial loss in property value, can trigger mortgage default; especially if homeowners are underinsured and cannot afford to rebuild."

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