Appraisal guru offers a glimpse of the future

'It's going to be an interesting year,' appraiser says of changed industry landscape

Appraisal guru offers a glimpse of the future

“It’s going to be an interesting year.” That’s how appraisal expert John Tallinger, chief growth officer at Class Valuation, assesses what’s ahead for mortgage brokers amid a changing industry landscape.

Mortgage Professional America caught up with Tallinger at the inaugural “Hall of AIME” event staged by the titular Association of Independent Mortgage Brokers from Feb. 10-12. With the home refinancing peak ebbing amid rising interest rates and existing homes in short supply – potentially setting the stage for a strong purchase market – the term “interesting” connotes a hint of diplomacy in predicting the year ahead for the mercurial mortgage industry.

“This is going to be one of those years,” he said. “It’s going to separate the true winners and the true players from the ones who are faking it. Refis were just falling out of the sky throughout most of ’20, ’21. I think you’re going to see a lot of people who are going to have to work twice as hard to close less loans and make less money this year. Again, it’s going to separate the real winners from those who just can’t hang.”

Indeed, the explosive refinancing boom kick-started by record levels of property valuations nationwide is ending on something of a whimper as interest rates continue to creep up. The trend inevitably will result in a significant impact on the lending industry.

According to Black Knight, a provider of mortgage technology and data, the average rate on the 30-year fixed loan jumped by more than 50 basis points in late January as compared to the start of the year. The upshot: The number of candidates for refinancing was cut to just 5.9 million – down from some 11 million at the beginning of the year and about 20 million in late 2020, according to the report. The Mortgage Bankers Association showcased similar findings, reporting recently that applications to refinance home loans had been slashed in half.

That’s a far cry from the record-setting pace posted by year’s end in 2021, when CoreLogic reported a collective $3.2 trillion in cash having been tapped from borrowers’ equities amid soaring home values.

Read more: What’s happening to US mortgage applications?

There’s slim pickings for the low-hanging refinancing fruit, forcing a shift to more grounded areas of the landscape. Such changes will force an alteration in tactics, Tallinger said. “I’m fascinated and interested to see how it plays out,” he added. “With the higher rates environment, I don’t know how many potential homeowners are still out there who can refi right now and get below where they are. Obviously, the refis have already been pulled back and will continue to slow down.”

Given such shifting refinancing dynamics, many are pinning their hopes on a strong purchase market as substitute mother lode. Tallinger’s view is more nuanced as he considers the disparate housing markets across the US that don’t guarantee uniform success for brokers, he suggested.

“The fascinating thing to me is the purchase market [that] in theory should be high,” Tallinger said. But housing markets are no monolith given disparate dynamics he’s personally witnessed, he added. “In so many markets around the country, there’s just no inventory and the inventory that is there is not very desirable.”

Read next: Which US states are prone to mass foreclosures?

He pointed to personal experience bearing that assessment out: “My wife and I – we weren’t necessarily looking, but kind of always keeping eyes open – there’s nothing available in our market if we wanted to go a little bigger. There’s nothing worthwhile that we’re looking for.”

As a result, he and his wife have opted instead to invest in their existing home with remodeling projects. “A lot of people are doing home improvements,” he said. That should probably create some more HELOCs – or home equity line of credit – or you may end up seeing some people that have to, if they want to do home improvements, will maybe have to do a cash-out refi and pay a higher rate. That’s the kind of stuff that happens.”

Read next: Home remodeling industry thriving despite hurdles

“May you live in interesting times,” goes the familiar adage of unknown provenance and apocryphal origins that nonetheless is widely acknowledged as presage to omen or portent rather than blessing. While Tallinger favors the term himself in a more contemporary context, a shift in pace in the industry won’t be all that bad – particularly on the appraisal side, he said.

“It’s going to be a really, really interesting year,” he repeated. “At least for the appraisal side, 2021 was a problem because we had a capacity issue. There was too much volume and too many orders and not enough appraisers to facilitate or complete them in the time the lenders needed them or expected them. I think we’ll definitely see this year – we’re already starting to see it – appraisers are starting to get caught up. We hate to say you want things to slow down, but for that side of the industry I think you’re going to see evaluations sort of get somewhat back to normal this year in terms of your turn times, your service levels.”

Only time will tell.