It’s clear that the traditional appraisal business is challenged with an aging appraiser population and regulatory obstacles―which may result in delayed turn times, valuation-driven repurchase risk, and a less-than-ideal consumer experience.
In response to these challenges, innovators in the industry have harnessed data and technology to build tools and alternative valuation products that enable lenders and servicers to better match the product to the risk. Now, there are a variety of valuation products that vary in complexity―from automated valuation models (AVMs) to desktop and hybrid appraisals.
These innovations provide the obvious benefits of faster turn times and cost savings when compared to a traditional appraisal, but over time the technology behind alternative valuation products can also lead to better quality control, identifying inaccurate valuations immediately, and even detecting fraud patterns.
So how do you know which valuation product would best meet your particular needs? Below you will find examples of how you can leverage alternative valuations in your mortgage operations.
Appreciating home prices and low interest rates make today’s market attractive for many homeowners seeking a home equity loan or line of credit. Home equity lending requires that an evaluation include a property inspection, but typically does not require a full appraisal. Many home equity lenders have designed a valuation waterfall to maximize cost efficiency while responsibly managing risk. For example, any loans under $50,000 will use an AVM, while loans between $51,000 and $250,000 use a hybrid appraisal.
Additionally, savvy lenders have an opportunity to identify and target potential home equity customers within their mortgage portfolio or deposit base. Using a precise automated valuation tool, lenders can readily determine whether there is equity in the subject property and proactively market to customers with lendable equity. A targeted marketing campaign to pre-qualified customers can be highly effective, especially when a lender presents homeowners with evidence of the amount of equity they have at their disposal.
Most existing home loans were originated with a traditional 1004 appraisal. When a performing customer decides to refinance, whether to change the type of loan product or to take advantage of lower interest rates, the risk associated with originating a new loan may not justify the cost and time associated with a full appraisal, especially when the market area has seen improving price trends.
Under these circumstances, many lenders are now making lending decisions for loans under $250,000 based upon a hybrid appraisal product. A hybrid appraisal leverages the expertise of an appraiser at a lower cost by outsourcing the property inspection to a third party. When an appraiser can utilize this third-party inspection, the customer saves time and money, and the lender receives confirmation that the collateral value is appropriate for the loan.
Imagine you’ve recently underwritten a loan and ordered an appraisal where the comps seemed a bit off. When the quality of an appraisal comes into question, you need a second opinion.
Using available data and technology, another appraiser can conduct an appraisal risk review, reviewing verified data and comparables to assess the accuracy and reasonableness of the original appraisal. This product is available at a fraction of the cost of a second full appraisal.
The examples above merely scratch the surface of how these hybrid valuation and appraisal products can be leveraged today.
Loan officers, underwriters, quality control and risk managers can all use these products in lending decisioning, MI cancellation, repurchase disputes, appraisal quality control, and home equity pre-screening and decisioning. Loan officers and marketing departments can generate quality leads for customer and loan officer retention. Risk management can perform portfolio monitoring, and prepayment monitoring.
Default servicing can determine the value for loss mitigation decisioning, foreclosure sale bid price decisioning, REO listing strategy and offer management. Portfolio and asset managers and NPL/RPL buyers and sellers can perform pre-purchase or pre-sale valuation assessment, ongoing investment strategy status, analysis and validation.
Alternative valuation products are helping the mortgage industry to become more efficient, while reducing costs and mitigating risk. As regulatory regimes come to understand and appreciate the efficiencies presented, we expect increasingly widespread opportunities for these products.