How Perpetual Change Has Driven Innovations In Valuation Technology

How Perpetual Change Has Driven Innovations In Valuation Technology

Alternatives to full appraisals have gained increasing attention and support

BY VLADIMIR BIEN-AIME | SPECIAL TO NATIONAL MORTGAGE PROFESSIONAL

It is abundantly clear in these uncertain times that the need for impartial and bankable valuations are indispensable. The factors that contribute to the volatility of the market and the risk to the lending institutions are numerous and momentous. Lenders must operate in an environment beset with natural disasters, unforeseen unemployment, fraud, cyber-attacks and even pandemics. Faced with these dynamics, it’s imperative that lenders have the necessary real estate collateral to make themselves whole to ensure the longevity of their institutions.

Fortunately, technology has kept up. New valuation platforms have emerged to provide the means for an efficient and secure method for managing the entire process. These next-generation platforms can automate the entire process, while providing complete control, transparency and compliance. The market leaders provide seamless integration with loan origination systems (LOS), automated review and configurable risk and performancebased vendor allocation. The elite solution providers offer rolebased dashboards with service level agreements (SLAs), build your own review forms, one-day implementation and a compliance guarantee.

Companies that are quickly able to adapt to the sudden changes will not only survive these precarious times but will thrive. This pandemic has ushered in the age of social distancing and has significantly impeded the mortgage process. Appraisers are now required to produce creditable valuations without access to the interior of the subject property.

This turn of events has not only disrupted the mortgage process but introduced additional risk to the lender. These unprecedented tribulations have produced some major innovations to accommodate the interference. The top tier providers were able to quickly delivers a secure mobile inspection app that allows borrowers to procure high-quality photos of both the interior and exterior of a subject property. This alleviates the appraiser from this burdensome task, while adhering to the current social distancing guidelines and the temporary GSEsappraisal policy. The state-of-the-art solutions seamlessly integrates the borrower-self inspection process into the current workflow, remain highly configurable, and leverages geocoded image tracking and fraud prevention technology to ensure integrity. Although this technology was developed in direct response to the COVID-19 pandemic, we expect this technology to provide value for years to come.

MARKET INNOVATIONS

Not all innovation is driven by catastrophe, sometime good customer service and good old fashion competition produce some amazing results. Recently, historically low interest rates and rising home prices have increased borrower equity nationwide and have created a healthy home equity loan and HELOC market. Efficient lenders that embrace technology and combine it with industry best practices can realize significant growth with minimal risk. As a result, lenders are aggressively courting potential borrowers and their ability to keep costs down and provide customers a fast and hassle-free mortgage experience crucial to their overall success.

The Global DMS Appraisal Price Index (GAPI) tells us the national average for 1004 (URAR) appraisal is $525, but in Los Angeles County, the average is $700, and in New York, it’s about $1,400. Our data also shows the average turn-time to complete an appraisal is six days and it takes about five days to schedule the home inspection with the borrower. Utilizing the traditional appraisal process to close an equity-based loan product is very expensive, time consuming and provides a less-than optimal borrower experience.

While no one tool is best for all valuation needs, appraisal alternatives are designed to give lenders a variety of tools to value property that fit specific situations.

A hybrid appraisal is a valuation report that resembles a desktop appraisal in that it has a shorter appraisal form and is performed by an appraiser who typically never visits the property. However, a hybrid appraisal usually includes an exterior observation of the property conducted by a third-party vendor, normally a real estate agent or home inspector.

Hybrid appraisals cost substantially less than a full appraisal, normally between $100 and $250, and often are completed within 24 hours of assignment. Although there is vast benefit of introducing hybrid appraisals to the valuation approach, there are some important considerations. Lenders must have the in-house valuation expertise to develop a proprietary short form (as there is no government standard) or partner with a trusted AMC or valuation technology partner.

DATA WINS

The proliferation of big data, industry data standards (MISMO), GSE support and improved statistical modeling has position automated valuation models (AVMs) as a suitable alternative for conducting collateral evaluations. AVMetrics, an independent AVM testing company, has recorded significant improvement in the accuracy of AVMs over a 10-year period.

The Federal Evaluation Guidelines account for the use of AVMs, provided the transaction is less than $400,000, they are tested regularly, they include a property condition report and the borrower receives a copy. Several enterprise valuation management platforms have developed compliant evaluation for lenders by pairing a comprehensive AVM report with a third-party inspection service to ascertain the property condition, market and location influences.

These types of products have been branded by AMCs that offer them, but are generally referred to as hybrid AVMs or evaluations. These types of products do not require an appraiser and turn-times range from 48 hours to the same day utilizing an Uberstyle inspection assignment app, while maintaining a low price point between $50-$100.

AVMs are regularly used by loan officers for borrower pre-qualification as a substitute for the currently non-compliant appraiser-based Comp Check that opened the doors for pre-crisis inappropriate value conversations. AVMs have also found their way into the review process to validate information, and as a research tool in lieu of MLS access, to provide alternate comparable properties as part of the rebuttal process.

With an enterprise valuation platform in place, lenders can develop a risk-based collateral valuation approach incorporating various valuation products based on the level of risk. Lenders typically bear the loan origination cost for their equity-based lending programs. This ensures lenders get the best mix of price, quality, speed and compliance for every valuation. An effective collateral risk strategy will consider the collateral valuation, compliance, credit, income and overall loan risks ensuring a better borrower experience and a considerable competitive advantage.

Vladimir Bien-Aime is president and CEO of GlobalDMS.