Q: Credit used to be the most important barometer by which underwriting used to assess risk. However, the focus on valuations is now considered as important, if not more. Why is this?
Vladimir Bien-Aime: Before the meltdown, lenders wanted to get deals done quickly and sold on the secondary market quickly. The three ‘Cs’ (credit, capacity and collateral) were all taken into account upon making the decision to lend a borrower money.
However, things like stated income were widely accepted and the submission of appraisals was not always verified for accuracy, and sometimes appraisers inflated home values. If the collateral valuation is inaccurate, then the deal could easily make absolutely no sense to do. In addition, if a there is an issue with the appraisal, then there could be investor buybacks.
But today, many things have been addressed that were previously broken in the collateral evaluation process. One of the first things done was to implement the Home Valuation Code of Conduct (HVCC) in 2009, which prohibited lenders and third parties from influencing appraisals. While HVCC is officially no longer in existence, portions of it still reside in the Dodd-Frank Act, which are working well.
Performing accurate appraisals is extremely important in the event a borrower is unable to meet the payment obligations of a loan. The underlying property serves as the collateral for the obligation and is a huge component of assuming risk. If a borrower has good credit but the collateral isn’t there to support the structure of the deal, then good credit is irrelevant.
Q: Appraisal and AVM technology have come a long way since the mortgage meltdown. What are some of the most significant advancements and where are some software providers falling short?
Vladimir Bien-Aime: Appraisal technology has advanced to effectively make use of comprehensive analytics, trending and other key factors that weren’t generally considered in the underwriting of loans. The confirmation and accuracy of property valuations can now utilize previously unused data elements that provide enhanced market intelligence. Some examples are making use of rich data sources such as multiple listing service (MLS), statistical analysis, neighborhood-level house price indexes (HPIs), inventory and sales trends metrics, and foreclosure data.
The data collected can then be translated into meaningful, actionable information that takes the accuracy and completeness of property valuations to the next level. Where some software vendors are coming up short is not taking a best-of-breed approach to produce a deeper solution that meets the needs of their lenders. These partnerships produce a holistic solution that drives efficiencies, promotes compliance and saves money.
Q: The mortgage industry now operates in a business environment that demands loans be handled with extreme precision and in 100% compliance – on so many different levels. What are lenders and investors biggest concerns with appraisals in today’s market?
Vladimir Bien-Aime: There are so many constantly changing rules and regulations lenders must keep up with that it’s become a daunting undertaking that is seemingly infinite. Lenders want to be in full compliance to avoid fines and ensure they deliver appraisals of high quality to investors without any missing information so as to prevent loan buy backs or appraisal kick backs.
Whether you’re a lender using an AMC or have an in-house appraisal panel model, you don’t want to miss a beat with compliance, having any UCDP hard stops, flagged appraisers, or fraudulent information could be disastrous. Investors and the GSEs simply want quality appraisals done in full compliance with industry guidelines that are verified and documented throughout the process. The right technology handles the heavy lifting and does the thinking for all parties involved.
Q: Global DMS automates the valuation management process. What are some of the things you are currently doing with your technology that is making a difference, and what is on the horizon?
Vladimir Bien-Aime: Our Enterprise eTrac platform automates the entire valuation management process from start to finish. This includes ordering, assigning, tracking, reviewing and delivering appraisals in full compliance to the GSE’s UCDP. Lenders and AMCs have come to rely on our technology to help them compliantly and cost effectively assess and process all of their appraisals.
We’re currently integrating with select best-of-breed vendors that add more value to our solution. Our customers are already benefiting from this. We are also expanding our mobile device offering and have plans to enhance our existing platform with advanced user definable workflow capabilities.
Global DMS is online at www.globaldms.com.
Phil Hall has been (among other things) a United Nations-based radio journalist, the president of a public relations and marketing agency, a financial magazine editor, the author of six books and a horror movie actor. Also, as you will discover, he is not shy about stating his views.