CoreLogic Launches New Automated Valuation Solutions

CoreLogic has launched the Total Home Value for Marketing solution. This is the latest addition to the CoreLogic Total Home Value suite – a suite of Automated Valuation Models (AVMs) that incorporate new technologies to help deliver more accurate home values for specific business needs.

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Total Home Value for Marketing is an AVM solution designed to help direct marketers, marketing firms, financial institutions, mortgage companies, home insurers, or any organization seeking to maximize their marketing return on investment, by leveraging property-level valuation insight. By helping to reduce customer acquisition costs through refined customer segmentation, enhanced list yield, and the highest hit-rate of any Total Home Value AVM, Total Home Value for Marketing can help maximize a firm’s prospecting capabilities.

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Total Home Value for Marketing is a part of the CoreLogic Total Home Value suite; a new approach to automated valuation models that simplifies the AVM selection and budgeting process. Many AVMs on the market today are designed for broad applications. As a result, businesses may be using AVMs that are not designed to support their specific use case. With Total Home Value, simply choose the solution that supports a specific business case (Originations, Risk Management, Portfolio Monitoring, Marketing, and Consumer), and you will receive an AVM solution designed specifically for that need. This provides a level of consistency in valuations across the loan lifecycle as all Total Home Value solutions are built on a common model technology.

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“Total Home Value for Marketing is part of our ongoing effort to transform the way AVMs are utilized within the mortgage and related industries,” said Ann Regan, executive, product management, Collateral Solutions for CoreLogic. “With a high hit-rate that does not unduly sacrifice accuracy, this solution ensures that any business looking to target specific clients based on home value, be they mortgage lenders, credit card providers, or auto dealers won’t leave any viable prospects on the table or misjudge the value of collateral at the outset. 

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Total Home Value for Marketing is available in a Standard version that delivers truncated values, and a Premium version that delivers similar precision as AVMs used during risk management. 

A New Way Of Looking At Things

The same-old, same-old isn’t going to advance the industry. We need to think differently about things. For example, CoreLogic has introduced its Total Home Value suite of AVMs. The Total Home Value AVM suite incorporates new cascade methodologies designed to help simplify AVM selection and provide optimal performance levels and delivery options for specific business needs.

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The Total Home Value product suite is a new approach to automated valuation models – made to streamline AVM selection process. Currently, AVMs have broad applications; meaning businesses must decide which AVM to use. In some cases, they may be using AVMs that are not ideal for their intended purpose. With the CoreLogic Total Home Value suite, users simply choose the solution that best fits their business case.

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“Total Home Value represents a sea change in the way the mortgage industry views AVMs,” said Ann Regan, executive, product management, Collateral Solutions for CoreLogic. “With targeted audiences for each solution, multiple delivery options and simplified pricing structures, we continue to develop solutions that help our clients conduct business more efficiently.”

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Total Home Value AVM solutions are currently available for portfolio monitoring, consumer-facing, origination, collateral analysis and marketing, with additional solutions to follow before the end of 2018.

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CoreLogic Launches New Valuation Solution To Help Lenders Reach More Consumers

CoreLogic has introduced Total Home Value for Consumers automated valuation model (AVM) solution. This is the latest addition to the CoreLogic Total Home Value AVM suite – AVMs that incorporate new technologies to help deliver more accurate values and are designed to specific business needs.

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Total Home Value for Consumers is an automated valuation model designed for mortgage lenders and online real estate information providers, allowing them to use their own website to provide consumers with the same AVM information used in the lending process. Since consumers often rely on third-party providers to get an idea of their home value, integrating this solution on their own sites will allow lenders to start their relationships with potential clients earlier in the process, potentially gaining new business and helping increase customer satisfaction.

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Total Home Value for Consumers is a part of the CoreLogic Total Home Value suite – a new approach to automated valuation models made to simplify your AVM selection process. Currently, AVMs are designed with broad applications meaning that businesses may be using AVMs that are not ideal for their intended purpose. With Total Home Value, you simply choose the solution that best fits your business case (Portfolio Monitoring, Marketing, Consumer, etc.), and you will get an AVM solution designed specifically for that need – no more guessing which AVM to use.

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“Total Home Value for Consumers is the latest in our ongoing efforts to transform the way AVMs are used and delivered,” said Ann Regan, executive, product management, Collateral Solutions for CoreLogic. “Mortgage professionals, Financial Services providers, and anyone looking to provide extra value for their customers, can now offer a high-quality AVM on their website, helping establish a relationship and building trust with potential prospects or existing users.”

Partnership Provides AVM And eValuation Services

Veros, a developer of enterprise risk management, collateral valuation, and predictive analytics services, has partnered with Valligent, an innovator in non-traditional appraisals and appraisal review services, to provide a complete solution in collateral valuation and analytics that will enable lenders to cut costs and increase operational efficiency.

The companies’ services will be integrated through VeroPRECISION, the AVM decisioning product Veros introduced last October. VeroPRECISION uses sophisticated data analysis to first determine a subject property’s suitability for an automated valuation model (AVM). Independent testing shows that, while 70% to 80% of property valuations are best handled by AVMs, the balance require hands-on analysis through an alternative, such as a desktop, drive-by, or traditional appraisal.

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The 20% to 30% of subject properties determined more appropriate for an alternative to an AVM can be automatically forwarded to Valligent, which will provide a desktop valuation performed by one of its own highly trained analysts or appraisers, based on each client’s pre-determined preferences.

In cases where VeroPRECISION instantly deems a property appropriate for AVM valuation, those customers will immediately receive one of the industry’s top performing AVMs chosen specifically for the particular subject property. Based upon machine learning in a production environment, the VeroPRECISION decision engine determines the most accurate valuation at the subject property level. Unlike traditional cascade approaches that employ county level look-up tables, VeroPRECISION makes its AVM determinations at the specific property level.

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Integrating Veros and Valligent technology is expected to be of special interest to home equity lending, where HELOCs have grown as a share of lending business in recent years.

“With rising home prices increasing the amount of available equity, and rising mortgage rates making a new purchase less attractive, homeowners are increasingly choosing to remain in and remodel their homes,” said Robert Walker CMB, CMT Vice President of Sales at Veros. “By partnering with Valligent, we have given VerosPRECISION a seamless, integrated fulfillment process that takes it far ahead of any other AVM service.”

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“This is much more than a one-stop service that covers valuation reports for the full spectrum of home equity lending needs,” added Jeremy McCarty, Valligent CEO and chief valuation strategist. “It’s also a way for lenders to ensure that their valuation processes are fully compliant with all of the related regulations.”

The VeroPRECISION Valuation Decision Engine is available through VeroSELECT, Veros’ vendor-agnostic, single-enterprise management platform, which provides access to a comprehensive suite of innovative collateral risk solutions from 10 vendors designed to help lenders best assess collateral values at origination and across existing portfolios. In addition to VeroPRECISION and the VeroVALUE suite of valuation products, VeroSELECT offers AVM Cascade Management, VeroBPO Broker Price Opinions, VeroPHOTO Plus: Property Condition Reports, and its proprietary, best-in-class valuation forecasting tool, VeroFORECAST.


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Helping Lenders Comply With 2018 Regulation

Veros, a provider of data, analytics and technology for the mortgage banking industry, has developed a solution for lenders specializing in PACE (Property Assessed Clean Energy) loans in the state of California, where new compliance requirements went into effect on January 1, 2018.

VeroPACE, available through the VeroSELECT ordering platform, will generate, analyze, rank, and report the multiple Automated Valuation Models (AVMs) now required for PACE lending by California State Assembly Bill 1284 and the companion State Senate Bill 242.

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“The passage of this legislation significantly changed the valuation process for PACE loans, which are used to finance greater energy efficiency in homes,” said Veros VP of Sales Rob Walker. “Historically lenders could process a PACE loan in California using the results of a single AVM, but they now need three AVMs and must use a new method of calculating the final value.”

AB 1284 intends to enhance PACE underwriting by requiring lenders to obtain the three AVMs from a third-party vendor, then choose the one with the highest confidence score and calculate the midpoint of that AVM’s high-low value range. The resulting value, combined in a report with data from the three AVMs, becomes the valuation submitted with the PACE loan application.

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“Ordering three AVMs on the same property can be difficult,” Walker added. “And because different AVM providers have different methods of producing confidence scores and values, the mid-range requirement has presented some significant challenges for many PACE lenders. Also, if lenders cannot get three AVMs, they have to get an appraisal, which will add time and cost to the loan application process. To combat this, lenders need to achieve high AVM hit rates.”

“The good news for PACE lenders who are struggling with this new compliance requirement is that VeroPACE handles the entire process for them,” said Luke Ziegenmeyer, Director of Product Management at Veros. “And, if need be, we have an optional add-on for VeroPACE users that can facilitate the request and delivery of appraisals as well.”

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When VeroPACE is ordered through the VeroSELECT platform, a single data call is made, which generates a “cascade” through which up to 10 AVMs may be run to increase the likelihood of getting a hit. The VeroSELECT system stops requesting AVMs once it has received three valid hits. VeroPACE then determines the AVM with the highest confidence score, calculates the average of its high and low values, and returns it to the lender in a standardized data format. VeroPACE also generates a coversheet with all the data elements that can be put in a file of supplemental information.

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Making AVMs Even More Reliable

Mercury Network’s OptiVal Automated Valuation Model (AVM) Cascade has expanded to include HouseCanary’s AVM. The addition of HouseCanary brings yet another AVM to the Cascade to assist lenders in reducing risk and maximizing profit.

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The OptiVal Cascade now contains twelve AVMs, and is the only independent and objective Cascade that evaluates multiple AVMs to select the most accurate for a particular piece of real estate. OptiVal is updated every 90 days with the highest quality data representing the most recent sales – months ahead of county recordings and other data offerings.

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Mercury Network’s technology is used by nearly 1,000 of the nation’s lenders and appraisal management companies (AMCs) to manage real estate valuation operations and collateral risk. “We’re proud to be selected for the OptiVal Cascade,” said Chris Stroud, Chief of Research at HouseCanary. “Lenders need easy access to highly accurate data to mitigate risk and HouseCanary’s AVM has an excellent history of pinpointing property values. Objective testing will make our AVM more accessible to lenders when they need it most.”

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“The OptiVal Cascade is an independent test of multiple AVMs against the freshest test data available on the market today,” said Craig Zielazny, VP of Data and Analytics at Mercury Network. “Our objective is to include all the AVMs that lenders are interested in using, and providing them with the specific performance for a particular AVM in the subject property’s area. We’re pleased to welcome HouseCanary to the OptiVal Cascade.”

Founded in 2014, HouseCanary’s mission is to help people make better real estate decisions. Built on a foundation of great data, powerful models, and predictive analytics, the HouseCanary platform aggregates millions of data elements, including more than four decades of property data and a rapidly expanding arsenal of proprietary calculations and analytics, to accurately define and forecast values and market influences.HouseCanary is financed by notable investors including Hillspire (Alphabet Executive Chairman Eric Schmidt’s family office), PSP Growth/PSP Capital (firm founded by entrepreneur and former Commerce Secretary Penny Pritzker), Alpha Edison, ECA Ventures, Raven Ventures and others top Silicon Valley investors. The company is headquartered in San Francisco.

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Eliminate Risk: Three Tips For Developing Strong Risk Management Infrastructures

Improperly handling risk management efforts can make or break your loan origination process. Often, unforeseen issues arise that can be effectively dealt with, or even prevented by, the implementation of a strong risk management infrastructure.

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With potential crises just waiting to be revealed, it is beneficial for lenders to identify these risks up front, before the damage becomes irreparable. Three areas on which lenders should focus in order to protect themselves and their borrowers are title search insurance, AVM audits and the use of innovative technology for property reports.

Title Search Insurance

Performing a title search consists of locating all necessary documents to determine and verify the legal owner of a property, and additional interest(s), claims and encumbrances on the property. Having insurance on these searches protects the lender by insuring that the information presented in the search is accurate and valid. If a title search is performed without proper insurance, the lender is left responsible for any issues down the road. For example, if a lender closes a home equity loan, and two years later the borrower defaults and the lender was not aware that there was a mortgage lien filed prior to the home equity that lender is subject to any losses that could occur as a result of the error on the original property report.

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With title search insurance, any errors or missing data on the property report are covered, and the lender is guaranteed a lien position. This indemnifies the lender of fault and losses for any incorrect data on the initial report, should the borrower default on the loan. Lenders should always partner with providers that not only handle nationwide title searches for them, but also provide sufficient title search insurance.

AVM Audits

Automated Valuation Models (AVMs) allow lenders to receive information regarding a residential property at the touch of a button. They show the lender the market value for the property, the tax assessor’s indication of value, recent sales history and comparable sales analysis of similar properties. And, although some lenders lost confidence in AVMs as a result of the 2008 financial crisis, they are making a strong comeback.

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In order to keep AVMs up to date and functioning properly, lenders must perform timely audits or validation. These audits should include a thorough comparison of a sample pool with AVMs versus a benchmark, such as a standard appraisal. This allows lenders to understand the strength and accuracy of the AVM model being used and the deviations between both, enabling the lender to adjust guidelines if necessary. Auditors want to see AVM validations to ensure the AVMs are delivering accurate values on properties.

By scheduling regular audits, lenders can trust that their AVMs are presenting correct information.

Using Innovative Technology for Property Reports

Many lenders still receive property reports from third parties that manually pull information from the Internet, transpose it to a report and then deliver the package to the lender. This physical transport of data from one document to another, or the “stare and compare” approach, significantly increases the risk of human error.

Lenders should engage with providers that use technology to create property reports directly from information provided by the courthouse or credit repositories. When no data is manually input by humans, the process becomes much faster and ensures accurate information. The lender is then delivered one concise report in a timely and compliant manner.

The best way to enhance your risk management infrastructure and keep up with competitors is to partner with an expert, third-party provider that offers full title search services, including insurance, AVM audit services and technical property reports. This will not only set you apart from others maintaining out-of-date processes, but will also ensure that all parties are protected throughout the entire loan origination process.

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Partners Seek Valuation Accuracy

Veros, a provider of the automated valuation model (AVM) VeroVALUE and a reseller of other top-performing AVMs, has been integrated into San Jose, California-based CalyxSoftware’s Pointsoftware. Calyx Software is a provider of loan marketing, originating and processing software. Through the integration, Veros provides immediate access to VeroVALUE and other respected AVMs for Point users, along with formulated AVM cascades that use popular industry AVMs in succession to increase user hit rates.

VeroVALUE is a consistent high performer in industry tests, bringing perspective and accuracy to valuation efforts in support of lending decisions, portfolio analysis and risk reduction strategies. Veros also offers a variety of AVMs from other companies, all vetted to meet Veros’ high standards.

“In talking with VeroVALUE users, I was pleasantly surprised to learn the accuracy of their AVM when compared to other AVM vendors they tested,” said Dennis Boggs, executive vice president, business development for Calyx Software. “One user said, ‘We feel safer using VeroVALUE due to Veros’ conservative approach. The other vendors we tested didn’t apply any standard deviation and their results were all over the place – up to 30% off compared to the appraised values,’” Boggs related. “With the new VeroVALUE interface, users will now have improved ease in ordering from within Point, save time by not having to re-enter data, and have the value returned in a PDF file that is automatically saved in Point’s Document Storage,” he said, adding, “We love that.”

AVMs have long been a staple of the lending industry, providing fast, objective and inexpensive valuation information for a variety of uses. Evolved modeling techniques and a wealth of available data have combined to make AVMs much more accurate and reliable, increasing their importance in mortgage transactions in recent years.

“Partnering with Calyx to make highly accurate AVMs from Veros and others immediately available is a very positive development for Point users,” said David Rasmussen, senior vice president of operations for Veros. “Lenders, brokers and other Calyx users are able to make better and faster decisions to improve loan performance and reduce risk by using technologies from Calyx and Veros,” he said. “We are delighted to be part of their reliable network.”

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Partnership Provides Deeper Valuations

Global DMS, a provider of Web-based compliant valuation management software, and Collateral Analytics, a provider of real estate analytics and valuation products, have formed a strategic alliance that integrated various components of their software valuation solutions. From within Global DMS’ single-source eTrac Enterprise platform, which compliantly handles the entire appraisal management process, users can now access Collateral Analytics’ products and services that include its automated valuation model (AVM) services, data analytics products and risk management solutions.

“There are many factors that must be taken into account in order to determine accurate property valuations and reporting in today’s market,” states Vladimir Bien-Aime, president and CEO of Global DMS.  “This new partnership extends to our customer base Collateral Analytics’ sophisticated data analysis capabilities that produces precise reports on valuations, market analytics and risk scores.”

Collateral Analytics’ AVM service provides highly accurate property value estimates with supporting data for forecasting and decisioning; its data analytics products also report on historical and current home price trends as well as forecast future trends and market condition.  In addition, the company’s risk assessment tool, CA Risk Profiler, determines the probability of valuation risk for BPOs and appraisals based on the use of numerous data points.

“Global DMS has done a tremendous job in building a platform to bring automation and compliance to the entire valuation management process for organizations operating in the appraisal business,” said Michael Sklarz, president and CEO, Collateral Analytics.   “Our solutions complement one another well and make for a robust offering that can be seamlessly accessed by Global DMS customers. We are very pleased to have established such a strong partnership with Global DMS.”

Global DMS’ eTrac Enterprise platform empowers organizations to order, assign, track, review and deliver completed appraisals in full compliance to the Uniform Collateral Data Portal (UCDP) for sale to investors and GSEs.  Both Global DMS and Collateral Analytics’ solutions can apply customizable business rules for clients to manage their specific internal processes and procedures.

The combined solutions significantly reduce costs, drive appraisal review efficiency gains, and deliver greater accuracy, reliability and time savings.

AVMs: What You Don’t Know Can Cost You

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TME-PHuffIgnorance is not bliss —especially when it comes to business and the bottom line. Yet day in and day out, lenders are operating in the dark and losing dollars in the process. Last month, I wrote about the most common misconceptions about AVMs, also known as automated valuation models, the most commonly used collateral evaluation tools. AVM are being used over one billion times each month, and I estimate that hundreds of millions of those billions of AVMs are being used by lenders and servicers in the mortgage industry. But even considering these gargantuan proportions, most mortgage folks are surprisingly unaware of how big an impact AVMs can have on their bottom lines.

This month I’m going to cover three of the most common ways AVMs are being used today. And for those of you concerned with your bottom lines, I’ll get into the concrete details about how lenders and servicers are saving — or wasting — thousands of dollars or more each month, simply by the way they approach AVM suitability.

Accuracy Matters

One of the biggest misconceptions about AVMs is that they are inaccurate. Last month, we revealed the fact that standard error rates of AVMs are actually lower than those of traditional appraisals. While my aim is not to rank one form of evaluation above another, it is to point out that AVMs can be quite reliable and highly appropriate for lower risk activities and transactions. I’d also like to remind you that there is no benefit to using an unreliable tool, not where data and decisions are concerned. Accuracy matters.

This is a key point. When financial decisions are being made based on a reported dollar value, businesses need to ensure that the evaluation tools being used are producing the most accurate value possible. While this may seem like common sense, this is not the general practice being exercised in the mortgage industry when it comes to AVMs. Hundreds of millions of times each year, lenders and servicers are running AVMs without much thought as to the accuracy of the reported figures, and this haphazard approach is likely costing them more than they imagine.

The following are three of the most common ways that AVMs are being used by lenders and servicers today:

1) Mortgage Pre-qualifications

A lot of smart lenders are using AVMs in the pre-qualification process. As they’re taking a quick, cursory look at borrowers, they’re also taking a quick review of a property, to see if a deal is worth pursuing. AVMs are well-suited for this review. It takes just minutes to run an AVM, and if the right one is used, the results can be surprisingly accurate. However, if the AVM is not accurate, lenders are likely wasting money and missing valuable opportunities.

If an AVM comes in significantly below the property’s actual current value, lenders are missing opportunities in loans that can’t be made. Let’s say your average gross profit per loan is $4,000; even one lost customer a month can amount to nearly $50,000 in missed opportunities per year. If, however, the value comes in too high, lenders can invest valuable man-hours taking a loan through the process until an appraisal reveals that the transaction won’t go. Even at a pay rate of $25 per hour, a processor spending a mere four hours on a loan that will never fund is costing the company $100 on lost labor.

This situation might be understandable if an AVM returns a value of $200,000 and an appraisal comes in at $194,000, and it’s just enough to kill the deal. In cases like these, hopefully the loan officer informs the borrower that the value is tight and may not come in as needed. If, on the other hand, the appraised value comes in at $186,000, and there was clearly no reason to even run a full appraisal, chances are, you’re going to have a very upset borrower on your hands. Incidentally, in case you’re wondering, yes, there is a way to make sure that you have significantly fewer of those $200,000/$186,000 scenarios. That is absolutely within a lender’s control.  I’ll get to the details of how in a moment.

The Cost of Losing Trust

Back to the $200,000/$186,00 situation. There’s a more significant, long-term financial issue at hand here. Borrowers traditionally cover the cost of the appraisal, which is roughly $350 for the average non-FHA loan. From what I hear, borrowers don’t take very kindly to paying fees for a loan that has no possibility of being funded. While this is important for any lender to remember, credit unions, being the member-driven organizations that they are, might want to be particularly attuned to this.

There have been numerous studies of the costs of losing trust, and consequently losing a customer who feels he or she has been wronged.  Anecdotal evidence shows that a disgruntled customer will tell between eight and 16 people, with 10 percent telling more than 20. When you factor in the ease of communication and the viral nature of social media, the number increases exponentially. Even if they tell no one, 9 out of 10 unhappy customers will never purchase goods and services from you again. Not a good consequence when, according to Gartner Research, the cost of acquiring a customer is five times the rate of retaining existing ones.

2) Home Equity Lending

There are two ways that lenders use AVMs with home equity lending. The first is to value the property for a home equity loan or line of credit. The second is to evaluate the line after it has been issued to determine whether or not the property has enough value to support it. In other words, lenders often determine whether or not to increase, decrease or shut down a line of credit based on the borrower’s home equity.

Home equity lending requires that an evaluation must include a physical inspection of the subject property, but it does not require a full appraisal, so a lot of lenders opt to use AVMs in conjunction with a property inspection report. As with mortgage pre-qualifications, lenders can lose home equity business when they use AVMs that erroneously under-report the true value of a property. That can add up to losing literally thousands of dollars each year over the course of several years, since home equity lending brings a steady income stream for lenders. With variable rates that range from three or four percent to 11 or more percent, and a loan amount of $100,000, the lender stands to lose $2,000 to $10,000 or more each year, over the course of years, for every lost customer. Lose one customer a month and that number can jump up to $100,000 or more each year.

If the lender is using AVMs to evaluate its home equity portfolio, and that AVM erroneously over-values properties, that lender is at risk of losing the additional income generated by higher interest rates charged to borrowers for higher loan to value ratios. However, if an AVM erroneously under-values properties and the lender reduces or revokes a credit line, it could be losing out on the additional income from the increased line. What’s more, if a lender was negligent in selecting the AVM, and revoked a line without just cause — meaning it can’t prove how and why an AVM was deemed suitable — it puts itself at risk of not only noncompliance, but also litigation.

A Public Relations Nightmare

According to numerous news sources, including CBS, Bloomberg, ABC, and the Los Angeles Times, at least two of the country’s top lenders have been named in class action lawsuits for illegally freezing borrowers’ home equity lines, which according to some sources essentially violates part of the banks’ agreement for the bailout. Plaintiffs’ attorneys cite numerous experts who have stated that erroneous AVMs are at the root of the allegedly illegal actions.

While I am not here to deem an organization guilty or not guilty, I would like to point out the repercussions of this type of debacle. In addition to the hundreds of thousands of dollars in legal costs of defending a class action lawsuit, and the tens—if not hundreds—of millions of dollars a settlement could cost, there is the issue of the public relations nightmare that follows a disaster like this. While the big banks have legal teams and large PR firms to handle these types of issues, small shops, midsize lenders, community banks and credit unions do not. A class action lawsuit may or may not drag a lender into failure. At the very least, it can play a major role in the shortened lifespan and immediate profitability of an organization.

3) Portfolio Analysis 

Lenders and servicers are required by law to analyze their portfolios at least once per year. Most servicers conduct this analysis every six months, and most use AVMs for this type of analysis because they’re so cost- and time-efficient. However, there’s more to the story. Any business entity with a servicing portfolio is required by law to hold back anywhere from 20 to 50 – or in the case of home equity loans, 100 – percent of the value of their portfolios in liquid reserves. That figure is traditionally based on values derived from AVMs.

If a company values its portfolio too high, it is unnecessarily tying up valuable liquidity. To put a dollar figure on this, let’s say that the AVM you’re using returns values that are, on average, 15 percent higher than the properties’ actual value. For a portfolio valued at $50 million, you could be tying up an additional $7.5 million of funds that you are perfectly entitled to keep liquid. On the flip side of that coin, if the AVMs you’ve selected undervalue the properties in your portfolio, you are exposing yourself to the fees and fines associated with violating Basel III requirements. Portfolio analysis is a fine line with potentially severe financial consequences on either side. Your AVMs’ accuracy can tip the scale one way or the other, to the tune of anywhere from thousands to millions of dollars.

Accuracy Testing Pitfalls

As these dollar figures indicate, it’s critical to use the most suitable AVM if you want to reduce loss, maximize revenue and maintain existing customers. Most lenders and servicers do some type of accuracy testing, but chances are, they’re not using the most cost efficient means.

Some companies put AVM selection in the hands of the individual ordering the AVM. That’s not a good idea, because it’s virtually impossible for a human to be able to analyze AVMs well enough to rank each AVM sufficiently to build the most suitable cascade for a property. Others rely on their AVM providers to advise them in building their cascades, which is probably a slightly better solution, unless your AVM provider has an interest in one or more of the solutions it provides. Still others opt to use analysis companies that conduct in-depth research and accuracy testing for each of the AVMs that the lender or servicer uses. While this is certainly a better option than a staff member or AVM provider, it can be expensive and time consuming. These reports cost $50,000 to $60,000 a piece and are generally done quarterly, which brings the annual cost to $200,000 to $240,000 or more per year. And because they’re generally produced by actual humans, you can expect a wait time of roughly six weeks.

Your best choice is to use a technology designed specifically to be flexible in determining AVM suitability, like Platinum’s OptiVal, which can determine the most suitable AVM cascade in minutes. Whichever technology you choose, make sure to use a flexible technology, one that can factor in risk factors like loan to value, type of transaction, and borrower’s credit score. Each AVM is going to function differently for different properties.  There’s no such thing as a one size fits all AVM. The difference between using the most suitable AVM and the least could be vast, as can the difference between using the most and least suitable appraiser. An appraiser that specializes in Des Moines properties couldn’t produce an accurate value for a property in Brooklyn the way one who specializes in the area could.

Stop the Loss

It’s easy to underestimate the role that AVMs can play in a company’s profits and loss. With their low cost and speed, a lot of folks jump to the conclusion that AVMs couldn’t possibly have much impact on the bottom line. But they can and they do. It’s time to get out of the dark. AVMs are the mortgage industry’s most commonly used collateral valuation tools, bar none. But, used improperly, AVMs can do more harm than good. In fact, I believe AVMs are slowly, methodically draining profits for virtually every lender and servicer in our industry, to the tune of thousands of dollars each year. And that’s simply because lenders and servicers have a haphazard approach to AVM suitability and selection.

Accuracy certainly matters when using AVMs. In the mortgage industry, virtually every lending decision is hinged on collateral value. We can’t fool ourselves into thinking there are any cases where accuracy is not an issue, when in fact, inaccurate AVMs can lead to losses as subtle as missed opportunities or as dramatic as compliance violations, lawsuits and tied up liquidity.  Public relations disasters and reputational risk are harder to measure, but can end up being extremely expensive for lenders and servicers.

It’s time to stop the loss and start taking AVMs seriously. Unless of course, your organization has tens of thousands of dollars to waste each year.

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