Today’s appraisals can incorporate both people and technology to help reach the goal of a positive member experience
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Today’s lending environment is more competitive than ever, and credit unions are working hard to attract borrowers while satisfying regulators and auditors.
Are lenders making the right underwriting decisions to ensure they are making sound decisions? The borrower’s ability to pay, loan-to-value/combined loan-to-value limits, acceptable property types, and loan purpose should drive what valuation products and scope are most appropriate.
In other words, one size doesn’t fit all when it comes to valuing a property.
Full Traditional Appraisal
Full traditional appraisal products are by far the most detailed and 100% performed by a licensed or certified appraiser. These types of valuations are best used for higher risk loans, first lien purchases and refinances, challenging markets where data is limited, complex or specialized properties, and high-dollar properties. The advancement in data analytics is giving lenders the ability to drive down origination costs and close loans faster while remaining compliant.
When the borrower’s risk factors include low balance, lower LTV/CLTV, and strong overall credit worthiness, an automated valuation model with a property condition report may be sufficient. They provide instant results and, since home equity and second mortgage loans have been increasing, lenders are moving away from the traditional full appraisal for a faster and more cost-effective alternative.
Your credit union, however, must consider when it is appropriate to use an automated valuation model, including such factors as the subject property characteristics, geographic footprint, and breadth and quality of the data. Not all properties are suitable for using AVMs and not all AVMs perform the same.
If a credit union is using AVM technology, it should understand the products it is using and ensure that they are tested for performance within the subject’s marketplace, against competitive AVM products, and appraisal sampling.
Interagency guidelines state: “An institution should be able to demonstrate that an evaluation, whether prepared by an individual or supported by an analytical method or a technological tool, provides a reliable estimate of the collateral’s market value as of a stated effective date prior to the decision to enter into a transaction.”
Additionally, the institution must verify the physical condition of the subject property and therefore should have a resource to obtain a reliable inspection report. Lastly, the AVM should be carefully, reviewed, analyzed and must make sense.
Hybrid or “Bifurcated” Appraisals
Hybrid or “bifurcated” appraisals have been around for a few years and have been drawing more attention in the last few months.
Fannie Mae and Freddie Mac just recently introduced their version of a bifurcated appraisal process. This is a hot topic as the industry finds more opportunity to use them.
SWBC Lending Solutions™’ SureVal® Hybrid report includes a desktop valuation performed by a competent licensed or certified appraiser who has knowledge of the market. The appraiser relies on a third-party inspection performed by a trained and licensed real estate agent or broker and utilizes extraordinary assumptions. The appraiser determines if the scope is sufficient enough to provide credible results and uses their own local multiple listing data. The report does not limit the appraiser in any way to comply with uniform standards.
Technology continues to improve with the addition of mobile apps, allowing inspections to be performed at a fraction of the time and with very detailed engagement instructions that walk the inspector through the process, ensuring that all required photographs are taken and uploaded. Geographic information system tracking ensures the correct property was inspected, providing another level of confidence.
Low interest rates, technology, and underwriting standards all take some part in developing a strategy for a more efficient mortgage lending process. The end result is providing a positive experience for members that is faster and more cost effective. Lenders and underwriters require significant education to get accustomed to making lending decisions utilizing AVMs and hybrid appraisals, but incorporating alternative valuations can still provide your credit union with a quality valuation while mitigating risk.
It’s important to find a partner that can provide all of these options and more. Your partner should understand and be able to assist you in choosing appropriate products and knowing when it is time to upgrade.
Chuck Mureddu is chief valuation officer and compliance officer for CUES Supplier member SWBC Lending Solutions, San Antonio. To learn more about how your credit union could benefit from incorporating hybrid valuations into your home equity program, click here to download our ebook.