Risk Based Valuations – Now More Important Than Ever

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By SingleSource | January 21, 2021

The COVID-19 pandemic has changed many aspects of the mortgage industry and appraisal process. Lenders, servicers, investors, and appraisal management companies (AMCs) have had to adapt to the constantly changing guidelines and requirements of this ‘new normal’.

From traditional real estate appraisals to hybrid valuations, broker price opinions (BPOs), reconciliations, automated valuation models (AVM), and more – lenders have a variety of options to choose from, but what is the most compliant, reliable, and cost-efficient option?

Technology advancements, new regulations and economic fluctuations gave rise to new data-enriched collateral valuation products. Over the course of 2020, demand for hybrid valuations increased due to a mixture of several factors:

·       The COVID-19 pandemic and its effects on the ability and safety to perform interior inspections.

·       A declining population in appraisers nationwide

·       Rising numbers of real estate transactions taking place

These factors have accelerated acceptance of hybrid real estate valuations and other alternative valuation products, that are faster to perform or may be performed by real estate professionals other than appraisers. 

Many lenders have streamlined their appraisal and evaluation process as advancements in real estate technology led to instantaneous property information products and services, reducing the need for traditional appraisals. Lenders seeking to control costs and be more competitive in the marketplace have adopted non-traditional appraisal products as part of their valuation methodology.

SingleSource Hybrid Valuations

SingleSource’s approach to fulfilling property valuation needs has always ensured our customers receive compliant, customized, accurate and quick valuation services. We are committed to providing the highest level of quality and care throughout the property valuation process to help our customers mitigate risk.

All SingleSource valuation products are reviewed by highly trained analysts and certified licensed appraisers along with automated quality clerical checks. SingleSource clients are serviced with a dedicated account manager and a USPAP Certified staff of reviewers.

The SingleSource Hybrid Desktop Appraisal combines an on-site interior or exterior property condition report (PCR) (completed by a licensed real estate agent, inspector, or appraiser), with a desktop appraisal (completed by a locally licensed or certified residential appraiser).

The SingleSource Advantage Inspection is an exterior (or interior) property condition inspection report (completed by licensed real estate agents) that includes neighborhood and market information, subject condition comments, photos, and positive or negative external factors affecting the subject property. The property condition inspection report is designed to help lenders meet compliance with Interagency Guidelines when utilizing a hybrid valuation product.

Partnering with licensed real estate agents nationwide for over 20 years, our inspection team has acquired extensive experience and understanding of the property condition inspection process. We have established relationships with over 10,000 valuation vendors nationwide for consistently reliable and expedited turn times.

The New 1004 Hybrid Valuation Form

In light of the changing landscape last year, Fannie Mae and Freddie Mac created a new 1004 Hybrid Valuation Form and a new 1004 Desktop Form. These new versions are included with all appraisal software programs to create a more seamless process for appraisers in the field. The result is a faster appraisal completed in a traditional appraisal format.

To learn more about the new 1004 forms, view the Fannie Mae announcement.

Risk Profiles and the Corresponding Valuation Products – Risk Based Valuations

Despite the current rise in hybrid valuations, risk profiles must be considered before choosing the corresponding valuation products. The user of the collateral valuation product should assess the inherent risk of the transaction before selecting an appropriate option to determine a property’s value. 

Not only are we able to provide valuation services, we also often help our customers develop collateral risk management programs to help them make the best risk-based decision. Rather than relying on a full appraisal for every property, we suggest our customers manage their collateral risk using several factors including: total loan to value, borrower credit score, borrower reserves, property type and, for fix and flip loan products, size of the repair budgets.

For the highest risk situation as suggested with a maximum LTV transaction, coupled with weak or marginal credit and a significant repair budget, the traditional interior and exterior inspection appraisal is likely the most effective risk management option. Unique property types or atypical lots may also warrant a full appraisal.

Whereas, for less risky transactions, an exterior-only appraisal provides much of the same analysis as the 1004 form, without an interior inspection of the subject property. An alternative option would be a hybrid appraisal consisting of a desktop appraisal based on in-field property inspection data.

For the lowest risk transactions, such as a stand-alone home equity loan, a data-enriched property evaluation, consisting of an exterior property condition inspection and an automated valuation model (AVM) may be sufficient.

Credit risk managers employing the appropriate risk-based valuation product in their loan processing will mitigate risk while staying competitive in today’s marketplace.

What’s next?

Despite the new year, the world around us continues to change and we believe making risk-based decisions will result in the best collateral risk management decision for most valuation needs. By matching appropriate valuation products with the level of risk, you can be confident you are receiving the most appropriate product for each circumstance, and at a fee that balances speed and analysis with risk. Contact us today to learn more about how to achieve greater operating and cost efficiency in your collateral analysis needs.

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SingleSource merged with iMortgage Services, creating a comprehensive range of services that can be applied across the entire loan origination process and servicing cycle.

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