The COVID-19 pandemic has significantly impacted the mortgage industry, creating business and operational changes for both lenders and servicers. One of the important changes resulting from the pandemic is the accelerated use of appraisal alternatives.
Even prior to COVID-19, however, the case was already building for increased usage of alternative appraisal methods. Factors contributing to this trend included technical advancements in AVM modeling, the availability of timely big data, a declining number of professional appraisers, and greater regulatory acceptance of modern valuation technologies.
The Surge in Alternative Valuations
The increase in alterative valuations during recent years is demonstrated by the upward trend in appraisal waivers. This trend dates back to 2016 when Fannie Mae began to offer its latest version of the appraisal waiver program for refinance transactions, which was subsequently expanded to include purchase transactions in 2017.
Additionally, during 2019, there was a concerted industry effort to support the use of alterative valuations. In fact, the Mortgage Bankers Association sent a letter in Feb. 2019 to several federal agencies detailing its support for proposals to eliminate manual appraisals on loans $400,000 or less.1
Use Cases for a Valuation-Based Solution
New government regulatory guidelines in the wake of the COVID-19 crisis state that “both desktop appraisals and exterior-only appraisals can fulfill the requirements of USPAP if the analysis is credible”2. on qualifying properties under $400,000.
These guidelines have helped decrease the risk of appraiser and homeowner exposure to the coronavirus, supporting public health measures. In addition, the increased usage of alternative appraisals such as desktop valuations have not only helped lenders expedite the property appraisal process, but also benefited borrowers by reducing the cost for appraisals.
As lenders look to leverage alternative technology-driven valuations, they will want solutions that factor in the most comprehensive data available and deliver exceptional currency, so they can be confident in the results.
Black Knight recently launched Value Range Express, a unique solution that combines our top-rated AVM capabilities with the added power of national MLS listings and comprehensive, enhanced property-record data to provide valuations with greater accuracy.
Value Range Express delivers single-source access to over 200 fields of data that are linked together by a single Black Knight ID to create a flexible valuation solution. The data covers 95% of active MLS property listings nationwide, as well as property records representing 99.9% of the U.S. population.
This robust valuation-based data solution provides property data that is refreshed daily to help deliver completeness and currency. Clients have easy access to property photos for closer evaluation of homes, and they can opt to get HOA detail and waterfront indicators, as well as other related information.
Value Range Express offers a point-value for property valuations that lenders can leverage to help increase AVM hit rates and verify desktop appraisals. Or, lenders can choose the traditional valuation range and use the solution as their primary AVM. Appraisal management companies can find similar uses to help validate independent appraisals, and can experience the efficiencies and convenience of having MLS and property record data in one solution.
Besides helping to manage collateral risk, Value Range Express can be very beneficial for supporting modeling and portfolio analysis. Risk managers and modelers can be more efficient in tracking and analyzing key trends that could impact loan portfolios by leveraging the Value Range Express for-sale listing alerts, property and valuation data.
Another important benefit of Value Range Express is that lenders and servicers can work together to be more proactive in their borrower retention efforts. They can utilize the Value Range Express listing-alert notifications to identify current customers who may be “in the market” for a new home, and then proactively prequalify and contact them for financing on their next property.
The Power of Combining Analytics and Big Data
No matter how well designed a valuation model is, it really comes down to deep data sources with a high level of integrity. This means delivering data that provides transparency, accuracy, timeliness, comprehensiveness, consistency, and standardization balanced against the right amount of flexibility for users.
As a valuation-based data solution, Value Range Express gives users a choice of Black Knight’s AVMs that are most appropriate for the property’s geography, desired hit rates and accuracy. The real power comes from the fact that the solution delivers one-stop access to comprehensive data linked together.
Just as important as achieving a significant increase in the use of alternative valuations is the need for continued innovation, particularly in the area of data solutions. Combining powerful data solutions with advanced valuation capabilities is an important addition to the toolbox of professionals who ascertain property values, manage borrower retention and mitigate portfolio risk.
1See 83 FR 63110, “Real Estate Appraisals,” December 7, 2018. Available at: https://www.federalregister.gov/documents/2018/12/07/2018-26507/real-estate-appraisals
2FDIC Press Release, April 14, 2020. Available at: https://www.fdic.gov/news/press-releases/2020/pr20051b.pdf
3The Impact of Raising the Dollar Limit for Requiring Appraisals on the US Mortgage Industry, Dr. Michael Sklarz* and Dr. Norman Miller May 01, 2019