When it comes to paying bills, some people have a million excuses (both valid and invalid) for skirting their obligations. Unfortunately, lenders constantly deal with borrowers' excuses when it comes ...
Lending
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2 min read
Lenders face a variety of challenges. When it comes to mortgage origination, some of those challenges include increased turn times and valuation costs. While it’s critical for lenders to demonstrate to regulators that they are valuing the equity in an appropriate and compliant manner, it’s also essential to provide cost-effective mortgages that close in a timely manner in order to meet the expectations of borrowers.
While it makes sense to look at your operations and policies, focusing on the valuation products you’re using in the mortgage loan origination process could have the greatest impact on your overall cost to originate. Many financial institutions have identified lower risk combined loan-to-value (CLTV) positions and incorporated alternative valuations that still meet regulatory scrutiny while mitigating risk.
When it comes to property valuations, one size does NOT fit all! The borrower’s ability to pay, LTV/CLTV limits, acceptable property types, and loan purpose should drive what valuation products and scope are most appropriate. It’s wise to thoroughly evaluate all of these aspects, as well as the unique situation of the borrower and their loan so that your financial institution can make the most appropriate decision. While each situation is unique, here is a list of available valuation products and some of the best use cases for each:
Full Traditional Appraisal
Best uses:
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Higher risk loans
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First lien purchases and refinances
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Challenging markets where data is limited
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Complex, specialized, or high-dollar properties
Automated Valuation Model (AVM)—real estate value is calculated with a database of transactions and existing properties, in addition to mathematical modeling
Best uses:
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Low balance
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Lower LTV/CLTV
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Strong overall credit worthiness
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In conjunction with a property condition report
Hybrid or Bifurcated Appraisal--a cost-effective gap solution that pairs a property and neighborhood inspection with a streamlined desktop report, completed and signed by a geographically competent, licensed appraiser.
Best uses:
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Private investors
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Mortgage servicing and default scenarios
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Portfolio management and servicing purposes
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Loan default, foreclosure, or pre-foreclosure
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Reducing costs without losing quality
As a lender, it is necessary to fully understand the pros and cons of each valuation product. While reducing costs and closing time are noble objectives, mitigating risk and financial loss from potential inaccurate property valuations must also be prioritized.
With a focus on alternative solutions that reduce costs and streamline processes, our valuation products address the need for a property evaluation product that is more economical than traditional appraisals. Download our ebook to learn how incorporating hybrid valuations into your home equity program can help your institution reduce your loan origination costs.
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