Raising the Bar on Valuations

Raising the Bar on Valuations/The Power of Choice

In a time of uncertainty and numerous changes in the housing market, property valuations continue to be a hot topic. There have been several discussions around how to prevent foreclosure. All of which require the servicer to order a valuation of the property.  Last October at the Mortgage Bankers Conference, the focus was on loan modifications, primarily the Home Affordable Modification Program (HAMP). Almost one year after the program was introduced; the results are disappointing with temporary to permanent modifications falling far below the expectations.  Out of Treasury’s estimate of 1.8 million troubled home owners, only 170,000 modifications were made permanent.

Many critics of the HAMP program suggest the Net Present Value (NPV) test was responsible for several denials.  In many cases, a negative NPV result concluded the loan ineligible for HAMP. NPV criteria included entering a property’s current value.  The following are the approved valuation methods: Appraisal, Broker Price Opinion (BPO), or AVM-generated property valuation. Although other measures are necessary to perform the test, homeowners were not in agreement with values servicers placed on their property. So the question remains which method is most accurate?  While there is no fool proof way to ensure accuracy, emphasis should be placed on raising the bar of the entire valuation industry.

With the negative results of HAMP, the industry is now focused on short sales and deeds-in-lieu of foreclosure. The Treasury department has determined the use of BPOs is an acceptable pricing tool. Technology, if properly used, has greatly enhanced the ability for BPO companies to consistently deliver a more accurate opinion.  It is important to note that a BPO will never replace the position of an appraisal; however, they have become an important part of the lending industries common practices.

The first challenge with any valuation is to gather the most accurate/complete and pertinent information. The second challenge is to be able to verify the information received is accurate and the best data available on the market. BrokerPriceOpinion.com has overcome both of these challenges through innovative technology solutions; and by incorporating local market data from a unique source which prevents fraud at the field level. For example, if there was comp that was a model match next door and the agent didn’t use it, we will follow up with the agent to ask why it was not used.

As an industry, valuation providers should focus on the needs of the lending industry. It is imperative for the users to be able to choose what option best fits their requirements.  AVMs, BPOs, APOs, CVRs, Appraisals and other valuation solutions are all useful products.

No matter the choice, servicers must be able to rely on accurate and consistent values.

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