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Special Reports
AVM/Appraisals/BPOs
Product to Analyze Appraisal Overvaluation Risk
By Jennifer Harmon
JACKSONVILLE, FL -- Hansen Quality, a division of Fidelity National Financial
Inc. here and a provider of collateral valuation and appraisal review products, has launched PRO Value, a service
that analyzes overvaluation risk on residential appraisal reports and provides an independent, AVM-derived collateral
value that is reviewed and certified by an expert appraiser.
This service is designed to be used in the origination phase as a substitute for
desk reviews or in the due-diligence process for whole loan purchases.
Hansen Quality's PRO Value report assigns an overvaluation risk score after evaluating
critical factors associated with an appraisal report. Considered risk factors include, but are not limited to,
unique property attributes, below-average condition, negative external influences and inappropriate comparables.
The review appraiser then chooses an accurate AVM value from a selection of three to four different AVM models,
including an appraiser-assisted model. The final PRO Value report includes the overvaluation risk score, the reviewed
AVM value and commentary summarizing the review appraiser's analysis.
According to the company, PRO Value is ideal for clients seeking a very accurate
collateral value based on a desktop-oriented review process as opposed to a field review. The real advantages show
up in time and cost savings to the client.
"We realized the need to provide an appraisal review solution that would
offer a higher level of due diligence for those clients that wanted to go a step beyond our PRO product,"
said Mark Fernald, senior vice president, senior risk administrator of Fidelity.
"By combining an appraiser-certified value with the PRO collateral risk report,
we have given investors a time-saving, cost-effective alternative to using a BPO (broker price opinion). It is
also a great option for originators, providing them with greater collateral value assurance than a desktop review
alone," said Mr. Fernald.
Greg Hansen, chief executive officer of Hansen Quality, said the alternative valuation
products are different from the old style type of reviewing which simply looked at the value and whether it's supportable
or not. A lot of what the company does is not so much about compliance but more about the estimated value on the
appraisal itself or any type of appraisal being used by the lender.
"What we do is use PRO Value and give the collateral risk score, which puts
a value in it with the risk of the AVM attached to it. The data indicates the value of the property."
The company's review is based on taking reviewing to another level with collateral
risk analysis. The real question is trying to answer if there is an acceptable risk and could the property go into
foreclosure and could the lender loose money on it. "We look at the basic elements. What is the supportable
value? The marketplace itself and other types that could diminish the risk score."
Fidelity is perhaps the largest provider of AVM-derived collateral value, which
is like a one-dimensional kind of value, Mr. Hansen noted. "If the property is worth $1 million, we can valuate
it in terms of risk compared to a neighborhood of only $1 million properties which could be the norm."
Part of the analysis, in terms of more of a risk-based decision, is if you make
a $1 million loan on a house - comparing what it's worth vs. the smaller market for it, or looking at it low end
vs. high end.
As the subprime market matures, there is more pressure to be efficient. To do
that, the lender must use tools that are faster.
Some loans involve greater risk than others for a number of reasons. "You
should only use the amount of energy you need to make the acceptable loan. That's why AVMs are becoming a popular
tool for business, making loans rather than appraisals."
The market remains healthy now, Mr. Hansen added. "People are so busy getting
loans booked, there is not a lot of time to find innovate ways to do it. As the market becomes more normal or slower,
lending needs to become more effective and the trend in using alternative review tools is more important to people
involved in the business."
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