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Entrepreneurialism With a Safety Net (aka Net Branching)

Nov 18, 2001

Appraisal Alternatives--So Many Choices, So Little TimeDave StokesInterior Appraisals, Exterior Reports, AVMs The appraisal function of home equity lending requires a significant amount of time and substantially adds to the cost of origination. With that in mind, home equity lenders are always looking at their alternatives. They all want the same three things: the ability to close loans faster, streamline the process and reduce costs. However, many are concerned that new alternatives could put them at increased collateral risk, so they look at these options with some caution. Many are especially wary of using these new products for higher dollar amounts or loan-to-value loans. As a means of making some sense of the available alternatives, I've provided the following definitions: ++Interior Appraisals: These reports might be considered the top-of-the-line. They provide very detailed analyses of the property, including a physical inspection of the interior and exterior by an appraiser. They are very thorough, but usually take more time and are more expensive to produce than the other alternatives. Lenders often use these on loans of large dollar amounts (more than $100,000) and higher LTVs (80-100 percent). A customary turn-around time is seven days. These reports are usually delivered via fax or e-mail and cost between $200 and $250 per loan. ++Exterior Reports: Less expensive and time-consuming, exterior reports generally fall into two categories: exterior appraisals and drive-by BPO valuations. The exterior appraisals are usually used for higher property values and LTVs than the drive-bys. In general, exterior reports are used when there is less risk, so the lenders are willing to take less information than a full interior. The lender's underwriting guidelines will dictate how much information they need to make a loan decision, helping them to choose between the two alternatives. Their appeal is that both avoid the need to set an appointment with the owner to view the property. This often slows down a full appraisal. Also, since they involve less work than a full-scale interior appraisal, they are less expensive (generally $75 to $125). These reports are usually delivered by e-mail in three to four days. ++AVMs: Lenders looking for the lowest cost and quickest turn-around are now turning to AVMs. Using the latest in technology, these automated reports give instant property values and are the least expensive of the alternatives. Relying on an AVM increases the number of loans the lender can get done faster and cheaper. They give lenders a good picture of the value of a property on the spot, making AVMs especially powerful tools to move along refis and home equity loans quickly. These computerized models are based on available public data such as town records, registries, assessments and sales records. These database-driven property evaluation systems may be queried over the Internet, and their results are delivered digitally over the Web. They are considerably less expensive than drive-by assessments, but accuracy of the value has been a concern. These products are "hot" now, but some lenders don't have the comfort value they have with the more traditional techniques. They worry that, because there is no physical evaluation, some property values may be overstated. As a remedy to the same problem, some companies are introducing value insurance for such products to protect the lender from any loss as a result of an overstated value. Along with the instant AVM delivery, this coverage provides peace of mind to lenders who are concerned about using AVMs for higher loan amounts and LTVs. No lender likes risk. Other the other hand, most aren't too crazy about anything that adds to the cost of a loan. The variety of appraisal alternatives available today gives lenders the opportunity to control some of those costs. And, some of the newest offerings allow them to do that without losing sleep. Dave Stokes is the executive vice president of Integrated Loan Services (ILS). He may be reached at (800) 842-8423.
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Nov 18, 2001
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