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It has become more of a challenge for lenders to stay abreast of compliance than ever before with the Dodd-Frank Act and the Consumer Protection Financial Bureau (CFPB). There has always been a cost associated with compliance, but the unprecedented quantity of recent regulation in conjunction with a new regulator has created an entirely new landscape for the mortgage industry. The mortgage industry quickly became an industry overwhelmed with compliance rules and as a result, the cost to adhere to new, constantly changing rules has skyrocketed costs.
The Mortgage Bankers Association (MBA) has said independent mortgage banks and mortgage subsidiaries of chartered banks reported an average of $743 per loan profit in the third quarter of 2013, compared to $1,528 for each loan originated in the second quarter of 2013. The average production income fell from 75 basis points to 38, marking the fourth consecutive quarter that productions profits have declined.
It is clear that lenders must find ways to operate more efficiently to drive down costs and bring back profitability. One strategy is to leverage technology that incorporates data products like automated valuation models (AVMs), collateral analytics and automated review. These types of products not only save time, but allow lenders to understand what is actually going on in their collateral valuation process.
An AVM is a tool that produces an instant real estate value. AVMs use mathematical modeling to value properties utilizing large amounts of data available from various sources. The majority of AVMs compare the values of similar properties at the same point in time. Over the past decade AVMs have been used sparingly by lenders due to their dependence on public records data, which in some cases has resulted in inconsistent results. Most lenders would limit the use of AVMs to prequalifying the borrower’s property. Today, however, AVMs tap into richer, reliable data sources like those found in Multiple Listing Services (MLS). These MLS powered AVMs are effective, efficient and an essential tool for staying competitive. AVMs can accelerate processes, minimize risk and reduce costs.
Lenders have greatly increased their use of AVMs to confirm property value and streamline the lending process by utilizing AVMs as a solid property value screen in home-equity lending. As the market has grown, so has the number of commercially available AVMs. Each AVM has different performance characteristics, geographic coverage, and confidence scores. To achieve the most potent risk management, lenders must leverage a provider that offers various data products to achieve the best performance of the AVMs they use.
The bottom line is that using AVMs is an effective way to reduce costs, increase profitability and help mitigate risk. However, you have to look for an AVM that has advanced past the older AVM model the industry is used to, which generally relied on less data to value properties. Instead, look for an AVM that is backed by a robust data set that now takes into account more data elements that help considerably in more accurate and constantly valuing a property. Many of today’s popular AVM providers have partnered with other complimentary vendors like appraisal management technology to add even more efficiencies to your daily workflow.
Vladimir Bien-Aime’ is president and chief executive officer of Global DMS. Since co-founding Global DMS in 1999, Bien-Aime’ has grown the company to capture a leading share of the appraisal management segment, with a client base of over 20,000 unique users and a 100 percent retention rate among lender clients. He may be reached by phone at (877) 866-2747.
This article originally appeared in the May 2014 edition of National Mortgage Professional Magazine.