Using BPOs ... Cautiously

Saying that the mortgage industry is way too engaged in implementing a better-safe-than-sorry philosophy may be an understatement, especially when dealing with property valuations.

Insiders see valuations as one of the most critical issues faced by servicers today.

"This year servicers and investors will order millions of BPOs as they work through loss mitigation scenarios and attempt to value portfolios and distressed assets," says Joni Pierce, division senior vice president of Dallas-based First American Valuation and Property Solutions. The expected increase in residential and commercial real estate appraisal activity, she argues, makes it even more important "to verify accuracy while increasing throughput and reducing processing costs."

Joe Filoseta, CEO of DepotPoint, agrees that an accurate valuation based on real time information is critical.

Which is why he says his company found it important to separate the BPO product from the data analysis product. It is how DepotPoint ensures that the real estate agent that is doing the BPO has no influence over the analytical report.

That separation is valuable because it avoids the conflict of interest inherited in the process, or potential for fraud, if the person who may be responsible for the sale of the property has exclusive power over the analytics. "We've seen many cases where real estate agents who are doing BPOs are simultaneously working on two transactions, and the potential for abuse. Finally, that certainly is not in the interest of maximizing portfolio recovery."

The First American Corp. subsidiary has subscribed to that same philosophy by combining the speed and value of a broker price opinion with the validation of a seasoned appraiser as a way to ensure process efficiency.

The Appraiser-Validated Price Opinion - the new valuation service introduced by First American Valuation and Property Solutions - is designed to ensure investors and servicers receive highly accurate valuations.

Even though they are not appraisals, these reports contain expert opinions that provide a second level of review for broker price opinion users, without the need to build expensive in-house review functions, First American said. Licensed appraisers review valuations determined by local Realtors and agree or disagree with that value after having looked at comparable sales and verifying data accuracy. If discrepancies are found, the appraiser provides a new set of values, complete with an explanation of how they were determined.

Appraiser-Validated Price Opinions are available as exterior only or exterior and interior reports available in seven to 10 days. The product is offered as a complete outsourced option or as a supplement to in-house review teams, which helps clients identify high-risk BPOs.

"Our Appraiser-Validated Price Opinion service provides the safety of a second, objective look at the valuation, without the need for second BPOs, expansion of in-house review staff or a full appraisal," Ms. Pierce says.

More data resources combined with local level input make all the difference in achieving valuation accuracy.

Prospective homebuyers and banks do not want to know about average housing prices within a ZIP code area miles away, what is really helpful to know is what is going at the neighborhood level, Mr. Filoseta says. In places like New York, for instance, 10 blocks into what is called Little Italy or Chinatown can change everything. Same thing in California's Bay Area, the housing scene differs just a couple of miles closer or further away from the water line, and along with it home values change.