Property Values, Fraud Critical Going Forward

Susan Allen

The long list of issues to be discussed at the MBA National Mortgage Servicing Conference in Orlando includes new government regulations, how are the servicers adjusting their processes to remain in compliance, technology that improves operational processes, and how to ensure sensible property valuations, which according to Susan Allen, one of the conference speakers, is key to mortgage servicing.

“Property values are critical for virtually every servicing decision that gets made,” says Allen, who since January has been busy conceptualizing new solutions and strategies for CoreLogic in her new role as vice president of strategic relations.

Today’s blend of AVMs with newly envisioned property condition reports has innovated the valuation space and “has been spurred by technology advancements and also by regulatory guidance,” Allen says.

Servcers are expected to do so much more. As a result demand is up. Whether the property values in a short sale or other workout transaction are fraudulent, or it is simply a matter of confidence in the value of a specific property given market volatility, valuation issues are at the top of servicers’ considerations this year.

The list of mortgage servicing solutions available is equally long. Examples include several products introduced by CoreLogic at yearend 2011 for market testing that will continue to be adopted by the market in 2012.

The HomeStandings report, available on Re/Max Main Street a members-only extranet website exclusive to the Re/Max organization and its affiliates, provides property-specific, easy-to-understand, professional-grade data and analytics real estate agents can use to assess “the overall purchase quality of a home.” It combines property, neighborhood and market characteristics—along with area pricing, surrounding market conditions, crime rates, schools, estimated market rent and investment opportunities—that help users understand “a home’s value, marketability and rent potential.” It helps take out the buyer-seller comprehension anxiety when it comes to home values.

The GEO AVM Distressed solution represents an automated valuation model that is also combined with supporting information. AVMs have been around for a very long time, she says, what is more recent is a new approach to how the modeling is performed and the other data included, especially in the distressed property reports. CoreLogic is using that approach to predict REO prices, she said. “We’re getting rapid increases in the usage of that product for various servicing applications.”

After its introduction in the fourth quarter of 2010, servicers have implemented “some very expensive testing” on the product in 2011 doing different pilots such as foreclosure bidding strategies, short sales and loan modifications. Now the test results coming in show “a very strong performance.”

Such tools help servicers who are concerned with the changing value of property devaluation in times when according to CoreLogic data over 27% of all properties with mortgages are underwater or near negative equity defined as 5% or less equity.

“Given the large percentage of mortgaged properties that are in negative equity is reasonable to assume that unpaid principal balance may not be a very solid reflection of the value of the property.”

These types of solutions have allowed servicers to extend AVM technology into the servicing space. “It took taking a completely different approach to modeling data in order to arrive there.”

On-site, a property inspection product was created to blend with an AVM since AVMs make specific assumptions about property values. For example, there is a misconception that AVMs assume a property is in average condition. “AVMs assume that a property is in similar condition to neighboring properties,” she said.

It is an important fact because when sending a property inspector to evaluate a property the input will depend on the questions in the evaluation form and whether they help the user match the AVM assumption.

For example, the question about the condition of a property needs to clarify where it stands compared to neighboring properties. Nonetheless, she agrees, there are many ways to create relevant questionnaires.

Servicers are using the distressed AVM or the retail AVM options for their early-stage loss mitigation decisions where the property may not be distressed and then blend it with other on-site data. In cases when servicers can make a workout decisions based on the value alone, these tools help speed up the decision-making process and control cost.

“In servicing days to a decision regardless of the decision really matter.”

At the conference Allen is looking forward to the opportunity to learn about hot topics and challenges servicers are facing in property valuations and short sales. As a panelist in a session on combating fraud she will report on updated findings from the CoreLogic 2011 Short Sale Fraud report and share best servicer experiences in dealing with the issue.