Asset Valuation

When home values were surging upward, the accuracy of appraisals and AVMs was perhaps not the highest priority in the industry. In most cases, if an estimate of a home's value was a little optimistic, the market would quickly erase the error before the loan had a chance to go into delinquency or default.

But those days appear to be over.

Many predicted, of course, that the days of double-digit annual home price gains would come to an end. As MBA economist Doug Duncan likes to remind us, unsustainable trends can't last forever. But not many predicted the housing slowdown would come so fast and be as dramatic as it has been. Most thought home price growth would slow or plateau, but an increasing body of evidence, including data from the National Association of Homebuilders and the Office of Federal Housing Enterprise Oversight, suggests that home prices have actually started to decline. And not just in a few hard-pressed markets.

Nationally, home prices appear to have slipped. Sure, some markets continue to see gains, but the most high-flying markets of recent years, including metro areas like Phoenix and Las Vegas as well as many California and Northeast markets, are seeing houses linger on the market longer and prices become much more "negotiable" than in recent years. That's having a big impact on the mortgage servicing business.

Already, evidence shows that delinquency and default rates have risen, though not to worrisome levels nationally. However, the delinquency rates for FHA loans, subprime loans and in some regional areas remain stubbornly high, and there is little reason to expect them to come down in the near term.

For servicers, having an accurate picture of the collateral's current value is critical in making decisions about forbearance and loss mitigation options. An origination appraisal or estimate is not enough in today's market. Lenders will want to have current values to make appropriate decisions not only with regard to loss mitigation and collections, but also in determining the value of an MSR portfolio. The housing slowdown has only made it more important that lenders understand how property values interact with loan performance. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com