Sharp Focus On Valuations

Changes to HAMP and HAFA have brought along new demand for accurate valuations of distressed properties.

Operational changes include required HAMP evaluations if the borrower misses two payments and increased upfront incentive payments for servicers who increase outreach efforts in the field in the hope it improves asset valuation.

"Now more than ever, servicers, lenders and investors are demanding pinpoint accuracy in the valuation of distressed assets," says Tom Frunzi, EVP of sales at Equity National, a title and settlement services company based in East Providence, R.I. "There is little margin for error or inaccuracy in this market, the cumulative risk is too great."

Demand has shown that the market is ready for the next generation of valuation tools, says Jim Dammerich, who heads the collateral valuation division of Equity National. If the traditional BPO is more subjective, the habitual shortcomings of an AVM can be overcome by combining expert analysis with field inspection. In 2010 and beyond he says the industry will focus on improving methods of distressed property valuation since the very nature of this market makes it a challenge for servicers.

Equity National developed PACEplus as a predictive valuation tool that combines quantitative data collection and analysis with human evaluation "to ensure a more accurate measurement of a distressed property's true market value." Plus it uses an in-home, bilingual closing agent network of over 4,000 professionals in 50 states. PACEplus uses public and private housing, economic, and market data that undergoes rigorous analysis, combining human review and field data collection, a questionnaire and photos to secure a more accurate valuation report.

Real estate valuation remains a hot topic as appraisal groups continue to petition against single appraisals. Insiders agree that local changes in home prices driven by an array of economic factors require complex methods and the combination of various tools.

Kevin Marshall, president of Clear Capital and a long-time advocate of alternative valuations sees BPOs, AVMs, and other methods as important tools whose value in reducing costs, increasing speed and overall accuracy of the valuation is often overlooked even though they are crucial in today's volatile market. For example, in April Clear Capital reported a slowdown in both home price gains and REO saturation rates suggesting price trends are only in part dependent on distressed sale volume and "re-enforcing the need to understand local markets." Analysts said saturation rates of over 33% during the last quarter with high performing metro areas saw flat prices, while in lowest performing areas prices declined 11.1%.

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