Home Equity Lines of Credit (HELOC’s) continue to offer exciting growth opportunities for lending institutions. First Choice Appraisal Management provides evaluations, alternative valuation services, and appraisal products to support lenders offering Home Equity Lines of Credit.
Any discussion of evaluation products needs to include at least a basic compliance overview of the Agencies’ guidelines for evaluations. An appropriate evaluation can be employed, in lieu of an appraisal, when the transaction value is < $250,000. Examiners will study an institution’s policies, procedures, and controls to ensure the usage of an evaluation product is consistent with sound lending practices. So, while the use of a specific evaluation product cannot guarantee compliance by itself, using an appropriate evaluation product is an essential component of enterprise risk management. Our compliance expertise also helps to mitigate institutional risk.
An evaluation must contain adequate information detailing the analysis, assumptions, and conclusions that supported the credit decision. Evaluations should include the following: specific property information regarding the collateral, an estimate of the property’s market value, a description of any supplemental information considered, a listing of all the information sources, and evidence of a property inspection, which must include:
- Photos of the property
- Summary of local market conditions
- Neighborhood description
Unless a lender can demonstrate how the physical condition of the property and current market conditions were determined, a property inspection is the Agencies’ preferred method.
Matching the right evaluation, alternative valuation, or appraisal service with each transaction’s collateral risk empowers institutions to safeguard credit quality, while still delivering an excellent customer experiencefor borrowers. First Choice Appraisal Management (FCAM) recommends that Clients employ a full suite of evaluations, alternative valuation services, and appraisal products to provide the most efficient and cost-effective solutions commensurate with credit risk.
An AVM, combined with an Exterior-only Property Condition Report, can be a compliant Evaluation solution addressing all of the minimum requirements. The property inspection can also be upgraded to an Interior & Exterior Property Condition Report, and combined with an AVM, to develop a more comprehensive Evaluation.
Automated Valuation Model (AVM) provides a computer-generated market value estimate for the collateral, based on advanced statistical analysis of area property sales.The speed, relative accuracy, and lower cost of AVM’s make them an effective method of establishing collateral value and managing risk for low-risk credit transactions on typical residential properties. FCAM offers a Cascade AVM containing several of the industry’s most rigorously tested and consistently validated AVM’s – firing in a waterfall pattern – to increase property hits and power valuation accuracy.
Property Inspection Report
Property Condition Report (PCR) is a professional inspection of the Exterior-only, or of the Exterior & Interior, of the Collateral to satisfy the Agencies’ requirements for a property inspection. The Property Condition Report includes color photographs of the collateral, along with a neighborhood description, and relevant commentary describing its physical condition.
Alternative Valuation Services
Desktop Appraisal is a market value opinion, developed by a state-licensed or certified appraiser, and completed without the appraiser performing a physical property inspection. This alternative valuation service is more reliable than an AVM, since it incorporates the experience and judgment of a professional appraiser, while offering a more cost-effective valuation solution than traditional appraisal products. For some applications, desktop appraisals alone might suffice. However, they do not address the collateral’s physical condition unless a desktop appraisal is combined with a property inspection report.
DESKTOP APPRAISAL WITH EXTERIOR-ONLY PROPERTY INSPECTION
Desktop Appraisal combined with an Exterior-Only Property Inspection of the collateral performed by a professional inspector. These two products together can provide a thorough method of satisfying both appraisal and evaluation guidelines. The Desktop Appraisal and Exterior-Only Property Condition Report are sometimes referred to as a Hybrid Valuation, since the work of an inspector and a state-licensed or state-certified appraiser are combined into an efficient, cost-effective alternative valuation service.
DESKTOP APPRAISAL WITH EXTERIOR & INTERIOR PROPERTY INSPECTION
Desktop Appraisal combined with an Exterior & Interior Property Inspection of the collateral performed by a professional inspector. These two products together are a sound method of safeguarding credit quality with an alternative valuation service, which is more efficient than a traditional appraisal product. The Desktop Appraisal combined with an Exterior & Interior Property Condition Report can be a comprehensive, compliant lending solution satisfying all of the Interagency Appraisal and Evaluation Guidelines.
TRADITIONAL APPRAISAL PRODUCTS
Exterior-Only Inspection Residential Appraisal Report (Form 2055) combines an Exterior Property Inspection of the collateral with a Market Value Opinion, both completed by a state-licensed or certified appraiser. The 2055 “Drive-by Appraisal” is commonly used for credit decisions involving conforming or non-conforming residential properties when a full interior property inspection is not required from the appraiser. The 2055 is also used when interior access to the collateral is inconvenient or impractical.
Uniform Residential Appraisal Report (URAR | 1004) combines a comprehensive Exterior & Interior Property Inspection of the collateral with a Market Value Opinion, both completed by a state-licensed or certified appraiser. The URAR is widely considered to be the most comprehensive traditional appraisal product available. As such, the URAR / 1004 might be a less efficient and less cost-effective valuation solution for HELOC’s, second-lien mortgages, and other consumer lending decisions than Evaluations or Alternative Valuation Services.
Lenders are advised to select a level of valuation service that is commensurate with the level of credit risk, which is appropriate. It is inappropriate, however, for lenders to select a valuation service solely on the basis of low-cost.
First Choice Appraisal Management’s experienced staff provides extraordinary customer service with proven results. Please let us know if we can help your institution design a suit of compliant HELOC solutions to capitalize on this exciting opportunity. Thank-you!