Property Valuation, Risk Mitigation and Earning Customer Confidence
With mortgage rates still near historic lows and the shift to a purchase market, it is more important than ever for lenders to qualify borrowers appropriately. This is the only way to maintain profit margins and limit defaults. In order to improve loan quality, lenders should provide robust services for further evaluating a borrower’s potential undisclosed debt and for determining the appropriate valuation for the property.
Mitigate the impact of risky “unknowns”
Balancing loan processing consistency and compliance with superior customer service will play an important part in earning customer confidence. Identifying undisclosed debt and costly changes in a borrower’s debt-to-income (DTI) early in the origination process can help lenders proactively discuss the impact with the borrower and facilitate a smoother lending process for everyone at the closing table.
Additionally, the Dodd-Frank Mortgage Reform rules set forth by the Consumer Financial Protection Bureau (CFPB) implements ability to repay (ATR) guidelines for mortgage lenders. For loans that will be sold into the secondary market, Qualified Mortgage standards must be met. The QM rule presents more strict underwriting standards to ensure a consumer’s ability to repay based on a 43% DTI ratio. The presence of new and undisclosed debts during the underwriting period can lead to inaccurate DTI calculations, and delivery of non-QM loans may lead to repurchase demands and litigation by consumers in the future.
Mortgage businesses can proactively reduce repurchase risk and keep closings on track with help from Equifax’s undisclosed debt solutions. Products like Undisclosed Debt Monitoring™ and Risk Reveal™ allow lenders to continuously monitor borrower files and lender loans for increased risk, such as new credit activity or excessive debt-to-income, during the quiet period (the time between the original credit file pull and loan closing). These offerings can help the mortgage industry lower loss severity rates, reduce reserve requirements and offer a smoother customer experience.
Accurate property valuation
Automated valuation models (AVMs) determine a property’s true value by using two methods of evaluation: weighting the potential selling price of the property and producing an accurate, balanced estimate of overall value. In this way, AVMs are critical in determining the correct loan amount to offer and in preventing potential default. But with such a large number of AVMs currently in the marketplace (many of which have their own fulfillment platforms and proprietary confidence scores), it can be time-consuming and costly to compare valuations from different vendors in order to determine which is the most accurate for a given property or area.
Collateral Value Connector™ organizes valuations from leading AVMs in a cascade to help lenders facilitate compliance with federal guidelines, optimize their valuation strategies and streamline workflows. In addition, costs can be reduced as the need for expensive appraisals is reduced or even eliminated.
A smoother customer experience
With increasing competition for purchase money business, it will be important for lenders to focus on their borrowers’ experience and ensure their originations process is smooth, efficient and client-focused. The key will be to balance consistency and compliance with superior customer service. Having a knowledgeable staff and capable underwriters who can handle both refinance and purchase applications will be critical – especially since purchase applications are not as simple to process as refi applications and require constant verification and back-end processing/review to mitigate risk. Representatives from Equifax will be on hand at MBA’s Annual Convention & Expo to meet with industry professionals and explore these ideas – as well as new ones – for mitigating risk and driving growth across the mortgage lifecycle.