As part of the mortgage lending due diligence process, understanding property values is critical in making informed lending decisions. In this blog post, we outline useful loan balance tools to keep lenders informed of any outstanding liens throughout the loan evaluation process.
Property valuations represent the driving force behind estimating loan balances for home mortgage loans and home equity loans. Calculations of similar – but not identical – concepts are essential for making two loan valuation determinations: equity and loan-to-value ratios.
Equity represents the accumulated value of a home to the homeowner. Equity is calculated by subtracting the current mortgage balance from the appraised value of a home. Homeowners with higher equity, along with higher credit scores and sound overall financial profiles, are eligible for greater loan amounts than those with less or no equity.
Loan-to-value ratio measures the amount still owed by homeowners on a home mortgage and is reported in whole percentage amounts. Loan-to-value ratio is calculated by dividing the current mortgage balance by the appraised value of the home. A loan-to-value ratio of .70 (70 percent) or lower is usually necessary to gain approval for a home equity loan.
Mortgage appraisals utilize equity and loan-to-value ratios along with related property data in estimating loan balances, specifically (1) Property Assessed Clean Energy (PACE) Reports, (2) Fusion Valuation Reports, (3) Market Analysis and Condition (MAC) Reports and (4) Conventional Appraisals & Appraisal Reviews. While the value of this information is unquestioned, the process of manual computation can be tedious. Fortunately, automated tools can help to streamline the process of more accurately estimating loan balances.
Stay Informed with Property Assessed Clean Energy (PACE) and Fusion Valuation Reports
Property Assessed Clean Energy (PACE) reports locate property owners with Property Assessed Clean Energy (PACE) loans in addition to tax status, lien details, amount available for improvements and other useful loan details. The PACE loan data set provides a comprehensive view of which properties are prime candidates for energy efficient upgrades or financing. PACE loans in the DataTree databases are linked to the property, connecting them to other voluntary and involuntary liens for a more accurate Combined Loan-to-Value (CLTV) calculation and deeper understanding of the owner's property-related debt.
Fusion Valuation reports combine automated home valuation data with the professional assessment of an experienced appraisal official. Collateral value refers to the fair market value of an asset that is being offered as security for a loan application. In general, the collateral being offered must match or exceed the amount of the loan application. Collateral evaluation refers to the process of calculating collateral value. There are no set underwriting requirements for collateral evaluations; instead, each lending institution establishes its own collateral evaluation procedures.
DataTree offers two levels of Fusion reports for mortgage lenders: Fusion Inspector Exterior and Fusion Appraiser Exterior. The reports provide a hybrid solution combining automated data with expert evaluation and contains the names of the field agent and appraiser, along with the effective completion date of the report:
- Fusion Inspector Exterior Reports combine property inspection and value opinion determined by a licensed real estate agent or broker with supplemental market information. A certified or licensed appraiser prepares the final value reconciliation.
- Fusion Appraiser Exterior Reports combine property inspection and valuation by a certified or licensed appraiser with detailed information on a given property in addition to an evaluation of the condition of the surrounding neighborhood.
Accurate Lending Decisions Using Data from Market Analysis and Condition (MAC) Reports
Market Analysis and Condition (MAC) reports enable lender to manage their portfolios while meeting Interagency Guidelines for Evaluation content. These reports are compiled by professional inspectors and include standardized ratings of a property’s physical condition and market area information. Each MAC report guides property valuation and loan terms, including collateral and loan balance. Combined with an Automated Valuation Model (AVM), MAC reports represent an ideal tool for lenders in making home equity lending decision, while complying with Interagency Guidelines for Evaluation policies.
Each client’s MAC report includes the results of an exterior property inspection along with photographs of the property and property specific information and condition rating. MAC reports also incorporate neighborhood information, including street views, location maps, and aerial map addendums as well as a section for free text comments.
Conventional Appraisals and Appraisal Reviews as Supplemental Lending Tools
DataTree Appraisal Reviews and Property Appraisals provide additional confidence in mortgage lending decisions, including determining proper amounts for collateral and loan balances. These reports include FNMA (Fannie Mae) 2000 Field Review Reports, FNMA 2006 Desktop Reviews, and FNMA 1004 and FNMA 2055 Property Appraisal Reports. FNMA 2000 reports and FNMA 2006 Desktop Reviews include the names of the certified or licensed appraiser who compiled the reports and the report effective completion date:
- FNMA 2000 Field Reviews include information from interior and exterior inspections, along with valuation opinions from a certified or licensed appraiser. Field review reports also include neighborhood information and comparable property values.
- FNMA 2006 Desktop Reviews add confidence to appraisals by confirming accuracy of a property’s appraised value and appropriateness in its value and methodology approach. As the name indicates, desktop reviews are completed in office by licensed appraisers.
- FNMA 1004 and 2055 Property Appraisal Reports are compiled to ensure compliance with state, federal and Appraisal Management Company (AMC) regulations. This includes adherence to current versions of Uniform Standards of Professional Appraisal Practices (USPAP), Dodd-Frank Wall Street Reform Act (Dodd-Frank), and recent Interagency Guidelines revisions.
Informed Property Valuation and Loan-Term Determination with DataTree Analytics
Accurate and reliable property valuation data is an essential element of making smart loan-term determinations. Tools such as Property Assessed Clean Energy (PACE), Fusion Valuation and Market Analysis and Condition (MAC) reports as well as mortgage appraisal reports provide mortgage lenders with a wealth of information so they are confident in their evaluations and final decisions. Learn more about the entire suite of property valuation tools available through DataTree’s website.