The MBA Insights Interview: Mark Johnson, chief strategy officer with LRES

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Source: Mortgage Bankers Association

Author: MBA Insights Staff


MBA INSIGHTS: There is a lot of dialogue in the industry right now regarding valuations, evolving strategies and alternative methods. Is this news, or noise?

MARK JOHNSON, LRES: The valuation industry is going through substantial change. There are broad market forces at work that are driving this change. The continuing evolution of data aggregation and applied sciences measured against the ever-evolving compliance and underwriting guidelines is causing industry participants to redress and enhance many aspects of the valuations business.

INSIGHTS: What is the potential impact of the alternative solutions?

JOHNSON: Impact can be measured a few ways. Automated valuations and data analysis have been around for some time but the lending and investment community are quickly getting more comfortable relying primarily and in some cases exclusively on these alternative solutions. For the lending community, the impact is generally viewed as favorable with respect to cost, speed and reliability.

The appraiser community tends to be more apprehensive. Not only do the automated solutions erode market share from appraisers but appraisers don’t see the automated solutions as having the capabilities to fully assess the value of the subject collateral. The question for some is – are the AVM derivatives a new and better solution or are they shortcuts similar to those that were exercised prior to and contributing to the mortgage market collapse? If the latter, the argument is that there is direct and significant adverse impact to the mortgage markets once again.

INSIGHTS: So, is there a concern that AVMs will replace appraisers altogether?

JOHNSON: That is a big jump. For some product markets, AVMs have been in use for some time and that use continues to expand. This does not mean that AVMs can solve all value questions. Where automated solutions work the best are where there is an abundance of data, where there is a high-level of homogenous housing and for loans that are deemed less risky. Transactions falling outside of these criteria need additional attention.

The use of appraisers and AVMs should not be considered mutually exclusive. There is meaningful data embedded within the AVM, that if properly leveraged by the appraiser, will expedite the appraisal development process.

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