While alternative valuation solutions could speed of the lending process, it could also make the mortgage a higher risk product, and drive up interest rates for consumers.
“Loans employing other valuation platforms will clearly have the perception of higher risk factors than traditional appraisals, and therefore higher interest rates than those of Fannie, Freddie, HUD or VA,” said David Lykken, Transformational Mortgage Solutions founder and chief transformational officer and 2018 HousingWire Vanguard. “So, the net effect will only be speed.”
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How do you become a leader in your space? Lykken says it like this:
“The secret to my success is most importantly is to clearly understand my Core Mission and staying true (grounded) to it, all the while looking for new and innovative ways of accomplishing my Core Mission,” Lykken said. “Which may involve reinventing myself, my message and my method of delivering it, but NEVER EVER moving away from my core mission, my ‘WHY.’”
HousingWire sat down with Lykken to talk about the effect new valuation products are having on the housing industry.
HousingWire: Do you expect the new rule where certain homes valued under $400,000 will no longer require an appraisal will create more demand for diverse valuations?
David Lykken: While it will draw more interest and attention to “diverse” valuation alternatives, a good thing, I predict it will NOT create much of a surge in demands, primarily because this is not applicable to loans sold to Fannie and Freddie or guaranteed by HUD or VA.
HW: How can other valuation platforms, as opposed to a traditional appraisal, help the mortgage process in today's digital market?
DL: Utilizing “other” valuation platforms in loan originations process, should, in theory, help speed up the overall process, especially when it comes to a digital mortgage with the ideal result being driving down the cost of originations to the consumer. However, in reality, loans employing other valuation platforms will clearly have the perception of higher risk factors than traditional appraisals, and therefore higher interest rates than those of Fannie, Freddie, HUD or VA. So, the net effect will only be speed.
HW: How do you reduce risk even as the market moves away from traditional appraisals?
DL: Great question! I would argue that you don’t really “reduce” risk, you transfer it. While “other valuation platforms” have come a long ways over the last 20+ years, the risk that is still there, is the risk of value manipulation by those involved.