What should lenders consider in 2024 for collateral risk?

Gareth Borcherds, Managing Director of Ascent Software Group (ASG), recently sat down with HousingWire to discuss what lenders should consider for collateral risk in 2024. Gareth outlines the three categories to be aware of and how appraisal modernization can help scale new initiatives.

Read the article on HousingWire here.

Or continue reading the summary below:

Leveraging advanced appraisal technology is crucial for lenders to keep pace with evolving collateral risk evaluations by the Government-Sponsored Enterprises (GSEs). Gareth Borcherds, managing director of Ascent Software Group, highlights essential considerations for lenders in 2024.

Key Considerations for Collateral Risk

1. Reduction in Full AppraisalsLenders are moving away from full appraisals, driven by various factors beyond appraiser shortages and industry longevity. Collateral risk, which combines borrower credit risk and property value, prompts lenders to implement more fitting collateral evaluations. Full appraisals, being costly and not always necessary, are expected to decrease in frequency.

2. Higher Quality AppraisalsWhen full appraisals are necessary, the focus shifts to quality. The reduced number of required appraisals allows lenders to demand higher accuracy and quality. Appraisal quality is a critical concern for GSEs, who emphasize the importance of selecting the right appraiser from the outset.

3. Better Data Collection on CollateralTo support the above points, GSEs need more comprehensive property data. Initiatives like the Universal Appraisal Dataset 2.0 aim to improve data collection, which in turn enhances property data quality—a significant challenge for technology companies in the field.

Impact of Appraisal Modernization

Recent changes, such as the ACE + PDR updates, focus on:

• Enhancing property data to refine automated collateral risk assessments.
• Aligning collateral risk decisions with credit risk to offer more options.

This modernization reduces the necessity for full appraisals, simplifying the process for lenders and maintaining data quality through property data collection.

Enhancing Vendor Selection and Management

Effective vendor management is crucial. Platforms like JaroDesk help by emphasizing criteria and tools to ensure only high-quality vendors are used. Jaro focuses on improving appraiser practices through data-driven analysis, enhancing the consistency and quality of appraisal reports.

Jaro's Solutions for Managing Collateral Risk

Jaro offers a comprehensive suite to support lenders, Appraisal Management Companies (AMCs), and appraisal desks in managing collateral risk:

• JaroDesk: Manages orders and vendors.
• JaroKit: Provides tools for report writing.
• JaroInspect: Collects property inspection data.

These tools integrate data collection with AI and machine learning, enabling informed decisions throughout the collateral risk process. By leveraging these technologies, Jaro aims to elevate the industry’s standards and practices, ensuring quality and efficiency in every appraisal and report.

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