Getting Back to Basics: Automated Valuation Model 101

The Automated Valuation Model is something that every mortgage agent and broker would be well served to understand and make a part of their workflow.

Lenders, from private lenders all the way to institutional lenders, have been using the Automated Valuation Model for years and you may remember CAAMP touching on them when completing your mortgage agent or brokers studies.

The Automated Valuation Model is an automated program that can produce an estimate of a property’s value. The value is statistically derived using mathematical modeling and in the case of Teranet comes from public record data found in the POLARIS database. The AVM compares the subject property to that of comparable sales data of similar properties to produce the value estimate.

There are many different types of AVMs that gather information from different sources and formulate estimates using different formulas.

These include:

·         The House Price Index Model which uses data from house price indices

·         The Tax Assessed Value Model which uses tax assessment data

·         The Hedonic Model which uses similar property sales to generate its value estimate

Because AVMs involve a value estimate, some make the assumption that the purpose of an AVM is to replace the need for an appraisal and its accuracy.

AVMs are extremely accurate because the numbers don’t lie and their values are generated based on data with no human element. With that said, they are not an appraisal and are often used at different stages in the underwriting and funding processes.

Many lenders, mortgage agents and brokers alike will use AVMs at the application stage to validate the value stated on the application and determine if it is worth proceeding with the approval and funding process. Many times an AVM will come before an appraisal is ordered. In instances where equity permits, sometimes there is enough equity for the AVM to be relied upon on its own.  Based on the accuracy of AVMs, there is also wide spread usage amongst mortgage insurance providers to evaluate their ability to insure new deals

Appraisals have a human element which means that the appraiser will use their chosen comparables, and render their professional opinion on interior and exterior conditioning. Appraisers can also uncover properties under construction and even properties that have undisclosed tenants.

Since comparables are chosen by the appraiser, it makes good sense to review an appraisal against an AVM because an AVM will consider all comparable sales – not 2 or 3 as is the case with an appraisal.

AVMs have not historically been available to brokers but in recent years this has changed. Mortgage agents and brokers can now obtain and review an AVM before they even submit a deal to a lender.

Using both and AVM and an appraisal at different stages in the process can be quite valuable, and save you time and money on broken deals. Purview For Mortgage Brokers’ AVM provides accurate data you can rely on. Contact us today at 1.855.787.8439.

Protecting Your Lenders: Non-Disturbance Agreements 1-2-3

Have you ever worked on a deal where a party has come up on title as having a life interest in a property? This doesn’t happen often but when it does it can stop a deal dead in its tracks prompting us to write a blog on the topic.

Sometimes a non-disturbance agreement can be in place in the case of tenants, which may or may not be registered on title, or a life interest in the property which may be registered on title, which is often the case with family members.

Why do the presence of either squash many deals? Because the existence of same means that the person during the time or under the terms specified cannot be removed from the property even in the case of a foreclosure.

A non-disturbance agreement is an agreement with a tenant and a landlord or homeowner’s lender that the tenant will remain in possession of the property being leased even if foreclosure takes place and in the case of foreclosure may legally begin making payments directly to the lender. At first glance, you may wonder why would any lender would agree to one of these? Often in the case of private mortgages where there is good equity, these agreements take place because they actually give the lender the ability to capitalize on income from the property when a default in the mortgage takes place. Also, in the case of foreclosure, when a buyer is pursuing an income property, with the numbers in line, many don’t mind buying a property that already has a good tenant in it.

On the other hand, the presence of a non-disturbance agreement is bad news for an unsuspecting second mortgage lender, especially one who is unaware that there are tenants in the property. Not only can they see the first lender snatch income from the property until challenged, they can end up with limited recourse in the event of a default.

A life interest on the other hand is actually registered on title and lasts for the lifetime of the person benefiting from that right. We see this often in the case of seniors who continue to live in a home while having transferred it to the name of a beneficiary to streamline probate in the event that they pass away. The life interest ends when the beneficiary dies.

Not every lender wants to be a part of a transaction that involves tenants or someone with a lifetime right to occupy a property. Knowing that a property is a rental property or not owner-occupied is a form of fraud and if uncovered by a lender could lead to the end of your relationship. Life interests will certainly come up if one exists during the closing process once the lawyer begins performing their due diligence. Deals that get this far along in the process and fail to close can leave a lender wondering about your underwriting capability.

It is always important to clearly ask your clients if a property has tenants, if there are any non-disturbance agreements in place. It is also prudent to ask the client how the property was acquired. If it was passed down by a loved one this can be a sign that you may need to do extra due diligence to confirm that a life interest hasn’t been registered.

Being as prepared as possible only helps to streamline the process. Don’t get stuck with unknowns, or assume that those unknowns will remain so - they likely will not. Get as much information as possible and provide it upfront. Visit Purview For Mortgage Brokers today at www.purviewforbrokers.ca.  

HPI Monthly Report: Home Prices up 0.6% in September

In September the Teranet–National Bank National Composite House Price Index™ was up 0.6% from the previous month, a ninth consecutive monthly increase. This rise was well above the 17-year September average of 0.2%. However, prices were up on the month in only six of the 11 metropolitan markets surveyed – 1.9% in Halifax, 1.6% in Vancouver, 1.3% in Hamilton, 0.8% in Victoria, 0.7% in Calgary and 0.6% in Toronto. Prices in Edmonton were flat. Prices were down 1.9% in Quebec City, 1.4% in Winnipeg, 0.5% in Ottawa-Gatineau and 0.4% in Montreal. The composite index was at an all-time high in September for a seventh consecutive month, though only the Victoria, Vancouver, Hamilton and Toronto component indexes matched it in this regard. The resale market in those centres is a seller’s market by the Canadian Real Estate Association criterion of sales relative to new listings. For the last three of these four markets it was the fifth consecutive monthly rise. For Edmonton and Quebec City, it was a fourth straight month with no rise in prices. The Vancouver index, at 201.2 in September, is the first to top 200, meaning that prices in that market are slightly more than twice as high as in June 2005.

In September the composite index was up 5.6% from a year earlier, the largest 12-month rise since May 2012. The 12-month gain was well above the countrywide average in Hamilton (10.6%), Vancouver (10.4%) and Toronto (8.6%). It was close to the average in Victoria (5.9%). Prices were barely up from a year earlier in Edmonton (0.8%), Calgary (0.3%) and Ottawa-Gatineau (0.2%). Prices were flat in Montreal, and down from a year earlier in Quebec City (−2.9%), Winnipeg (−2.3%) and Halifax (−0.2%).

Reading Your Land Title Search – The Type of Registered Owner is Very Important

Mortgage brokers and agents reference the Parcel Register* so many different ways. It is sometimes referenced as a land title search, other times as a title search. Really a Parcel Register* is a component of title searches historically performed by conveyancers and lawyers.

In recent years much of the information contained in a land title search has been made readily available by Teranet through many different avenues with industry specific formatting that helps a wide range of real estate and land professionals complete necessary due diligence.

Teranet data is derived from POLARIS, the Province of Ontario’s land information database which is the most current source of land titles available in Ontario.

Prior to Purview For Mortgage Brokers, many mortgage brokers and agents would turn to Teranet Express and request a Parcel Register* which is used to verify home ownership information, property sales history and financial registrations like mortgages.

When Purview For Mortgage Brokers was launched a couple of years ago, much of the information contained in the Parcel Register* was pulled into a Property Report that can be generated in Purview for Mortgage Brokers and amongst other things enables mortgage agents and brokers to verify who the legal homeowner of a property is.

Verifying property ownership information is extremely important because it not only cuts down on the time spent working on deals where there are undisclosed parties on title but it also helps to uncover mortgage fraud.

In the case of property ownership information, this legal property owner appears at both the top of the Parcel Register* and at the top of the Property Report generated in Purview For Mortgage Brokers.

The couple of minutes you spend running the necessary searches and reports to validate information in your application not only goes a long way to save you time and hassle but also helps you to strengthen relationships with lenders.

Tools like Purview For Mortgage Brokers are also available to lenders through a similar product, Purview for Lenders, which derives its data from the same source. Finding out that there is a problem with your deal before your lender does enables you to ask your client important questions and strengthens closing rates because you will be bringing forward your deal with the answers to questions that will come up once the underwriter on the lender side begins performing their due diligence.

Purview For Mortgage Brokers is a valuable resource for various reasons - one of the most important being the prevention of real estate fraud. Visit us online today for more information: www.brokers.purview.ca. 

* An official product of the Ontario government pursuant to provincial land registration statutes.

Training Time: 4 Ways to Uncover Fraud Using Purview For Mortgage Brokers

When using Purview For Mortgage Brokers, the ability to enter a home’s address and have a Property Report generated may feel incredibly simple and easy. This simple report though can be deployed on the front end of a business to identify opportunities, at the application/underwriting stage to learn and even verify a wide range of different data and in the loss/risk management side of the business. This training blog will focus on some key areas of the Property Report that you can pay attention to, to uncover fraud.

1.       Verifying that your client is the homeowner

When representing a client who is refinancing a property, it is always prudent to validate who the homeowner is. You can find this information right at the top of the report in the very first section. Is the property owned by a corporation, is there an owner like a lawyer who is a party to the transaction? These are important questions that the report can easily answer.

2.       Visual property identification

You can review street and aerial imagery to perform a virtual drive-by to ensure that the property looks as described – this can also be found in the first section of the report.

Review the property’s sales history

The second part of the report includes the property’s sales history information which is a valuable tool to identify things like quick flips and large variances in claimed value against what a property recently sold for. Is there a party to the transaction that is listed as a past owner? Is the sale of the property arms-length? Again, important questions that need to be answered.

3.       Avoid fraud by property value

The AVM component in the next section of the report is an excellent way to spot fraud by property value. At a glance, you can validate if the value stated in your application is in line with property sales data.

    4.       Review the property’s financial history

While the equity estimate section is intended to help you estimate equity at a glance, it provides valuable insight into the financial position of the property including registered mortgages, the dates registered and amounts registered. This can help you to suss out fishy transactions or things that your lender may question you on.

Make no mistake: your lender is probably generating a similar report using a system like Purview for Lenders and you will be more efficient and effective in your roll by being one step ahead of the game, not only looking at the report but really assessing the information with fraud awareness and prevention in mind.

By accessing the Property Report available through Purview For Mortgage Brokers, you can easily become better informed and better prepared. Call us today at 1.855.787.8439.