The Suitability and Logic of ‘Suitability Logic’ in Valuations


The automation revolution of the past two decades has transformed the mortgage industry. The software tools available today are helping lenders streamline everything from loan applications to underwriting to appraisals and settlement services. 

With so many different automation tools available, there is often a desire to take a “one size fits all” approach. However, as the mortgage process changes and becomes more complex, the clearer it becomes that no single product can serve as a comprehensive solution. 

This is especially true when it comes to automating valuations and settlement services. Between the increasingly sophisticated automated valuation models (AVM), desktop evaluations, broker price opinions (BPOs), restricted and traditional appraisals, and growing support of electronic data records across the country, there are now more options than ever for gathering the appropriate data needed to make critical underwriting and pricing decisions on a loan. 

This makes it crucial that lenders choose the right product the first time around. They should not be using automation simply for automation’s sake. Using automation when it does not fit leads to wasted cycles and money, because lenders will have to start from the beginning and redo work that the automation has already attempted to complete.

Understanding the Data Landscape in Lending

Property data is the foundation of every successful mortgage loan. Lenders need accurate information about the property to determine whether a borrower’s financial situation merits the risk an institution will take in extending a mortgage. 

Obtaining this data has become a much more automated process over the past decade. The number of counties keeping electronic records continues to grow each year, and lenders have access to more data than ever before.

AVM technology taps into this data by using algorithms to provide accurate valuations in areas with a dense population of comparable sales and MLS listings. Using technology to leverage available property data allows lenders to streamline their work, saving time and money.

However, even with all of the benefits they provide, these automated solutions are not always the answer. There are still many counties that do not have adequate digital records, if any at all. 

When there is not enough electronic property data available, traditional automation may not be the answer.

In the case of valuation, an AVM may not be the best course of action for a property that does not have suitable data to support an automated valuation. In the case of that property, other manual alternatives might be a more suitable method for arriving at a property value. But which valuation product should a lender choose?

Use Suitability Logic to Select the Best Strategies

This is where suitability logic comes in. Suitability logic is technology that looks at the available data for a given property and decides what course of action would be most suitable for that loan. This helps lenders save time and money while ensuring efficiency and accuracy. 

Suitability logic is the step that comes before the first valuation is ordered. Often times, many lenders go in blind, not knowing how much information is available or which solutions would be best for a property. Suitability logic makes intelligent decisions based on the available data to ensure that lenders are always taking the best approach to a given property.

This takes the guess work out of the equation for lenders. Being able to leverage this property data intelligence helps lenders make the right decision the first time.

When a lender makes a guess and it happens to guess wrong, not only does it waste cycles “staring and comparing” documents and data it cannot use, it must to go back and start over. At that point, the lender has wasted time and money on work that must be redone.

Suitability logic helps lenders to save that time and money, as the work gets done right the first time.

In today’s competitive landscape, efficiency is key for lenders. Time and cost are often the deciding factors when it comes to who a borrower will choose. Being able to get their loan faster is an attractive advantage for borrowers. And a lender being able to pass on the cost savings to borrowers is another incentive for potential borrowers to choose them to fulfill their loan.

Any technology or strategy that can save lenders crucial time and money is key, and suitability logic does just that.

Tools that create automation in mortgage lending, like AVMs and BPOs, are incredibly helpful, but they need the right amount of data to be the most effective. Suitability logic is the next evolution of automation which helps lenders determine the best course of action for their given situation and amount of data, which keeps them efficient in their time and costs.

Suitability logic is all about working smarter and more efficient by determining the perfect fit for a property, the first time around.

Corey Smith is chief product officer of FirstClose, a provider of property data intelligence. 

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