How AVMs Can Supercharge Your HELOC and Second Mortgage Growth Strategy


How AVMs Can Supercharge Your HELOC and Second Mortgage Growth Strategy

June 27, 2024
Certified Credit

So far, the 2024 mortgage market has left both lenders and borrowers longing for better market conditions. With interest rates hovering around 7%, purchase loans simply aren’t in many aspiring homebuyers’ budgets. Even fewer borrowers are eager to refinance right now. 

While purchase loans and refinances don’t have high demand, there are still some lucrative lending opportunities – home equity lines of credit (HELOCs), home equity loans, and other second mortgage products, in particular, are ripe for the taking. 

Below, we’ll explain why these loan products present the most promising opportunity at this time. After that, we’ll highlight how automated valuation models (AVMs) can help you originate these products more affordably and efficiently.

Why You Should Promote Your HELOCs and Home Equity Loans in 2024

HELOCs, home equity loans, and other second mortgage products are well-suited to this market due to the unique configuration of market conditions. While lenders are grappling with insufficient purchase loan and refinance demand, borrowers have several struggles of their own, including:

  • A high cost of living – According to a Bankrate survey, 60% of consumers claim that their incomes haven’t kept pace with inflation.

  • Concerning amounts of consumer debt – With goods and services costing more, many consumers have used credit cards to fill in the gaps in their budgets, pushing the national household debt to a record high of $17.3 trillion.

  • Expensive interest rates on credit cards and personal loans – While credit cards are helping consumers keep up with their expenses in the short term, this debt isn’t cheap – the median average credit card interest rate in June 2024 was 24.62%.

  • Comparatively low mortgage rates – In lower-interest-rate environments, cash-out refinances could offer homeowners access to affordable credit. However, today’s borrowers are unlikely to give up their low interest rates to obtain a cash-out refinance. After all, most homeowners are locked into much lower interest rates than they can get today. Nearly 80% of borrowers have mortgage rates below 5%, while nearly 60% have mortgage rates below 4%.

Despite these challenges, consumers who own their homes enjoy one silver lining – they’ve likely seen a notable increase in their home equity, thanks to the recent rise in U.S. home prices. Better yet, this equity can be accessed for a low interest rate. HELOCs and home equity loans currently boast low interest rates of 9% to 10%. And unlike cash-out refinances, these financing products won’t mess with homeowners’ low interest rates. 

What Are Automated Valuation Models and How Do They Work?

As you can see, home-equity-secured financing is one of the most attractive products you can offer at this time. But before you start promoting these products, you need to make sure your workflows are ready for increased demand. 

One area you may want to optimize is your property valuation process. Traditionally, appraisers conduct home value assessments in person. However, appraisers can take a lot of time and cost a lot of money. AVMs, on the other hand, are a cheaper, faster alternative. Using statistical modeling, they can estimate the market value of a property based on the following factors:

  • Location
  • Square footage
  • Number of bedrooms and bathrooms
  • Sales history
  • Tax assessments
  • Public records
  • Market price fluctuations

While AVMs leverage robust data, they do have their limitations. Most notably, AVMs can’t account for the current condition of a property or its interior details, like fresh hardwood floors, high-end appliances, or updated cabinetry. Additionally, AVMs may be less accurate for properties with scarce comparable sales data, such as rural homes or homes with very distinct features. Even so, AVMs offer quite accurate assessments for the majority of properties. 

Why Are AVMs So Advantageous for HELOCs and Second Mortgage Products?

While AVMs are useful for all types of mortgage products, they’re especially valuable for HELOCs, home equity loans, and second mortgages. That’s because the collateral appraisal guidelines for these products are more relaxed than with purchase loans. AVMs can often replace traditional appraisals for these products entirely, saving you and your borrower the time and expense of hiring a professional appraiser.

Some other benefits of AVMs include:

  • Speed – Traditional appraisals can take several weeks to complete. The appraiser must schedule a visit to the property, perform an in-depth inspection, and crunch the numbers. Since AVMs’ statistical models pull from pre-existing data, they can offer reliable property estimates in seconds, enabling you to review borrowers’ property values with them in real-time.

  • Cost savings – A professional appraiser can cost several hundreds of dollars. The average cost for an appraisal of a single-family home is around $350, while multi-family homes can push that figure well above $1,000. AVMs, on the other hand, are much more affordable. As they reduce your origination costs, you can pass some of those savings onto your borrowers.

  • Lack of bias – While professional appraisers can account for certain details that AVMs can’t, such as state-of-the-art appliances or chic renovations, they may also introduce unconscious bias into the equation. For example, an appraiser may unintentionally choose comparison properties that increase or decrease a property’s value estimate if they know the appraisal is for a certain purpose. AVMS, on the other hand, are bias-free.

  • Fraud prevention – Unconscious bias isn’t the only thing that can skew a property estimate in the wrong direction – appraisal fraud is also a notable concern these days. You never know when an appraiser may be paid off to overinflate a property’s value. Fortunately, AVM estimates are reliably fraud-free.

  • Accuracy – Since AVMs are free from bias, fraud, and human error, they boast impressive accuracy rates. The latest AVM solutions have been shown to generate estimates that fall within +/- 5% of a home’s actual value

Thanks to these benefits, AVMs are an excellent tool to have in your arsenal.

Certified Credit’s AVM Solutions

If you’re ready to reap the benefits of AVMs, Certified Credit has many options. Our AVMs pull data from extensive property record databases, so you can have full confidence in their reports. Better yet, they deliver their property valuations in seconds.

Here are the different AVM solutions we offer:

  • Freddie Mac’s Home Value Explorer (HVE) – By leveraging  Freddie Mac’s vast property record database and proprietary algorithm, the HVE AVM provides the most comprehensive property value estimates.

  • PASS AVM – The PASS AVM uses automation to analyze properties’ details and selects its calculation models accordingly. After that, it provides the estimated accuracy of your property valuation.

  • PMC AVM – The PMC AVM employs data from property records, market trends, and an in-person inspection of the property’s exterior, which is conducted by a local professional. PMC reports are quite comprehensive – they contain photos of the property, notes on the neighborhood, local sales activity, and the home price index.

  • GEO AVM – The GEO AVM analyzes geographic data, price tier information, property type details, and other subjective factors before selecting its valuation model. Thanks to its high levels of accuracy, the GEO AVM can satisfy federal guidelines.

  • iVal AVM – The iVal AVM uses a rules-based system and blended model to evaluate recent sales of residential comparable properties. It incorporates local sales, council data, property attributes, and Velocity-generated data. 

The right AVM may vary from one situation to the next. For example, some AVMs can help you determine if a property supports a sufficient loan-to-value ratio more cost-effectively than others. Meanwhile, more robust AVMs may be required to eliminate the traditional appraisal for a HELOC or home equity loan. 

Other Helpful Tools For Your HELOC and Home Equity Loan Origination

AVMs are just one of our solutions that can supercharge your HELOC, home equity loan, and second mortgage workflows. At Certified Credit, many of our customers also take advantage of the following tools:

  • Portfolio Review – While many equity-rich borrowers can benefit from HELOCs and home equity loans, they may not be aware of these financing options. Using our Portfolio Review, you can identify which borrowers from your current customer database are prime candidates and reach out to them with a tailored offer.

  • Cascade Alerts – If you prefer hands-free lead generation, Cascade Alerts can deliver. This automated solution monitors your past and present borrowers’ credit reports on your behalf and alerts you about those who show signs of shopping around for second mortgage products. You’ll receive these notifications within 24 hours, along with some key details about each lead. Armed with this information, you can contact your leads, educate them on your offerings, and hopefully gain their repeat business.

  • Flood Zone Determinations – While HELOCs and home equity loans often enjoy more streamlined origination processes than purchase loans, you still need to do your due diligence. In particular, you need to find out if your applicant’s property is located in a FEMA flood zone. Our Flood Zone Determinations offer the latest FEMA data, allowing you to assess your applicants’ properties quickly and accurately.

Optimize Your HELOC Workflows With Certified Credit’s Affordable AVMs Today

In summary, HELOCs, home equity loans, and second mortgage products can offer consumers access to cost-effective credit without putting their mortgage rates at risk. Thus, marketing these products is an excellent way to generate more business and bolster your borrower retention rate this year. 

AVMs can play a vital role in streamlining your origination expenses and efficiency, enabling you to lower costs for your borrowers and become a leading lender in their eyes. At Certified Credit, we offer a wide variety of AVMs so you can select the ones that align with your needs and budget. 

Are you ready to supercharge your second mortgage growth strategy? Schedule a credit consultation with Certified Credit today to learn more about our AVM solutions.