Enact Holdings, Inc. · NASDAQ:ACT
Enact — Investor Presentation (May 2019)
71 slides from Enact's investor presentation, May 2019
Slide 1: Appraisal Insights
Appraisal Insights May 2019 Genworth Mortgage Insurance Corporation ©2019 Genworth Financial, Inc. All rights reserved.
Slide 2: Introduction
Introduction Points to keep in mind in conjunction with the material presented in this session: – The material presented is designed to provide guidance on common challenges surrounding appraisals from the perspective of an underwriter – There are no specific words or information that can be include
Slide 3: Session Overview
Session Overview Objectives: 1. Increased awareness of requirements 2. Increased success in working with appraisers 3. Increased knowledge of property valuation on complex properties Topic Introduction Communicating with the Appraiser Valuation, Guidelines, Underwriting and Comps Examples Appraisal
Slide 4: Communicating with the Appraiser
Communicating with the Appraiser Appraisal Insights 4
Slide 5: Improper Communications
Improper Communications FHFA, FRB, CFPB jointly issued the interim final rules on October 28, 2010. Amongst other things, the rules address appraiser independence: – Covered persons (e.g. creditors, mortgage brokers, appraisers, appraisal management companies, real estate agents, title insurance com
Slide 6: Proper Communications
Proper Communications Appraiser independence rules do not prohibit a mortgage lender, mortgage broker, mortgage banker, real estate broker, appraisal management company, consumer or another other person with an interest in a real estate transaction from asking an appraiser to: – Consider additional,
Slide 7: The Appraiser’s Obligation
The Appraiser’s Obligation *A partial list - for more information please consult the Uniform Standards of Professional Appraisal Practice, www.appraisalfoundation.org • Must perform assignments with impartiality, objectivity, and independence • Must not advocate the cause or interest of any party or
Slide 8: Automated Appraisal Review Systems
Automated Appraisal Review Systems 1. Automated appraisal review systems have been in place >15 years 2. Early systems were designed to aid the manual underwrite process 3. Fannie Mae & Freddie Mac a. UAD - Standardization of Data (structured data) – Common Lexicon b. Fannie Mae Collateral Underwrit
Slide 9: Collateral Underwriter or CU
Collateral Underwriter or CU Fannie Mae’s Collateral Underwriter https://www.fanniemae.com/singlefamily/collateral-underwriter Appraisal Insights 9
Slide 10: Collateral Underwriter or CU
Collateral Underwriter or CU https://www.fanniemae.com/content/fact_sheet/collateral-underwriter-fact-sheet.pdf Appraisal Insights 10
Slide 11: Collateral Underwriter or CU
Collateral Underwriter or CU What Does CU Provide? – CU provides a Risk Score (1-5) • 1 means lowest risk to 5 highest risk • Score of “999” indicates a score could not be generated – Risk Flag Messages fall into one of three categories • Property Eligibility/Compliance Messages • Overvaluation Risk
Slide 12: Best Practices With CU Messages
Best Practices With CU Messages Remember to review the CU Score if it appears on the DU Findings – 4 or 5 require a more detailed review – Appraisal Quality Messages Fall Into one of Four Categories • Data Integrity • Comp Selection • Adjustments • Reconciliation – None need to be technically “clear
Slide 13: Loan Collateral Advisor® or LCA
Loan Collateral Advisor® or LCA Freddie Mac’s Loan Collateral Advisor https://sf.freddiemac.com/tools-learning/loan-advisor/our-solutions/loan-collateral-advisor Appraisal Insights 13
Slide 14: Freddie Mac’s Loan Collateral Advisor
Freddie Mac’s Loan Collateral Advisor Appraisal Insights 14
Slide 15: Freddie Mac’s Loan Collateral Advisor
Freddie Mac’s Loan Collateral Advisor What Does Loan Collateral Advisor Provide? – LCA provides a Risk Score (1-5) • 1 means lowest risk to 5 highest risk • Score of “99” indicates a score could not be generated – Risk Flag Messages fall into six categories • Risk Level (4000) • Valuation (4100) • C
Slide 16: Loan Collateral Advisor®
Loan Collateral Advisor® http://www.freddiemac.com/loanadvisorsuite/faq/loancollateraladvisor.html Appraisal Insights 16
Slide 17: The Appraiser has been hired…now what?
The Appraiser has been hired…now what? Appraisal Insights 17
Slide 18: Market Alternatives Principle of Substitution
Forces that Create Value If I put a for sale sign in front of it… Who would buy it… What else would they buy… What are those properties selling for? Market Alternatives Principle of Substitution Appraisal Insights 18
Slide 19: What Creates Value?
What Creates Value? Forces that Create Value Forces that Affect Value Utility Social Desire Economic Scarcity Governmental Effective Purchasing Power Environmental Appraisal Insights 19
Slide 20: Market Value - What is “Market Value”?
Market Value - What is “Market Value”? Market Value defined: – The most probable price a property should bring in a competitive, open market. – Buyer and seller are typically motivated. – Both parties are well informed or well advised and each acting in what he considers his own best interest. – A r
Slide 21: Appraisal Process Overview
Appraisal Process Overview Engagement Scope of Work Information Analysis Write Report Communicate Gathering Results • Mortgage • Appraiser • Appraiser • Appraiser • Appraiser • Appraiser Lender determines gathers the utilizes prepares the sends the sends the data recognized written written appraisal
Slide 22: Information Gathering
Information Gathering Appraisal Insights 22
Slide 23: Information Gathering Sources
Information Gathering Sources Review of Public Record Information (subject, Property Rights sales, listings) Taxes, Special Assessments Review of MLS information School District Interview occupant of subject property Interviews (e.g. real estate agents, builders, Market Data (e.g. Inventory, Sales V
Slide 24: Inspecting the Subject
Inspecting the Subject What do you think the appraiser looks for when inspecting the subject? Appraisal Insights 24
Slide 25: Inspecting the Subject
Inspecting the Subject Physical Characteristics 1. Gross Living Area 2. Quality of construction 3. Condition of Improvements 4. Layout 5. Features/Amenities 6. Design/Appeal 7. Landscape 8. View 9. Site characteristics (e.g. topography, access, improvements) External Characteristics (land uses, neig
Slide 26: Inspecting Comparable Sales/Listings
Inspecting Comparable Sales/Listings What do you think the appraiser looks for when inspecting Comps? Appraisal Insights 26
Slide 27: Inspecting Comparables
Inspecting Comparables Physical Characteristics 1. Quality of construction (exterior view) 2. Condition of Improvements (exterior view) 3. Features/Amenities 4. Design/Appeal 5. Landscape 6. View 7. Site characteristics (e.g. topography, access, improvements) External Characteristics (land uses, nei
Slide 28: Appraisal Review Techniques
Appraisal Review Techniques Appraisal Insights 28
Slide 29: Roles in Collateral Assessment
Roles in Collateral Assessment The Field Appraiser Does the Following: - Identify (the problem & the relevant data to solve the problem) - Report (the relevant information that was gathered) - Analyze (the relevant data to solve the problem) - Report (the results of the analysis) The Underwriter Exa
Slide 30: Guidelines vs Benchmarks
Guidelines vs Benchmarks Investor/External Guidelines vs. Internal Guidelines Guidelines come and go…. • 15% Net Adjustment • 25% Gross Adjustment • 1 Mile Comp Distance • Comps No Older Than 12 Months • 30% Land to Value Ratio • 10% Line Item Adjustment No More Rule Book For These; Do We Want “Wild
Slide 31: Fannie Mae Property Condition
Fannie Mae Property Condition Existing Construction Requirements when there are INCOMPLETE ITEMS or CONDITIONS AFFECTING SSS 1. Must be appraised SUBJECT-TO completion or repair 2. Includes the following examples that COULD affect SSS: a. Partially completed addition b. Partially completed renovatio
Slide 32: Freddie Mac Property Condition
Freddie Mac Property Condition 5601.12: Property description and analysis (10/17/18) General Requirements 1. Similar to Fannie Mae (except for inclusion of C5 below) 2. Properties in C5 or C6 condition are ineligible for sale to Freddie Mac unless the repairs are completed in advance of the purchase
Slide 33: Examples For Review
Examples For Review Appraisal Insights 33
Slide 34: Sample Statements…What Would You Do?
Sample Statements…What Would You Do? 1. Mold was noted. The appraiser is not a home inspector and cannot determine if the mold is hazardous. The appraiser assumes it is not. Appraisal Insights 34
Slide 35: Additional Improvement Considerations
Additional Improvement Considerations A Few Other Property Concerns: – Additions without Permits: If the appraiser identifies an addition(s) that does not have the required permit, the appraiser must comment on the quality and appearance of the work and its impact, if any, on the market value of the
Slide 36: Is the above captioned description adequate?
1. Is the above captioned description adequate? 2. Do you feel that the appraiser has addressed the pertinent questions? 3. If not, what additional items or description would you like to see? Have You Ever Seen An Appraisal With Comments Like The Above? Appraisal Insights 36
Slide 37: Is the above captioned site description adequate?
1. Is the above captioned site description adequate? 2. Do you feel that the appraiser has addressed the pertinent questions? 3. If not, what additional items or description would you like to see? Appraisal Insights 37
Slide 38: Approaches to Value
Approaches to Value We Will Cover Sales Comparison Only Appraisal Insights 38
Slide 39: Sales Comparison Approach
Sales Comparison Approach Appraisal Insights 39
Slide 40: Sales Comparison
Sales Comparison • Emulates the process of comparison shopping used by prospective purchasers of real estate. • Adjust comp to the subject. • Adjustments must be based on market reaction – market driven/data • Requires the appraiser to have relevant logic and support • Support must be in the report
Slide 41: How will an appraiser find comps?
Q. With continued declines in the amount of sales activity, how will an appraiser find comps? Answer: Appraisal Insights 41
Slide 42: Sample Adjustment Flow (partial list)
Sample Adjustment Flow (partial list) First Level Adjustments Expenditures Made Real Property Rights Financing Terms Conditions of Sale Immediately After Sale Second Level Adjustments Market Site Value View Location Age Condition GLA Room Count Conditions Third Level Adjustments Basement/Finish/Foun
Slide 43: Common categories of Sales Comparable misrepresentation
Q. What are some of the most common categories of Sales Comparable misrepresentation? Answer: Appraisal Insights 43
Slide 44: Approaches to Value - Sales Comparison
Approaches to Value - Sales Comparison • Adjustments are derived from the market • Approximate market reaction to material differences between the comp and the subject • Quantitative • Qualitative Appraisal Insights 44
Slide 45: Analyzing Comparable Properties
Analyzing Comparable Properties At Least Three Closed Sales – More can be provided – Pending sales or listings: • Can be used when appropriate • Might provide additional supporting data Comparables Closing Date (Age) – Check applicable guidelines – Should have closed within the previous year • Must
Slide 46: Analyzing Comparable Properties
Analyzing Comparable Properties Shortage of Comparable Properties – Possible Reasons: • Nature of property improvements • Relatively low number of sale transactions in the neighborhood – Comparables may have to be: • Older than a year • From a nearby, competing neighborhood – Appraiser Explanation a
Slide 47: Analyzing Comparable Properties
Analyzing Comparable Properties When there is a shortage of comps, the appraiser should explain: – Effort made to find better comps? – Why the shortage of recent sales? – What does the shortage indicate? • Stable market? • Marketability issue? – Shared unique characteristics? – Why a potential comp
Slide 48: Analyzing Comparable Properties
Analyzing Comparable Properties Unacceptable Comparison Selection Practices – Misrepresentation – Inappropriate Comps • Unacceptable Locationally • Not Physically Similar – Uninspected Properties • No Appraiser Drive-By – See Fannie Selling Guide §B4-1.1-04 – See Freddie Mac Single-Family Seller/Ser
Slide 49: Analyzing Comparable Sales
Analyzing Comparable Sales Bracketing – At least one comparable superior and one inferior to the subject – As many bracketed items as possible: • Unadjusted Sale Price • Gross Living Area (GLA) • Lot Size • Adjusted Sale Price • Other Major Physical Characteristics – Bracketing is a best practice •
Slide 50: Analyzing Comparable Sales
Analyzing Comparable Sales Sales Price and Gross Living Area (GLA) Appraisal Insights 50
Slide 51: Analyzing Comparable Properties
Analyzing Comparable Properties Review Appraisal Map – Review Carefully – Does the map support the Appraiser’s Conclusions? • Distances make sense? • Natural boundaries honored? – i.e. Waterways, Highways, Large Parks – Compare with other maps • Google Maps, MapQuest, etc. • School maps • Municipali
Slide 52: Analyzing Comparable Properties
Analyzing Comparable Properties Do the subject and comparables appear to be similar? Appraisal Insights 52
Slide 53: Cost vs. Value
Cost vs. Value Sales comparison adjustments are based on the contributory value an item brings to the property. – This is not necessarily the cost of constructing the item. – Land is said to have value; Improvements are said to contribute to value. – The appraiser must measure the contributory value
Slide 54: A Partial List of Potential Red Flags in Appraisal Report
A Partial List of Potential Red Flags in Appraisal Report 1. Across the board adjustments in the same direction to all the comps for a particular item 2. Neglecting to disclose external considerations (main road, contiguous non- residential land uses, park, freeway, views, etc.) 3. Neglecting to suf
Slide 55: Other Common Red Flags
Other Common Red Flags Common Red Flags Include – Choosing dated comps, in the absence of sufficient explanation, particularly when there are more recent comps available – Lack of comments from the appraiser relating to the property, comps, market or trends in the area – Not relying upon the indicat
Slide 56: Read ALL Comments
Read ALL Comments Read Comments Section Carefully – Look for anything impacting: • Value • Structural Integrity • Marketability – Are the comments consistent with data provided within the appraisal and all data gathered outside the appraisal? Appraisal Insights 56
Slide 57: Compare Sales Grid to First Page
Compare Sales Grid to First Page Do The Comparables Selected Make Sense, Based On The Market Data; Do The Neighborhood Housing Trends Make Sense, Based On The Data You See Here? Appraisal Insights 57
Slide 58: Sales Comparison - Site Value Consistency
Sales Comparison - Site Value Consistency 1. Is the above captioned site valuation adequate? 2. Do you feel that the appraiser has supported the opinion of site value? 3. If not, what additional items or description would you like to see? Appraisal Insights 58
Slide 59: Sales Comparison - Site Value Consistency
Sales Comparison - Site Value Consistency As indicated in the cost approach, the subject’s site value is $18,000. 1. How do you feel about the site value adjustments to comps 2 and 3? Appraisal Insights 59
Slide 60: A Few Final Examples
A Few Final Examples Appraisal Insights 60
Slide 61: Appraisal Insights
Utilities Public Other (describe) Public Other (describe) Off-site Improvements - Type Public Private Py Electricity = Water XM Uo Street_ Asphalt ha LJ 7 Gas DX LJ Sanitary Sewer [><] LJ Alley None im im FEMA Special Flood Hazard Area_|_| Yes [<} No FEMA Flood Zone x FEMA Map # FEMA Map Date_ 11/16
Slide 62: What Would You Expect To See In The Photo???
What Would You Expect To See In The Photo??? Appraisal Insights 62
Slide 63: Agency Appraisal Resources
Agency Appraisal Resources http://www.freddiemac.com/singlefamily/a https://www.fanniemae.com/singlefamily/origi ppraiser_independence_faq.html nating-underwriting-training Appraisal Insights 63
Slide 64: Underwriting & Guides
Underwriting & Guides Appraisal Insights
Slide 65: Genworth Appraisal Review Checklist
Genworth Appraisal Review Checklist Appraisal Insights 65
Slide 66: MI & Rates
MI & Rates Appraisal Insights
Slide 67: Training
Training Appraisal Insights
Slide 68: Course Catalog & Calculators
Course Catalog & Calculators Appraisal Insights 68
Slide 69: Additional MI Site Information
Additional MI Site Information Appraisal Insights
Slide 70: Your Genworth Resources
Your Genworth Resources ➢ ActionCenter®: 800 444.5664 ➢ Your Local Genworth Regional Underwriter ➢ Your Genworth Sales Representative Appraisal Insights
Slide 71: Legal Disclaimer
Legal Disclaimer Genworth Mortgage Insurance is happy to provide you with these training materials. While we strive for accuracy, we also know that any discussion of laws and their application to particular facts is subject to individual interpretation, change, and other uncertainties. Our train