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TED DURANT
2019. For over 25 years, Ted managed predictive analytics at Mortgage Guaranty Insurance Corp
(MGIC). His experience covers the full range of mortgage origination, servicing, and secondary market
issues, including default, prepayment, and home valuation risk. Ted earned his MBA in Real Estate from
the Wharton School at the University of Pennsylvania, his BA in Economics from Carleton College in
Milwaukee, Wisconsin, where he serves on the board of directors of HEAR Wisconsin and enjoys riding
bicycles year-round.
APPRAISAL BUZZ FALL 2020 | 15
- the possibility that a materially
incorrect value was established for the property
in underwriting the loan, or that the value is
subject to material uncertainty due to unique
property characteristics or circumstances.
- the possibility that the condition
of the property changes materially after the loan
is underwritten.
– the possibility that the lender may
- the possibility that home prices will
change after the loan is underwritten.
Valuation risk is the domain of the appraisers and
the mortgage underwriting process. Condition risk
arises from damage by occupants or by natural
disasters and is generally covered by property
servicers, who are often thinly capitalized and unable
sheets. Market risk (which in 2006 apparently was
zero) has come to the front of lenders’ and
investors’ minds since 2007 and is generally
managed through tightening lending requirements.
Finally, it is worth noting that people generally
worry about one tail of the risk, in which the property
is worth less than expected. However, undervaluation
in residential lending is also a problem. For the loan
originator, undervaluation results in overpricing the
loan, and possibly losing business as a result. From a
public policy perspective, undervaluation could
prevent people from being able to buy their own
homes. For investors in loans, undervaluation may
result in holding too much capital and cause poor
forecasting of prepayments and defaults.
Management of collateral risk should be a central
feature of all mortgage underwriting. That process
begins with understanding and managing valuation
risk. While this may not be a startling conclusion for
appraisers, it is worth reminding yourselves of the
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