1. Comparative Housing Valuation
Kestrel Advisors, Inc.
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Comparative Housing Valuation
The applicability and benefits of comparative housing market valuations when making credit decisions

5. Status and recent developments in the housing market:
There have been some notable declines in home sales in certain areas of the country
Home price appreciation is still positive, but slowing
At the national level, the housing market is fairly valued

6. Degree of Overvaluation / Undervaluation: Less than 5% overvalued
Shiller data October nominal value:
Degree of Overvaluation / Undervaluation: Less than 5% overvalued

8. All real estate is local (“Location, Location, Location”)
Metropolitan Statistical Areas (MSA’s) around the country exhibit wide variability
Some are very overvalued, which presents risks; some are undervalued, and present opportunities

9. The methodologies that Kestrel Advisors has developed for determining fair housing valuation can provide guidance when considering new credit decisions:
volume of lending in a particular market
whether to offer certain products in a particular market
suitable LTV’s for various markets
reliability of collateral safeguarding loans

10. Degree of Overvaluation / Undervaluation: Approx. 25% Overvalued

11. Considerations for new credit issuance in the Seattle metropolitan market:
continue lending without any change in lending volume or product mix offered
reduce overall origination activity
require 20% down payments (LTV of 80 or less) for new purchase loans
eliminate use of very low down payment loans (3%), or use very sparingly (750+ FICO)
eliminate use of Adjustable-Rate Mortgages and other creative loan products

12. Degree of Overvaluation / Undervaluation: > 30% Overvalued

13. Degree of Overvaluation / Undervaluation: < 25% overvalued
Indexed prices declined by > 5% from June to December

14. Seattle clearly represented a risk, and probably still does
Other MSA’s represented safety and opportunity

15. Degree of Overvaluation / Undervaluation: Approx. 10% undervalued

16. Considerations for new credit issuance in the Cleveland metropolitan market
the Cleveland market remains significantly undervalued, but continues to steadily recover over time
increase overall lending activity to generate greater revenue
offer a full array of loan products to borrowers
Increase offerings of 2nd loan products such as HELOC’s and HEL’s

17. Degree of Overvaluation / Undervaluation: Less than 5% undervalued

18. Conclusion The comparative home valuation data can help lenders:
manage credit risk for new loan originations
raise credit standards in overheated markets
determine an appropriate schedule of product offerings for various markets
identify opportunities to increase revenue by expanding origination activity