Mortgage Lending Value (MLV) Ties Together Valuation Engineering, Prescriptive Analytics, and Value Engineering

It is often beneficial to look at how other countries handle appraisal. A number of countries in Europe, particularly Germany, require that appraisers provide a “Mortgage Lending Value” (MLV) as part of the appraisal for home loans.  This goes a good step beyond the American appraisal process of simply providing a Market Value.   RICS advises, though does not require, that Market Value (MV) also be provided alongside MLV. 

The purpose of using MLV, is to reduce the problems of fluctuating MV going into the future.  It is therefore an issue of “Prescriptive Analytics”.   First you  predict where Market Value, financing and maintenance costs  are headed sometime into the future, say 8+/- years, deduct certain predicted costs from the predicted low value of the MV, further deduct predicted foreclosure processing costs, then arrive at something close to an MLV.   The details of how exactly this is done are determined by the national laws and banking guidelines which are invariably more involved.

This exercise appears therefore to come under Predictive and Prescriptive Analytics.  I propose it also comes under Value Engineering, in that it focuses on the functional utility of the MLV, in case foreclosure occurs at a future date.

References:

https://www.rics.org/globalassets/rics-website/media/upholding-professional-standards/sector-standards/valuation/bank-lending-valuations-and-mortgage-lending-value-1st-edition-rics.pdf

https://www.pfandbrief.de/site/en/vdp/real_estate/valuation/mortgage_lending_value.html

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