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Special Reports
Appraisals & AVMs
Bringing It All Together in One Place
By Jennifer Harmon
SANTA ANA, CA -- Lenders are questioning how anyone can use AVMs without a platform
at a time when so many pull values from multiple models instead of just one value from one automated value model.
"It's much easier for a lender to integrate into one platform," said
Robert Walker, executive vice president of collateral solutions at First American Real Estate Solutions here. First
American's Vector platform was constructed last June for warehouse lender GMAC-RFC, also a private issuer of mortgage-backed
securities.
Vector simplifies the process of using AVMs by providing a configurable and secure
platform to manage AVM use according to underwriting rules no matter how simple or complex they may be. Its introduction
signs the next generation of AVM cascade technology, ensuring that investor and loan program guidelines are met
in a controlled environment. According to the company, it also allows for fast turnaround of loan decisions at
a lower cost.
The AVM platform manages the order in which automated valuation models are run
based on geography, estimated value, loan amount, loan-to-value and loan type, to name a few. Through GMAC-RFC's
Assetwise loan evaluation system, AVM results are merged with proprietary underwriting criteria to return the appropriate
decision.
With the wide spectrum of fraud occurring across the country, it's more important
than ever before to conduct AVM testing. From housing consumers, lenders are seeing misrepresentation of information
or "fraud-for-profit" with grossly inflated valuation or appraisals by the closing agent.
The loan IQ tool seeks to tell if the property appraisal is reasonable for the
property located in a particular area. A reading of the market lists the rate of foreclosures in a specific market
and lets lenders know if property flips are taking place. "If buyers and sellers of the same name are in any
given neighborhood, that's a tell-tale sign that something bad is going on," he said.
"If there is a lot of fraud going on in city X, you must be very cautious
about the lending rules and don't run AVMS there, just appraisals. That is why customized collateral tools and
underwriting solutions are so important.
"With the Vector platform, the user, with a security clearance, can make
policy changes right there on the system," Mr. Walker said. "You can go in and modify it. A desktop audit
is done and a trail is created as to who changed the rules."
Based on OCC guidelines issued in 2004 and 2005, AVM testing is being taken more
seriously, he said. First American tests daily and looks at results of how its AVMs are performing. Policies are
reviewed often and interpreted by users. "AVM usage ... the applications should be supported by proper testing.
AVM vendors are taking greater attention as to how they are funneled. In the old world, they never would put so
much volume in any one application. Many times, 20%-50% in the equity line is placed in one AVM and you have to
make sure it performs consistently."
Lenders are most likely trying to stay away from using AVMs in the New Orleans
real estate market since the model can't truly determine whether average, positive or negative conditions exist
that may impact the property value.
"For the poor folks in that area, there may not be true AVMs," said
Mr. Walker. "The Vector platform provides rules that say don't go to the AVMs in these counties or parishes.
The subject may be OK or the property around it may not be sold. In New Orleans, the circumstances are very unique.
The difficult areas defy the computer. Many are taking pictures and adding a human analysis. It's important to
implement underwriting procedures and collateral policies to fix the quality of the models to make sure the right
thing is done."
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