Appraisal News For Real Estate Professionals

2006/05/23

Fitch Ratings Reviews AVM Policies

Blog Source: More on AVMs by Fitch by AI Podcasts. As I noted in an earlier post on a similar topic, alternative valuation methods such as automated valuation models (AVMs), drive-by appraisals, and broker price opinions (BPOs) for newly originated first lien mortgages will no longer be subject to a reduced property valuation based on the location of the property according to Fitch Ratings in the latest edition of ‘Mortgage Principles and Interest’. The use of automated valuation models to assess the value of a home may no longer result in property value penalties, according to a new criteria report by Fitch Ratings. Fitch addressed the use of automated valuation models (AVMs) in U.S. residential mortgage properties in 2004, differentiating the risk of AVM’s by region. Fitch said it would discount property values derived from an AVM assessment from 10%-15% in regional markets deemed ‘weak’ or ’soft’. In Fitch’s revised criteria, the focus has now shifted from the region directly to a lender’s process and controls for using AVMs, according to Senior Director Suzanne Mistretta. Fitch will apply new guidelines to evaluate each originator’s program and process for using an AVM or other non-full appraisal method. ‘Property valuation is critical in determining losses on residential mortgage loans since their quality can significantly affect RMBS performance,’ said Mistretta.
‘Therefore, Fitch will discount property values by 5% or more if either a lenders usage processes and controls do not adequately mitigate overvaluation risk, or if a lender’s processes are not disclosed to Fitch.’
The usage of non-full appraisals does have benefits, which is why Fitch has developed guidelines for reviewing an originator’s use of AVMs, drive-by appraisals and broker price opinions (BPOs) as a sole valuation tool for first lien originations. ‘Comprehensive program business rules, reasonable tolerance levels, photos of the subject properties and use of confidence scores are all ways that a lender can mitigate overvaluation risk,’ said Mistretta. New Treatment of AVMs in RMBS is available on the Fitch Ratings web site at www.fitchratings.com (requires free log-in). Fitch’s rating definitions and the terms of use of such ratings are available on the agency’s public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from the site, at all times. Tags: , , , , , ,

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