AVMs: what's their value to Mortgage Bankers?

Author:Minton, Gabe
Position:MISMO Memo - Hbrid automated valuation model solutions emerging
 
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With the launch of this quarterly technology section in Mortgage Banking, I was invited to contribute a regular column allowing my staff and me to communicate on important technology issues to the industry. Most of you know my group because of MISMO--the Mortgage Bankers Association's (MBA's) wholly owned standards subsidiary--but that is only the largest of several projects we support in MBA's industry technology division. There are many other issues of importance to the industry with regard to technology, and its strategic direction and implementation. This quarter's column focuses on an area of technology that MBA's Residential Technology Steering (ResTech) Committee is examining, with the goal of recommending possible best practices or standards that could aid in further adoption of automated valuation model (AVM) technology.

AVMs are an emerging key technology in the industry right now. This technology helps to augment (and even streamline) the origination of a loan, but it has a total lack of standardization. By standardization, I mean something beyond eCommerce data standards (which is a focus area of MISMO). I mean process standards, reporting standards, or any type of standards or best practices that either: (a) level-set such that AVM providers can better compete on product and service, or (b) permit "apples-to-apples" comparisons among AVM providers, and ultimately their scores, to help lenders move loans upstream to investors and aggregators.

No lender debates the usefulness of this important technology, and for the most part everyone is using it to augment the existing established industry appraisal processes. There are generally two different types of AVMs--those that are scoring-model-based and those that are value-based. The scores or results that they provide are different, and have different ranges based on the company providing the service and the type of AVM. AVMs are used in the origination of a loan, but are also used later on to perform risk analysis in secondary and servicing-purchase transactions.

In working with the ResTech Committee and lenders in the industry to try and identify areas where MBA may be able to help, one big issue identified with AVMs is the lack of cross-investor standardization on requirements for which AVMs to use, and for what types of products. Investors' requirements often vary from one another. Investors will run their own AVM scoring of a pool, and their scores may have an impact on the...

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