While greater industry adoption of AVMs holds the potential to modernize and improve the valuation process, the MBA and CBA (Consumer Bankers Association) said the agencies should be mindful of the practicalities of model risk management and potential consequences, such as the impact on the availability of GSE waivers and alternative valuation methods.
Heightened compliance costs and homeownership affordability should also be considered, according to MBA.
“Mortgage lenders evaluate borrower eligibility based on an assessment of both credit risk and collateral risk – the extent to which value of the real property supports the mortgage loan,” the letter wrote. “Understanding the market value of the collateral is essential to pricing, originating, and servicing the loan. AVMs are used by the mortgage industry not only to assist in making credit decisions but to assess servicing portfolios and screen for outlier appraisals.
“Fannie Mae and Freddie Mac (the GSEs) are two of the most influential AVM stakeholders, as they use their access to the FHFA appraisal dataset to inform quality control programs such as Collateral Underwriter and Loan Collateral Advisor.”
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Source: mpamag.com