Landmark Study Addresses Merits and Risks of Modern and Traditional Property Valuation Processes in the U.S. Housing Market
Jun 28, 2005
Newport Beach, CA - June 28, 2005 - Today at the 5th Annual Predictive Methods Conference, the Collateral Assessment & Technologies Committee (CATC) of the Real Estate Information Professionals Association (REIPA) announced the completion of a groundbreaking project that examines recent opinions concerning the performance of various collateral valuation methods in the context of soft and weak real estate markets. Persistent and at times diametrically opposed, the viewpoints have a common motivation -- a sincere intent to facilitate identification, mitigation, and management of collateral valuation risks in the mortgage market. They also share a common goal of reducing the risk of loan losses driven by or resulting from inflated property valuations.
CATC's study describes perceived and real systemic risks posed by property valuation alternatives available to lenders today, and reviews the key factors driving the foregoing issues and concerns using empirical data, rigorous and thought-provoking analysis. A complete summary of the project's context, analysis and conclusions have been documented in the form of a whitepaper entitled, "Systemic Risks in Residential Property Valuations: Perceptions and Reality." This paper can be downloaded directly from the REIPA website, www.reipa.org.
"High quality AVM systems are proven solutions that are capable of bringing incremental objectivity, consistency, and controls to collateral valuation and risk assessment processes in our evolved and modern marketplace. They can do so in an efficient and cost-effective fashion that even the best-intended appraisal industry reforms or new regulations may be hard-pressed to match," stated the whitepaper's author, Terry Loebs, Senior Vice President at Fiserv, Inc. and a member of CATC's Executive Committee. "Mortgage market stakeholders can reap significant and unique benefits from both traditional and modern valuation techniques -- provided that they are deployed intelligently and monitored effectively."
Compelling empirical data generated as part of a detailed analysis -- including the results from a validation test that required unprecedented coordination and careful execution by several automated valuation model (AVM) developers -- supported the following conclusions:
-- At least one category of "non-traditional" valuations -- automated valuation models (AVMs) -- is immune to transaction pressures.
-- In some cases, biases in full appraisal value opinions are pronounced. The observed biases were consistent with widely reported allegations of transaction pressures faced by appraisers in the normal course of business.
-- Although AVMs have a lesser tendency to overvalue property, their overall accuracy can be less than that of full appraisals. However, in contrast to AVM values, full appraisals are biased by value estimates determined and communicated by property transaction parties and/or loan agents. Further, logic and available empirical data suggest that the most pronounced overvaluation errors associated with full appraisals are more highly (positively) correlated with mortgage default risk than are the most pronounced overvaluation errors associated with AVMs.
About The Collateral Assessment & Technologies Committee (CATC):
The Collateral Assessment & Technologies Committee (CATC) Committee of the Real Estate Information Professionals Association (REIPA) was formed for the primary purpose of increasing the awareness of the merits of collateral assessment technologies and their derivatives in the context of our evolving and modern housing finance system. The CATC was founded by Basis100, Fidelity National Financial, First American RES, Fiserv CSW, Real Info, TransUnion Settlement Solutions, and Veros Software in March of 2004. Sustaining Members include representatives from the founding members as well as AVMax, Countrywide and Dataquick. CATC objectives include the exchange of information regarding the application of AVMs and related collateral valuation tools, standardization and best practices in the use and evaluation of collateral assessment technologies, providing education and other information resources to our members and others, and the proactive collaboration with leading industry trade groups and other parties interested in collateral assessment. For more information, please visit www.reipa.org.
About the Real Estate Information Professionals Association (REIPA):
REIPA provides an industry forum for the creative exchange of ideas and discussion of issues pertinent to real estate information providers and users. As the professional association representing the interests of those involved in REI commerce, REIPA is the nucleus for developing educational services and disseminating critical timely information to its members nationwide. For more information, please visit www.reipa.org.
About Veros Real Estate Solutions:
Veros Real Estate Solutions, a proven leader in enterprise risk management and collateral valuation services, uniquely combines the power of predictive technology, data analytics and industry expertise to deliver advanced automated decisioning solutions. Veros products and services are optimizing millions of profitable decisions throughout the mortgage industry, from loan origination through servicing and securitization. Veros provides solutions to control risk and increase profits including automated valuations, fraud and risk detection, portfolio analysis, forecasting, and next-generation collateral risk management platforms. Veros is headquartered in Santa Ana, California. To order the VeroFORECAST update or receive information on other Veros analytic products and systems, visit www.veros.com or call (866) 458-3767.