AVM Compliance Concerns
Aug 22, 2012
Featuring Lee Kennedy, Managing Director and Founder of AVMetrics
August 2013 Podcast Transcript - Duration: 7 minutes
Moderator: Welcome to the Veros Real Estate Solutions monthly podcast. Today we’re joined by a guest outside of Veros. We have Lee Kennedy, Managing Director and Founder of AVMetrics. Today Lee’s going to be talking with us about some key compliance issues around AVM usage, so welcome Lee.
Lee Kennedy: Well thank you so much for inviting me to speak on this podcast. I always enjoy the Veros podcasts.
Moderator: Well that’s great. So first, I would like to set the stage for listeners about AVM usage in general. Let’s start with the 2010 update to the Interagency Appraisal and Evaluation Guidelines, which included some language on AVMs that supports their use, which is fantastic. We’ve also seen some other entities that have followed suit in supporting AVMs for specific scenarios. So maybe, Lee, if you could talk a little bit about appropriate uses for AVMs in today’s climate.
Lee Kennedy: And, I agree, the 2010 updates specifically addressed the use of AVMs in multiple verticals and channels for lending institutions so that’s the good news. It also really got prescriptive about how to test and integrate these tools, these evaluation tools, for lenders, which is also very good news. We’ve also seen the GSEs develop some usage guidelines around the use of AVMs for the HAMP and HART programs, so again good news there. There’s a lot more guidance available now than there was just a year or two ago at this time.
Moderator: So let’s delve a little bit into compliance. Can you tell me what is required now with this guidance of lenders or more generally AVM users, whether they’re lenders or from another segment?
Lee Kennedy: Well, the compliance has always been in the best practices realm. What the new guidance did, including 2011-12, which was a rewrite of the OCC2000-16, was just kind of cleared the muddy waters around the guidance issues. So the responsibility for the proper use of these tools still resides with the end user, i.e. the lender. It’s just a lot clearer about what the expectations are from their primary federal regulator.
Moderator: So let me ask you then, what are, do you think, the biggest blind spots for AVM users right now?
Lee Kennedy: From the AVMetrics perspective, it’s all about testing. How do these models perform in different geographic segments, price tiers, property types and how does that affect your business decision around the use of these evaluation tools? And I think that’s common misconception out there that if you choose a model, a single model, for all of your business lines and all your geographies that you’ll be okay and in today’s regulatory environment that’s just not the case.
Moderator: Absolutely. So talking about model selection and setting up your tiers for AVM usage, there’s typically three approaches around AVM usage that we’re familiar with. First would be building that expertise internally, whether it’s through one expert or a team. Second would be maybe hiring a consultant like AVMetrics or another entity in the space. Or third would be going to a reseller in the space that’s providing AVMs. So can you tell me a little bit about the pros and cons of those approaches?
Lee Kennedy: Well I originally came from the internal resource with a large, national lending institution and built one of these departments and it’s really good to have that in-house. The problem there is that it’s very expensive to house and feed a quant department that’s dedicated to the use of these evaluation tools. And hence, the outsource opportunities that come from AVMetrics and other testing entities that provide those functions is a lot more cost-effective and you can still get some fairly detailed business logic out of what we do on a consultant basis. The third, about AVM resellers, they’ve always provided very good testing information about their own internal products and that’s important to the end user. However, there’s always been kind of a flaw in that you can’t rely solely upon the information provided by the AVM reseller or vendor. You really do have to have either an internal or third-party look at that testing and back-testing environment.
Moderator: So if you could make one recommendation to AVM users out there today to help them be more compliant, what would that advice be?
Lee Kennedy: Just one? Wow, really understand the landscape of the AVMs. There’s about 20 at any given time, commercially available residential AVMs out there. Really understand what’s going on with that environment and the changes in model performance out there. Be aware of how you integrate those models into your business decisions through the different platforms that are out there and what granularity those platforms offer you for managing the AVMs. And then, really take a close look at the guidance. The guidance is prescriptive enough now that you can almost checklist it to see if you’re going to be in compliance for the different ways that you use these tools.
Moderator: So thanks for joining us, Lee. That’s great advice. It was a pleasure to chat with you today and we’re really appreciative of all your time. For our listeners, additional information can be found on our newsroom at veros.com and be sure to follow our Twitter handle @verosres - for real estate solutions. For all of our breaking news and questions and feedback can always be submitted to firstname.lastname@example.org. Thank you.
Lee Kennedy: Thank you so much for the opportunity.