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Secondary Market Use Of AVMs Is Growing But Some Methods Prompt Warnings
Secondary Market Executive, July 1 2005
By Michael J. Kling
Craig Leonard, Vice President Portfolio & Securitization Solutions for Veros was quoted in an article written by Michael J. Kling entitled Secondary Market Use Of AVMs Is Growing But Some Methods Promp Warnings published in the Secondary Market Executive, July 2005. Here is a short excerpt from the article. To view the article in its entirety, visit www.sme-online.com |
Are you confident?
Leonard urges AVM customers to ask about the vendor's confidence score, a measure of valuation accuracy. For instance, a 10% drop in the Veros confidence score equals a 5% variance in the score. Fewer hits with good confidence scores are better than more hits with low accuracy.
"We strongly recommend large-scale testing and ongoing testing," Leonard stresses. "Understand what the confidence score is and how they're going to use the confidence score."
While only about 5% to 10% of securitized deals that S&P rates have AVMs and full appraisals still dominate the industry, automated valuation use has rapidly increased, especially for seconds and lines of credit.
"On the secondary market, there's tremendous use of AVMs," Leonard says, noting that the valuations are frequently used as a quality control tool.
Use of secured valuations, which involves an AVM with an insured value in lieu of an appraisal, is booming, especially for seconds and equity lines, according to Leonard. If the loan defaults, an appraisal would be completed to check the automated valuation. If it was wrong by 5% or more, the vendor will cover the loan holder's net loss.
"No one is selling an insurance policy," he explains, saying it differs from an insured valuation. "The difference is we are warranting that the value is right. We're not selling an insurance policy. There's a tremendous amount of interest in it on Wall Street."
(c) 2005 Secondary Market Executive, Inc. All Rights Reserved. |
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