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Live from PMC 2005: Getting specific with cascading AVMs
Valuation Review, June 30, 2005 Live Reporting from PMC
By Matt Smith
Darius Bozorgi, President & CEO of Veros was quoted in an article written by Matt Smith entitled Live from PMC 2005: Getting specific with cascading AVMs published in the Valuation Review, June 20, 2005. Here is a short excerpt from the article. To view the article in its entirety, visit http://www.valuationreview.com. |
The art and science of cascades
The "Cascading/Testing AVMs" workshop gave audience members tips on creating AVM cascades. It took a more hands-on approach to cascading AVM platforms than some of the more general sessions.
Panelists included Rob Walker, executive vice president of collateral services for First American Real Estate Solutions; Darius Bozorgi, president and CEO of Veros; and Jay Philips of TransUnion.
Bozorgi started by explaining that whether they're dubbed cascading, waterfall, matrix, bump-logic or choice engine AVMs, the model has to take business rules into account. He suggested using a preference table, or matrix, to decide which approach to take to appraise value. The decision might be based on costs of the loan within certain states, for example. Lenders can also break down options by property types, Zip code, program types (such as refi or first-lien), initial customer estimates of property value, etc.
The preference tables provide a view of risk, applications and objectives, he said. They can also differ across users within an organization, he said.
In designing cascades, lenders have to consider evaluation metrics such as accuracy ("accuracy is king," Bozorgi said) and hit rates. He also warned against using cascading AVMs to "price shop." Lenders have to be able to explain to regulators why and how their cascades are not shopping for value.
Cascading AVMs also have implications for agency ratings, he concluded. Many in the industry have focused on rating and testing individual AVMs, but lenders are effectively creating new products when they combine AVMs and add their own rules - rating the entire cascade might be a more appropriate option.
(c) 2005 Valuation Review and October Research, Inc. All Rights Reserved. |
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