"The value of this guidance is that it represents a collaborative industry view of how AVMs should be tested, rather than disparate approaches advocated by a small set of market participants,”
A key principle is that AVMs should be tested against benchmarks that represent how the models are actually used. Importantly, the MISMO AVM Development Workgroup “recommends testing with all available benchmarks (e.g. appraisals, closed sales prices) that reflect the characteristics of real-world use cases.” Veros strongly supports this recommendation because the current use cases for AVMs in HELOC, refinance and purchase transactions suggest the need for testing with both appraisal and closed sales price benchmarks which the MISMO document clearly recommends. This is also important as a given AVM may perform well against sales price benchmarks but poorly against appraisal benchmarks, and MISMO’s document recognizes this issue.
Veros likewise emphasizes the importance of using recent AVM estimates in accuracy testing.
“Housing markets change, AVMs evolve, and model performance can shift over time. Relying on dated AVM estimates, as may occur with some testing approaches, can produce test results that are no longer representative of how the model performs under current market conditions or can artificially suppress measured accuracy and fail to reflect real-world performance,”
The MISMO AVM Testing Guidance and Best Practices document recommends that “AVM values are drawn from a period immediately prior to any possible knowledge of the benchmark value,” while appropriately controlling for potential benchmark data leakage. The MISMO document outlines two strategies which allow for recent AVM values to be used while minimizing benchmark leakage. These include “using benchmarks received during the loan application process, such as contract sales prices or appraised values, prior to the loan funding” or secondly requesting a retro AVM valuation where “AVM estimates are ‘backdated’ or generated as of a valuation date that precedes the benchmark.”
For Veros and other lenders, the release of this document represents an important step toward greater consistency in how the industry evaluates AVM performance. A common framework built around representative benchmarks, current data, sound statistical measures, and repeatable testing can make the testing of AVM performance more balanced, realistic and easier to evaluate, while giving lenders and other users greater confidence that testing reflects how models perform in real-world applications.
About Veros Real Estate Solutions
Since 2001,Veros® has been a trusted innovator in mortgage technology, specializing in enterprise risk management and collateral valuation. By combining predictive analytics, advanced data science, and deep industry expertise, Veros delivers automated solutions that help reduce risk and improve profitability across the mortgage lifecycle, from origination through servicing and securitization.
Veros’ services include automated valuation, fraud and risk detection, portfolio analysis, forecasting, and next-generation collateral risk platforms. The company is the primary architect and technology provider of the GSEs’ Uniform Collateral Data Portal® (UCDP®) and supports the FHA’s Electronic Appraisal Delivery (EAD) portal. Veros also partners with the Department of Veterans Affairs to streamline the appraisal process for Veterans.
Media Contact:
Heather Zeller
SVP of Marketing, Veros
communications@veros.com
Source: BusinessWire
