Stepping Up Mortgage Lending Quality with AVMs

By Rob Walker, Managing Director, LPS Applied Analytics

While credit unions have long specialized in home equity lending, the majority are now participating in first-mortgage lending as well. In fact, the combined mortgage lending from all credit unions now makes this group the nation’s third-largest first-mortgage lending source. This is certainly a far cry from the mortgage lending landscape that was almost completely dominated by the mega-banks just a few years ago.

As credit unions continue to gain first mortgage market share, they remain focused on ensuring that their long history of lending quality remains intact, and that their risk levels are tightly managed – whether they sell their loans to GSEs or maintain ownership of their portfolios.  There are a number of important strategies and tools they can deploy to make sure they hit their quality and risk targets.

Certainly, a key element of ensuring loan quality is in the level of accuracy associated with collateral valuation. Over the past several years, collateral values have dropped precipitously in several markets, remained fairly stable in others, and have even started to climb in some areas of the country.  However, the diversity of real estate values can be dramatic from one ZIP code to the next – or even from neighborhood to neighborhood. That’s why credit unions that validate property appraisals using Automated Valuation Models – or AVMs – have an extra measure of confidence in the value of the collateral that is used to secure their first and second mortgages.

The idea of validating traditional appraisals by using AVMs is not new to the mortgage industry, but it has certainly grown in relevance.  Taking the opinion of a licensed appraiser and combining it with the sophisticated analysis delivered through an AVM offers the best of both worlds.  However, just as it is important to select an appraiser with the right professional credentials and proven experience, it is also important to select an AVM that has been put through the rigors of independent testing. Credit union lenders also need to make sure they are using the best AVM model for the specific appraisal they wish to validate.

One of the best ways to ensure that the ideal AVM is selected to evaluate a particular property in a portfolio or validate a traditional appraisal is to use an AVM cascade. An AVM cascade is able to analyze the location and characteristics of a specific property, then automatically match it to the specific AVM that is best suited to deliver the most reliable result.  Credit unions should consider an AVM cascade that can tap into the leading AVM products from multiple vendors – and that is independently verified by an unbiased third-party validation and testing authority – to ensure a true representation of AVM performance.

With so much riding on the accuracy of collateral appraisals, credit unions that leverage an AVM cascade that includes AVMs from a variety of providers will have a distinct advantage over their competition. Whether collateral value validation is needed for new mortgage originations, portfolio valuations or risk management, a high-performance AVM cascade offers credit unions the independently confirmed accuracy they need to help ensure that loan quality remains front and center in their mortgage lending operations.

Robert Walker

Robert Walker

Robert Walker is a Managing Director for the Lender Processing Services (LPS) Applied Analytics division. Rob is in charge of all real estate product development; including, but not limited to, ... Web: Details