Recently issued guidance from the Federal Financial Institutions Examination Council (FFIEC) on real estate appraisals and evaluations will have a major impact on institutions relying on automated valuation models (AVMs), according to Integrated Asset Services LLC (IAS), a provider of default management and residential collateral valuations.
New Interagency Appraisal and Evaluation Guidelines (FIL-82-2010) were issued in early December by the five federal bank regulatory agencies that make up the FFIEC: the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of Thrift Supervision (OTS). The FDIC’s version of the rules are available by clicking here.
Effectively, the new Guidelines require any real estate-related financial transaction originated or purchased by an FFIEC agency to address the property’s actual physical condition and characteristics, as well as the economic and market conditions that affect the estimate of the collateral’s market value. Analytical methods or technological tools like AVMs can no longer be substituted as an appraisal.
“To their credit, AVMs have always represented, and still represent, a quick, efficient, and low-cost way to gather an abundance of sales information,” said Ryan Tomazin, president of IAS. “The technology will continue to serve as an adequate assessment tool for a good number of applications, but for Interagency transactions, the standard’s been raised.”
Tomazin suggests that, given the additional requirements imposed by the regulators, lending institutions will need to look at so-called “hybrid” AVMs for certain applications. These next-generation models integrate a professional third-party inspection into the analytics to deliver a current view of subject and neighborhood condition, condition-adjusted value, and market price trends. IAS introduced its own “Conditioned Valuation Model” (CVM) in March 2009.
According to IntelliReal, a leading provider of real estate intelligence and an IAS business partner, analysis comparing a set of property valuation errors before and after correction with IAS’s CVM, the number of valuations that fall within a plus or minus 10 percent improved by 93 percent when a conditioned adjustment was made.
“While the new FFIEC guidelines add another level of difficulty to mortgage lenders, raising the bar like this will surely be good for consumers and for the industry as a whole,” said Tomazin. “It’s been clear to us for some time we needed a full suite of valuation solutions for lenders to utilize across an increasingly wide range of applications.”
Beyond the launch of its innovative conditioned valuation product last year, IAS has built out a full suite of end-to-end solutions designed around the industry’s mortgage servicing challenges. In addition to its credit diligence and data and analytics services, the firm offers a number of advanced collateral valuation applications, including AVMs, BPOs, and appraisals, as well as complete REO management.
“Let’s face it, the mortgage industry is becoming increasingly complex,” said Tomazin. “Firms like mine need to be aggressively developing solutions to a multitude of problems and providing guidance to use those solutions effectively.”
For more information, visit www.iasreo.com.
