New appraisal standards force vendors to re-tool AVMs

New rules from the five federal bank regulatory agencies no longer accept technological tools like automated valuation models alone as a substitute for an appraisal, forcing vendors to upgrade these products with the required on-the-ground inspection and other data. Automated valuation models provide property values using mathematical modeling and a database of comparable properties. The Financial Institutions Examination Council, which is made up of the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corp., the National Credit Union Administration and the Office of Thrift Supervision, released new guidelines on Dec. 2 that are impacting lenders that rely on AVMs. Ryan Tomazin, president of Integrated Asset Management, which provides default mortgage services that include AVM products, said the new guidelines add another level of difficulty for mortgage lenders but will ultimately be good for the consumer. Firms are now developing next-generation AVMs that combine the models and a professional third-party inspection of the property. “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,” Tomazin said. “Firms like mine need to be aggressively developing solutions to a multitude of problems and providing guidance to use those solutions effectively.” CoreLogic (CLGX), another AVM provider, said the new rules will require more due diligence. For some of these models, CoreLogic said new products must include additional content on the property condition beyond the “raw AVM valuation.” Susan Allen, vice president of collateral solutions at CoreLogic, said the company has developed new tools, platforms and inspection reports that can help lenders better select which AVM to use and when. Appraisal technology providers will almost certainly grow in demand as lenders adjust their systems to fit the new regulation. Tech firms have been quick to offer compliance products to fit the reams of new rules by regulators coming out of the financial crisis. For instance, when the Treasury Department announced the new Home Affordable Foreclosure Alternatives program, a slew of tech companies flooded the market with software and other products to better facilitate short sales the program pays for. “Let’s face it, the mortgage industry is becoming increasingly complex,” Tomazin said. Write to Jon Prior.