Guaranteed automation value models can help reduce the risk of mortgage fraud.
Lenders now have options to sidestep the possibility of hiring an incompetent appraiser, a factor that is most often associated with appraiser-related mortgage fraud, Appraisal Institute president Richard Powers said in a recent press release.
One of those options was recently announced by FirstClose.
The Austin, Texas-based company now offers guaranteed AVMs.
FirstClose, which promotes a bundle of settlement services for mortgage lending institutions, can insure AVMs on any type of mortgage loan including; purchases, refinances, home equities and second mortgages, the announcement said.
Automated values are derived from various sources of data such as county records, multiple listing services or online assessors for comparables and do not include a physical inspection, according to FirstClose spokesman Tim Smith.
AVMs are captured within seconds and allow loan amounts up to $1 million per loan, the company said.
Essentially, an insurance carrier insures the value, Smith explained. "It's guaranteeing or indemnify the value that the AVM provided."
"The errors and omissions insurance policy backing FirstClose and all of its AVMs protects lenders against any type of loss, including foreclosures and the like," the announcement said. "At less than half the cost of traditional, non-guaranteed appraisals, insured AVMs provide additional assurances to lenders and complement the speed, efficiency, and low cost nature of standard AVMs."
For example, the basic AVM cost for a $250,000 value would be $20-25 and to insure it the cost would be $80-110, Smith told MortgageDaily.com.
The company said it offers the lowest minimum FICO score requirement of 560, the highest LTV and loss limits available with no annual aggregate limit or deductible on coverage.
Another guaranteed AVM provider, eAppraiseIt offers insured AVMs based on client-specific conditions, according to spokesman Matt Rendina. Insured AVMs are available for most types of mortgage loans, he said, with a $1 million loan limit; however, they do not insure multi-family properties.
Costs vary by lender client, but AVMs in general are less costly than a full-blown appraisal, Rendina told MortgageDaily.com.
Other advantages of using guaranteed AVMs, Rendina said, is that it is a time saver, the lender has the benefit of knowing the valuation is insured and the coverage is transferable for the life of the policy.
Aside from insuring AVMs, Fannie Mae's Desktop Underwriter has an internal watchdog that is said to catch inflated appraisals a majority of the time.
Fannie Director Mark Simpson reportedly told the Appraisal Foundation symposium that the system will issue a warning if the appraisal "materially exceeds our value for the property" and is "right about two-thirds to three-quarters of the time."