|S&P Cites Jump in RMBS Automated Valuation Model Use
NEW YORK, NY (March 19, 2002) -- The recent wave of Automated Valuation Model (AVM) vendors entering the North American RMBS marketplace with their own variations on established model types will increase the need for detailed evaluation, according to Standard & Poor's.
"These variations have implications for the user in such areas as accuracy, geographic coverage, and hit rate (a measure, expressed as a percentage, of the total number of values a system was able to provide divided by the aggregate sample)," writes director Leslie Albergo in an article titled "RMBS Automated Valuation Models Necessitate Closer System Examination."
With the growing number of models available and their increased usage in the market, Standard & Poor's is continuing the evaluation of AVM systems it began in 1998. This ongoing evaluation is designed to address the credit risk associated with the potential use of this valuation method in the private-label residential mortgage market.
The increase in AVM vendors has been attributed to the Internet providing greater distribution capabilities and increased data availability.
"It is expected that 10% of all new originations in the residential mortgage market this year will have an automated valuation attached to them in some way," said RMBS director Susan E. Barnes. "AVM usage has evolved from being employed solely as a quality control tool to its utilization in the origination process. Utilization in the origination process ranges from its being employed as an unbiased 'reality check' on an appraisal to its use as the sole determinant of property value."
Fueling this streamlined origination process are the benefits derived by the seller, which include expedited approval, resulting in reduced origination costs, an accelerated closing period, the potential for inclusion in a risk-based pricing strategy, and competitive customer service.
The complete report is available on RatingsDirect, Standard & Poor's Web-based credit analysis system.
The report is also available at http://www.standardandpoors.com. To access it, click on "Resource Center"; then, under "Reference Tools," on "Structured Finance"; and finally, on the article title.