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Credit Unions Can't Use AVMs

NCUA issues letter

January 9, 2007

By MortgageDaily.com staff

The regulator of federal credit unions is no longer allowing the use of automated valuation models.

The National Credit Union Administration issued a letter that called into question the use of AVMs in federally-regulated credit unions and would deny AVMs to credit union mortgage loan departments, according to an announcement by the Real Estate Information Professionals Association's Collateral Assessment Technologies Committee.

"There is a lot of confusion in the marketplace right now thanks to this letter," said Darius Bozorgi, chairman of the committee, in the announcement. "This is very surprising because credit unions have been using these tools safely and soundly in full compliance with current regulations and guidance for several years. This letter could put these institutions at a real disadvantage."

The administration, which reportedly charters and supervises federal credit unions and insures savings in federal and most state-chartered credit unions, is one of five agencies that signed off on the interagency guidance for home equity lenders in May 2005, a document that "fully explained the use of AVMs for many of the nation's financial institutions and made it acceptable as a standalone method of real estate valuation for mortgage loan purposes," the committee noted.

In the Oct. 31, 2006, letter, administration associate general counsel Sheila A. Albin said that "an AVM may be useful in meeting the requirement for a 'written estimate of value,'" but the administration's appraisal rule requires "an appraisal by a state-certified or licensed appraiser for all real estate-related financial transactions."

Under the administration's regulations, certain real estate-related financial transactions do not require an appraisal performed by a state certified or licensed appraiser, Albin said. The exception most likely to apply to second mortgages is the exception for transactions with a maximum value of $250,000 but such transactions must still be supported by a "written estimate of market value." The other exception requiring a written estimate of value is for refinance loans with no additional credit extension.

Further, "credit unions must still meet the appraisal rule's requirements regardless of whether they have purchased insurance" to protect against inaccurate AVMs, Albin added.

According to the AVM developer committee, its members say that their credit union customers have been "lighting up the phones" with questions and called on the administration to issue a clarification of Albin's comments.

The committee said it issued a response letter stating that Albin "provided ambiguous and conflicting information to credit unions" and as a result of her October letter, "many credit union AVM customers are now confused as to the proper application of these powerful and industry-accepted tools."

The committee additionally expressed surprise and disappointment that the regulator would deny AVMs to credit union mortgage loan departments, according to the announcement. The response letter's outlined reasons for due clarifications included that such a move would render credit unions less competitive than other federally-regulated institutions; the regulator's prior commitment to interagency guidance; the history of successful AVM usage by credit unions; and prior guidance permitting AVM usage by credit unions.

The administration's "letter turns the clock back on the industry over three years,'" said Jim Kirchmeyer, government affairs chair of the committee and chief executive of AVM developer Real-Info Inc., in the announcement. "We've had customers who have been using low-cost AVMs for years who now believe that they have to go with more expensive and time-consuming valuation products when their competitors do not. This is simply not true."

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