5 Questions to Ask Your AVM Provider for Home Equity Lenders

Home equity lenders know the benefits of using an Automated Valuation Model (AVM) when originating Home Equity Line of Credit (HELOC), Home Equity Investment (HEI), cash-out refinance, and fixed-rate home equity loans. Using an AVM can greatly expedite the process and save the lender money. These time and cost savings are passed on to the customer, leading to a better bottom line for all parties involved.

But before you choose an AVM for your HELOC lending, it’s important to ask your AVM provider the right questions to ensure you’re getting the most out of this powerful technology. Using an AVM in a HELOC workflow requires a few considerations outside of speed and process-related improvements, including the impact on a loan’s eventual securitization into residential mortgage-backed securities (RMBS). 

Lenders should look for a highly-accurate, lending-grade AVM that combines quality data, valuation expertise, and machine learning. While some situations still require the input of an appraiser, AVMs offer another tool in the valuation toolbelt when the situation is appropriate. If an AVM fits into your home equity lending workflow, we recommend asking these questions to ensure you’re working with a top-grade AVM.

1. Is the AVM provider approved for RMBS?

It’s important to know if your AVM has been reviewed by a rating agency and is approved for use in RMBS. Fitch Ratings reviews AVM vendors and determines which AVMs can be used as the primary method of valuation based on each vendor’s performance.

Fitch relies on two main metrics to gauge AVM performance: The percent predicted within 10% (PPE10) value, which assesses vendor performance, and forecast standard deviation (FSD), which creates common meaning for the industry to rely on in the valuation of RMBS.

ClearAVM™ is approved by Fitch for RMBS and received the highest FSD thresholds for each band of PPE10 performance. ClearAVM meets the criteria for RMBS for 68% of all homes in the nation. 

2. Does your AVM feature an FSD Cutoff? It can save you money!

A HELOC lender may want to ensure the loans they originate avoid large haircuts, so loans using AVMs that fall outside the prescribed FSD should default to an alternative valuation type, such as an appraisal. With ClearAVM, if the valuation does not meet our customer’s specified FSD threshold we do not provide it or charge the user for the AVM. 

Clear Capital’s AVM enables users to set a custom FSD maximum, ensuring they receive only AVMs that fit within a specific haircut band. This parameter is set when they place the order.

3. Can your AVM provider confirm a property’s condition and incorporate it into the value?

In accordance with the Interagency Appraisal and Evaluation Guidelines (IAEG), HELOCs require an evaluation to reflect the property’s current physical condition. HELOC lenders may also want to choose an AVM provider that can incorporate a property’s conditions into the AVM to comply with the IAEG.

Clear Capital combines our highly accurate ClearAVM with our Property Condition Inspection (PCI) products to provide a nationwide evaluation solution to meet this requirement. Our nationwide network of real estate agents and brokers performs a drive-by inspection that is compliant with the IAEG, providing a market value of the property in its current condition. 

Alternatively, lenders could also use Clear Capital’s Interactive ClearAVM, which incorporates the condition of a property into the predicted value, creating a compliant evaluation.

4. Does the AVM prevent and mitigate bias in its valuations?

It’s crucial to understand if your AVM uses any factors that contribute to appraisal bias in its model. For example, an AVM shouldn’t employ any data that’s representative of or a proxy for race, color, national origin, religion, sex, familial status, or disability to determine a property value. In addition to controlling data inputs, an AVM should have continuous oversight to ensure ongoing compliance with Fair Lending Laws.

5. How simple is the AVM’s API (application programming interface)? 

Many AVMs feature API integration, but not all integrations are created equally. When considering which AVM is right for you, consider ease of use, response speed, and uptime:

  • Ease of use — Review the API documentation, and if it takes more than five minutes to understand how to code a connection, look for an alternative provider.
  • Response speed — Your AVM’s API should be able to handle millions of requests an hour and produce the AVM in just a couple seconds. Underwriters can’t waste time waiting for a property valuation. 
  • Uptime — Loans need to originate at any hour of any day. An API needs to be reliable no matter how much load. Ask for your provider’s load tests and uptime history to get a sense for how often your provider’s AVM can fulfill your requests.

Try a lending-grade AVM for free

When it comes to HELOC lending, getting accurate valuations in a rapidly-changing housing market is crucial. This leading, lending-grade AVM uses the most comprehensive real estate data in the nation. 

ClearAVM is an online valuation tool that combines field-gathered data on 139+ million properties nationwide with valuation expertise and machine learning to deliver valuations that are up-to-date with market trends. Intuitive and easy-to-use, ClearAVM delivers accurate reports in just a few seconds. You can try it for free to see how a lending-grade AVM performs.

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