The Use of Automated Valuation Models (AVMs) Update

Mike Long, VP of Lending, UW Credit Union
January 29, 2007

Last month, we published an article related to the use of AVMs in the Home Equity process. You may recall that in an Oct. 31 st letter, the NCUA rendered an opinion on AVMs that indicated that AVMs alone could not substitute for an appraisal or independent valuation.

We’re pleased to announce that the NCUA has issued some additional guidance to this in a follow up letter dated January 19, 2007. In this letter, the use of AVM’s and/or tax assessments would meet the valuation requirement if “the valuation is reviewed by a loan officer or an individual with knowledge, training, and experience in the real estate market where the loan is being made.”

“A loan officer’s review of a tax assessment or AVM can ensure the written estimate is sufficiently accurate to protect the credit union’s interest throughout the term of the loans”, wrote NCUA General Counsel Sheila Albin in a follow-up to a response to an inquiry from Infinity FCU, Union Westbrook, Maine.

You can read the opinion letter in its entirety at:

http://www.ncua.gov/RegulationsOpinionsLaws/opinion_letters/2006/06-1219.pdf

Your CUNA Lending Council interprets this letter to be good news for Credit Union lenders as the use of AVMs and/or tax assessments has been widely accepted by many credit unions for loans up to $250,000. Using these valuation methods has greatly reduced the credit unions’ processing time and costs associated with origination. As a result members have benefited from fewer closing costs, faster closing times, and lower rates.

As is always the case, Credit Unions with questions about their particular processes or use of AVMs in meeting the requirement for a written estimate of market value can consult their examiner, regional office, or state supervisory authority. And, the NCUA recommends that when AVMs are used that the Credit Union should validate the models on a periodic basis to mitigate the potential valuation uncertainty in the models.

Stay tuned to cunalendingcouncil.org for more information should there be further developments. And keep the great discussion on this and other issues going on the ListServ! Your Lending Council does listen to your concerns and values your feedback.