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| Automated Valuation Systems Need Proper Review By S&P |
NEW YORK, Feb. 29 /PRNewswire/ -- Standard & Poor's today affirmed its
criteria for validating any automated collateral valuation system used to
appraise residential mortgage properties. Any such system used within a pool
of securitized mortgages to be rated by Standard & Poor's must be reviewed and
its results incorporated into Standard & Poor's ratings criteria.
Standard & Poor's reviews a new electronic home valuation tool solely at
the request of the vendor. To begin the testing process, Standard & Poor's
provides the vendor with a test portfolio of properties with known sales
prices for valuation. The vendor supplies a value for each given property
address, and Standard & Poor's analyzes each one for variance to the actual
sales price. The ability of the system's user to manipulate the results is
also determined and incorporated in the analysis.
Investors should be informed that any mortgage pool featuring properties
assessed by a system that has not been reviewed by Standard & Poor's might
feature appraisal variances that exceed Standard & Poor's standards. Analysis
of the four automated systems that Standard & Poor's currently does accept,
including those designed by Mortgage Risk Assessment Corp. (MRAC), Solimar
Inc., Transamerica Intellitech Inc., and Experian Inc., has indicated that
systems can be extremely accurate for some property characteristics or
geographic locales, and inaccurate for others. In some cases, a system may
overestimate a property value by as much as 200%.
It also merits noting that automated valuation systems created using
databases of conforming mortgages may generate large variances when used on
nonconforming product, because of the greater price volatility that
higher-priced homes can experience.
Given this unpredictability, Standard & Poor's creates system-specific
acceptance parameters so that the property values accepted from a system are
within an acceptable tolerance range. These parameters are then embedded
within Standard & Poor's residential mortgage-backed securities (RMBS) ratings
model and its Documentation and Automated Collateral Scoring System (DACSS).
DACSS evaluates the attributes of a loan application and the credit quality of
a borrower, then assigns alternative documentation and collateral assessment
requirements in accordance with Standard & Poor's rating criteria, without
affecting credit enhancement requirements.
If an unapproved automated collateral system is used for loans to be
included in pools submitted for rating, Standard & Poor's revises its
assumptions regarding loss severity and foreclosure frequency, and higher
credit enhancement requirements result. -- CreditWire
SOURCE Standard & Poor's Rating Services
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CONTACT:
Susan E Barnes, 212-438-2394; or Frank
Raiter, 212-438-2579, both of Standard & Poor's Rating Services
