The Federal Reserve Board, FDIC, National Credit Union Administration, Comptroller of the Currency and Office of Thrift Supervision issued a joint press release, last month, stating their mutual concern over the growing use of AVMs in home equity lending.

"The agencies have found that, in some cases, credit risk management practices for home equity lending have not kept pace with the product’s rapid growth and eased underwriting standards," the release said, while admitting, "To date, delinquency and loss rates for home equity portfolios have been low, due, at least in part, to the modest repayment requirements and relaxed structures of this lending."

The press release went on to identify the following risk factors:

"Interest-only features that require no amortization of principal for a protacted period; Limited or no documentation of a borrower’s assets, employment and income; Higher loan-to-value and debt-to-income ratios; Lower credit risk scores for underwriting home equity loans; Greater use of automated valuation models and other collateral evaluation tools for the development of appraisals and evaluations; and
An increased number of transactions, generated through a loan broker or other third party."

To read this release in full go online to:

http://www.federalreserve.gov/boarddocs/press/bcreg/2005/20050516/default.htm.