Moody’s Factors Risks for AVM Loans in UK RMBS Offerings
Daily Briefing Weekend Edition
Past Weekend Edition Stories
Moody’s Factors Risks for AVM Loans in UK RMBS Offerings
By Bonnie Sinnock
The London office of Moody’s Investors Service here has begun factoring in the risk associated with each United Kingdom automated valuation model’s provider’s data and modeling approach into its ratings for residential mortgage-backed securities there.
The ratings agency said the move would not affect any existing ratings. “For those loans in U.K. RMBS transactions where an AVM has been used to value a property at the last underwriting date, the potential risk is sized and addressed in a twofold approach,” said Thatchayini Choony, a Moody’s associate analyst. “Firstly, a haircut is applied to the AVM valuation. Secondly, an additional penalty is applied. Moody’s will also review the manner in which the lender uses AVMs in its underwriting to ensure that they are used in a prudent manner. If not, Moody’s may consider applying additional penalties.”
The ratings agency said it “will continue to monitor the performance of the valuations of the AVM providers on which its AVM framework is based and will update its assumptions on a periodic basis, as well as analyzing the valuations of additional AVM providers going forward.”
AVM usage has become “increasingly common in the U.K. residential mortgage market, although the standard valuation remains via a physical inspection of the property by an independent surveyor,” Moody’s said. AVMs in the U.K. are primarily used for refinances and home-equity loans.
In other international mortgage news:
Although the U.K. market as a whole has been going through a decline, it has been relatively less severe in Scotland, according to the Council of Mortgage Lenders in London. The number of Scottish mortgages seen in the second quarter was down 34% year-to-year, less of a drop than the 46% decline seen during the same period in the overall U.K. market, the council said. “The mortgage market is clearly in a period of decline across the U.K. as a result of the shortage of mortgage funding and softening borrower demand. But the slowdown is less pronounced in Scotland,” said Crawford McCaughie, CML Scotland chairman and senior lending manager at Dunfermline Building Society.
Affordability is the reason, according to the council, which said the average home price in Scotland “continues to be lower than the U.K. average.”Borrowers in Scotland typically took out loans for 2.88 times their income in the second quarter, compared to 3.12 across the U.K. The average borrower in Scotland spent 16.9% of their income on mortgage interest payments, compared with 18.1% across the U.K.” * New home construction in Canada is slated to slow this year, according to a Canada Mortgage and Housing Corp. forecast.
The CMHC cited “higher mortgage carrying costs” as “a catalyst” for the expected decrease in residential construction, which it anticipates will result in a drop from 228,343 units last year to 215,475 units this year. “Increased competition from the existing home market, coupled with the elimination of the pent-up demand that built up during the 1990s, will exert downward pressure on housing starts,” said CMHC chief economist Bob Dugan. * Mitsubishi UFJ Financial Group Inc., Tokyo, and UnionBanCal Corp., San Francisco, have agreed to the cash tender offer by the former for the outstanding shares of the latter company it does not already own at a revised offer price of $73.50 per share.
residential appraiser, residential appraisal
