Currently, lenders can use internal members of staff to oversee all valuations produced under AVM systems, but the regulator has ruled that, under Basel II, all results must be traced back to a suitably qualified individual who can offer an independent opinion on the risk.
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In a letter to the Council of Mortgage Lenders, Gerry Cross, manager credit risk team, prudential standards department, at the FSA, wrote that the regulator ‘requires that the property shall be valued by an independent valuer at or less than the market value’, and that an ‘independent valuer’ is defined as a ‘person who possess the necessary qualification ability and experience to execute a valuation and who is independent from the credit decision process’.
This means that the use of AVMs for loan origination purposes must fall within a process leading to a valuation that can be ascribed to an independent valuer.
The FSA also warned lenders to be aware of the limitations of an AVM valuation, including whether it is appropriate for the loan-to-value or the location, and to remember that AVMs were not infallible.
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Mark Witherspoon, CEO of UKValuation, believed the ruling would help to enhance the image of AVMs.
He said: “What the FSA is saying is that AVMs shouldn’t be treated any differently to standard forms of valuation. Therefore, there should be someone suitably qualified, like a head of legal services, who can act independently of the institution and ensure best practice. If the lender has no chief surveyor, then they will need to employ someone who can do this.”
