Most of the liens on this tape carry an AVM value with no interior
Reviewing a small pool of seasoned second liens, 22 loans, unpaid balances 18k to 96k, weighted average coupon 9.4, seasoning 14 to 31 months. Seller wants 88 of UPB.
Collateral documentation is where I'm stuck. Eight files have a full interior appraisal from origination. Fourteen have an AVM output with a confidence score and, on nine of those, a property condition report from a third party inspector who never went inside. That mix is exactly what the market is doing now, AVMs and condition reports carrying a big share of home equity originations, and I understand why the originator did it. Underwriting a 34k second against a 410k house at 62 combined LTV, a 500 dollar appraisal is real money against the margin.
My problem is that I'm buying at a point in time when I can't reorder those valuations without contacting borrowers, and an AVM confidence score is a statement about model dispersion in that zip code, not about that house. Two of the fourteen are in a county where I know the transaction count is low and I'd expect the model to be leaning on sales a long way out.
What I'm weighing: apply a flat haircut to the AVM-valued loans and price the whole tape lower, or carve out the four I like least and ask the seller to hold them back. Holding back on a 22 loan pool usually kills the trade. I'd also rather not order drive-bys pre-close on somebody else's borrowers.
The federal quality control rule on AVMs applies to the users of those models, so it tells me something about the originator's process and nothing about the individual values. Still working out what a defensible haircut looks like when the dispersion I'm worried about is concentrated in two of the fourteen rather than spread across all of them.