APRA warned the CBA in 2004 re “fuzzy logic” and one can bet they were all right into it...
 
Lookout - the next time you buy or refinance your home.....
by Steve Keohane, USN (Ret)
 
 
The BIG AVM Lie - Automated Valuation Models (AVMs)
 
Many lenders, including Fannie Mae, Freddie Mac, Wells Fargo, Countrywide and Washington Mutual made very risky decisions several years back to utilize computer generated appraisals (known as AVMs) instead of licensed real estate appraisers...........
 
This extraordinary "Risk taking" by lenders in the name of greed nationwide is now beginning to cause problems in the bond markets because of the extraordinary risk of backing mortgages when nobody ever even looked at the property (homes and property) being financed. The subprime market meltdown due mostly to their Liar! Liar! loans (no income verification) is yet another clear indication of Lender irresponsibility and greed. Driveby "appraisals", where an appraiser is told not to go inside the property to be appraised have also caused extraordinary losses to the lending industry. Often these driveby's are ordered because the Loan Officer has already gotten a head's up of something illegal, such as an illegal basement apartment, or a "gutted" or damaged room, etc.
 
Lenders nationwide were warned in the spring of 2004, that when they use anything less than a full, traditional appraisal in housing markets where values are soft, they could be penalized on Wall Street.  Fitch Ratings, one of the major risk-assessment firms for the global bond market, believes that anything less than what it calls "the full monty" -- an on-site, exterior and interior professional appraisal -- is likely to overstate the true worth of the property if it's located in any of dozens of slowly appreciating markets around the country.  Bond investors -- those who buy into the giant mortgage pools that fund much of the U.S. home loan market -- care deeply about accurate property valuations. That's because when borrowers default and go into foreclosure, investors lose more when the appraisal used by the lender inflated the property's true value.
 
These AVMs are similar to those you get for free, or pay $10-$29.95 for, like at Zillow, YaHoo or at some other company sites. They were known as neural logic or "fuzzy logic" when they were used on the stock market in the mid 90's. They failed there miserably.  ...........Like neural logic programs of the past, AVMs which the banks are now using are also failing miserably. These computer programs begin their "appraisal" by blindly generating an appraised value for a homewith very faulty data. .......
 
The reason the banks are doing this is not to save you money--but to increase their own bottom line (they collect the fee).  This also allows the lender to "fudge" these computer generated home valuations, because no 3rd party (like an appraiser) is now watching them. When a mortgage company is involved, our experience as state licensed appraisers is that a large percentage (not all) of loan officers will do anything it takes to "push a loan" just to collect their own commission. This is not always in your best interest!...........
 
RECENT TRUE LIFE EXPERIENCES WITH AVMs.........