Freddie Mac Offers QC Product To Detect Inflated Property Valuations

March 13, 2002

Useful Tool for Lenders to Calibrate Appraisal Accuracy

McLean, VA - Freddie Mac announces Home Value Calibrator, a new automated quality control and credit risk management tool for mortgage loans. Home Value Calibrator can identify inflated property valuations that may be the result of fraud or misrepresentation. It can provide quick pre- or post-funding validations prior to closing or purchasing a loan, identify potential predatory loans, evaluate a batch of mortgages originated by third parties and review large pools of mortgages.

Home Value Calibrator automatically analyzes home valuation data and provides a score to indicate if there are valuation inconsistencies. Users input an address and loan details, and within seconds Home Value Calibrator generates a report that can be used to predict whether a loan is at high risk, moderate risk, or low risk of a faulty assessment. It is available for use by lenders and their quality control professionals, underwriters, analysts and portfolio managers.

"Inflated appraisals are a key component of many abusive lending practices," said Michael Bradley, vice president of Strategic Information Services for Freddie Mac. "Home Value Calibrator will help honest lenders protect themselves from abuse. Home Value Calibrator helps provide fraud and risk protection to the consumer, as well as the lender. The borrower who buys an overpriced home may lose money when they try to sell."

Available in the second quarter of 2002, Home Value Calibrator will examine the property valuation, generated by our automated valuation model, along with borrower and loan data and then identify the loans that look questionable. The report is easy to interpret because it minimizes the data the end user must analyze.

Home Value Calibrator provides a simple to interpret score rather than volumes of data that require interpretation. If a high Home Value Calibrator score is returned, the lender may be able to close that loan faster with greater confidence in the underwriting decision. Or, if a low score is returned, it indicates increased probability that the market value is significantly less than the appraised value, borrower's estimate, or purchase price. The lender may want to further review the loan and the valuation.

Home Value Calibrator can also be used after running a loan through an automated underwriting service such as Freddie Mac's Loan Prospector. For example, if Loan Prospector requires an appraisal on a loan, a lender can run the appraised value through Home Value Calibrator for quality control and credit risk management purposes.

GreenPoint Financial Uses Home Value Calibrator

GreenPoint Financial, a New York-based specialty housing finance company with a mortgage banking subsidiary, participated in a pilot test of Home Value Calibrator for six months and deemed it highly effective and cost efficient.

"Before using Home Value Calibrator we were able to target approximately a hundred loans a month to undergo an expensive and time consuming review process," said Mike Ellis, senior vice president and manager of quality control for GreenPoint Financial. "Home Value Calibrator allows us to review every loan in a fraction of the time - thousands of loans a month - and identify questionable valuations and their source. Home Value Calibrator identifies the loans we need to look at more closely so the good ones can be processed quickly."

Home Value Calibrator is available through Freddie Mac authorized distributors and resellers. For a list of distributors or more information e-mail[email protected].

Source: Freddie Mac

Contact ALTA at 202-296-3671 or [email protected].