MISMO Launches Confidence Score Standard for AVMs

The new standard comes ahead of the Oct. 1 effective date for quality control standards that federal regulators announced last year.

The Mortgage Industry Standards Maintenance Organization has released a common confidence score standard for automated valuation models used in mortgage lending and servicing. The score is designed to help lenders and other industry participants more accurately evaluate AVM risk. 

Under current industry practices, lenders receive different confidence scores from each AVM provider. For example, three AVM providers might individually assign confidence scores of “92,” “B” and “High” for the same property. 

A common confidence score based on MISMO guidance will be produced by the developer for each AVM value but will provide a standardized final score using a percentage ranging from 0% to 100%. 

MISMO’s guidance stipulates that scores have a +/- deviation of 10% to the actual market value of a property. The 10% measure is based on the standard PP10 rule, which is used for testing accuracy across the AVM industry. 

The release of the score comes ahead of the Oct. 1 effective date of quality control standards rules that federal regulators announced last year for AVMs. The final rule was designed to ensure a high level of confidence in the estimates produced by AVMs, protect against the manipulation of data and ensure compliance with nondiscrimination laws. The rule, which was 14 years in the making, implements a provision in the Dodd-Frank Act. 

Jonathan Kearns, vice president of product at MISMO, told Inside Mortgage Trends that the standards for AVMs that federal regulators released last year were the “catapult” that drove MISMO and technology providers to adopt the new common confidence score standards. 

“We thought we should give the regulator guidance, instead of the regulator giving us guidance,” Kearns said. “Because [the AVM providers] are the experts; they are the people who are already utilizing AVMs.” 

Kearns noted that the common confidence score can also be used in place of forecast standard deviation measures, which estimate the likelihood that an AVM will be within a specific percentage of actual market value on a property. “There’s a lot of complexity and calculations to the FSD, which hinders its widespread adoption,” Kearns said. 

A panel of industry experts met 40 times over the course of the last year to define the requirements for the common confidence score and guidance. Kearns said the panel included most of the top AVM technology companies. 

Kearns noted that subcommittees from the Mortgage Bankers Association were also included in guidance development. “We wanted to make sure we were meeting all the needs of the diverse lender population and third-party due diligence firms that use AVMs,” Kearns said. 

He believes that establishing industry standards like the AVM common confidence scores is important for the industry, even if regulatory uncertainty exists given recent policy changes by the Trump administration. “If the regulators are taking a step back, there will be a huge appetite for standardization in the mortgage industry,” Kearns said. 

Kearns added that standardization can help lower costs, which would benefit independent mortgage brokers struggling to turn a profit given the rising costs to originate a loan. 

“A lot of [independent mortgage bankers] are still not making money, and in a lot of cases that is because of costs alone. Standardization can help that,” Kearns said.