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Automated Valuation Model
Automated Valuation Models (AVMs) USES & USAGE Luke Brucato Three letter acronyms IRR CRD SSM EBA LTV RWA LCR ECB AQR Luke Brucato 2 LGD 24/02/2015 Current loan-to-value? LTV Luke Brucato 3 24/02/2015 LTV danger Default rate by LTV Default rate by property value Capital impact Source: CRIF RES and EURISC Luke Brucato 4 24/02/2015 What do the regulators think? Recommendations on asset quality reviews Annex II – Good practice for performing asset quality reviews: Collateral management and assessment • • • • evaluate how responsibility for collateral evaluation is allocated (internal versus external appraisal) and their independence for loan underwriting; gather evidence on the frequency of appraisals, reasons for revaluation, age of appraisals; assess how haircuts and valuation parameters are derived and validated and whether they are based on historic data. Additionally assess the link to provisioning, specifically if this data (internal collateral values) is used to derive the level of provisions; assess statistical revaluation tools for small real estate assets and investigate parameter estimations and how they are validated Luke Brucato 5 24/02/2015 What do the regulators think? «On examining the correlation and variability analyses, the indexed loan-to-value (ILTV) is the variable which most significantly influences RW variation» Luke Brucato 6 24/02/2015 Indices House Price Index (HPI) A broad measure of the movement of single-family house prices over the course of time What do they require? Market value (correct!) at origination Thousands of pertinent observations What do they give back Indices and price ranges per square meter according to city, ZIP code, area (central, semicentral, suburban) and in some cases by property state (new or used) Luke Brucato 7 24/02/2015 Take it to a street level Luke Brucato 8 24/02/2015 Take it to a street level Same area, same city, same neighborhood, same ZIP code, same street and same state (used) SAME HPI PROVIDED! Luke Brucato 9 24/02/2015 What would be best? Luke Brucato 10 24/02/2015 Next best thing? A technology which is capable of simulating the work of a valuer to an acceptable degree of reliability for certain purposes AVM (Automated Valuation Model) Luke Brucato 11 24/02/2015 First Italian AVM Automated Valuation Model (AVM) – A system that provides an estimate of value of a specified property at a specified date, using mathematical modelling techniques in an automated manner. Hometrack is a privately owned property analytics business with offices in London and Sydney. A combination of unique data, industry expertise and analytical excellence has made it the trusted leader in their field, supplying an estimated 90% of all AVM services in the UK. Leading provider of property valuation services in Italy with well over half a million full internal and external residential valuation reports, considering over 120 property characteristics Luke Brucato 12 24/02/2015 Applications > Residential mortgage portfolio monitoring > Capital requirements > LGD model > Securitization (RMBS) > Residential Mortgage Covered Bonds (CBs) > Whole-loan portfolio trading > NPL management > Quality control Luke Brucato 13 24/02/2015 How does it work Dati immobiliari minimi AVM Valore di Mercato Confidence Level La performance di un AVM comprende diversi aspetti tra cui la Copertura, l’Accuratezza e l’affidabilità dei Confidence Level: Copertura: fa riferimento alla capacità degli AVM di produrre un risultato accettabile Accuratezza: fa riferimento alla capacità di un AVM di produrre un risultato il più vicino possibile al Valore di Riferimento di ogni immobile I Confidence Level (CL) esprimono l’accuratezza del valore AVM su una scala da 0 a 7 Luke Brucato 14 24/02/2015 Confidence levels > L’attendibilità dei CL e il fatto che siano rapportabili alle FSD sono alla base del trattamento di favore di cui gode l’AVM da parte delle Agenzie di Rating in UK: > “Guidelines for the Use of Automated Valuation Models for U.K. RMBS Transactions” – Standard & Poor’s, 20 Febbraio 2004 > “Guidelines for the Use of Automated Valuation Models for U.K. RMBS Transactions” – Standard & Poor’s, 26 Settembre 2005 > > “Criteria for Automated Valuation Models in the UK” – Fitch, 22 Maggio 2007 “Moody’s Approach to Automated Valuation Models in Rating UK RMBS” - Moody’s, 21 Agosto 2008 > “Criteria for Automated Valuation Models in EMEA RMBS”; “Addendum - Criteria for Automated Valuation Models in EMEA RMBS” – Fitch, 20 Novembre 2008 > “Criteria for Automated Valuation Models in EMEA RMBS”; “Automated Valuation Models in EMEA RMBS – Special Report” – Fitch, 12 Agosto 2011 Luke Brucato 15 24/02/2015 Wrap up > Il nuovo approccio alla vigilanza richiede una governance dei dati sugli asset diversa dalla precedente > La European Banking Authority è chiara su monitoraggio delle garanzie, haircutting e LTV corrente > La maggiore accuratezza empirica degli AVM permette al risk management di: > Applicare haircuts minori rispetto agli indici e perciò di liberare capitale, a prescindere dal risultato AVM > Dimostrare all’ente di vigilanza una più attenta governance del rischio di credito ipotecario con un controllo andamentale delle singole posizioni (Bankit Circ. 263/ vers 15) Luke Brucato 16 24/02/2015