Property Risk Assessment

Automated Valuation System

Lightstone has developed a sophisticated Automated Valuation System for use in residential property valuations. At the core of the system is the Lightstone Automated Valuation model. The model has been developed over a number of years and is back-tested and improved on an ongoing basis. The model has been has been reviewed by KPMG and has been rated for use in South African RMBS transactions by both Fitch Ratings and Moody's. In addition to the predicted values and confidence measures generated by most AVM providers, the system provides a suite of risk management metrics that enhance the property risk management process. These include:

• Area exposure - an estimate of the market share that a lender has in each micro-market
• Risk quality grade - a measure of the average quality of security in each micro-market
• Distressed sale factor - a measure of the average discount to market value that a property is likely to trade at in the event of a forced sale

The system also provides a number of tools, metrics and analyses to support and enable the desktop valuation process.

While the model can be used as a standalone application, it complements existing desktop and physical valuation processes and is typically implemented as part of a risk differentiated approach as illustrated below:



The Lightstone system enables clients to set valuation strategy according to their marketing and risk priorities. Specifically, clients determine which valuation types should be processed via the AVM system and which should be sent directly for a physical appraisal. They also select any Lightstone metrics that should be taken into account in the risk assessment process and set the statistical rules for AVM and desktop decisioning. Furthermore, as the system is web-based, it is free of legacy issues and can easily interface with any type of mobile device (e.g., PDA, laptop, cellphone, etc.). The key benefits of the system include the following:

• A single technology platform across the entire valuation process
• Complete, reliable management information
• Consistent property structures and definitions
• The dynamic rules engine enables real-time changes in valuation strategy
• Device agnostic system increases physical valuer effectiveness

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