Bond analyst warns lenders

"may want to move" from AVM to full appraisal

Get used to hearing this more often as subprime lending continues to expand and conventional, "vanilla" loans fade away under the pressure of rising rates and still-slow job growth.

Michael Youngblood, a bond analyst at Friedman, Billings, Ramsey & Co. Inc., told American Banker recently that cities at risk for a "correction" to higher than sustainable home prices could be done in by only a one-year local contraction in values.

"This is the time for lenders to be more prudent, more conservative," Youngblood told the publication. "They may want to move from using automated valuation to using a formal appraisal." For homes above the median area price, lenders may want two appraisals, he said.

Competition among lenders as a historic refinancing boom recedes has resulted in many players expanding their subprime mortgage offerings. In 2005, 17 percent of the nation's estimated $1.03 trillion in total purchase loans were classified as subprime, up from 11 percent in 2003, according to SMR Research.