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Is it Zillow's fault?

Real Estate Agent with Coldwell Banker Kaiser

At a recent sales meeting, a mortgage company discussed some of the difficulties they had come across in lending.  (Names and companies are being changed.) This is what was said:

A gentleman was applying for a mortgage for a home he intended to purchase.  The home, accurately priced, was around 265k.  This was based on comps in the neighborhood for the past 4 months.  This particular neighborhood was adjacent to a "smaller" neighborhood with homes selling in the 150-175k range.  Now for the qualifications of the buyer:

-Debt ratio: 12%

-50k in savings

-Approximately 30% in downpayment

-Large income

-Credit score of about 800


This is every lender's dream.  Absolutely no reason not to get the loan, right?  Well, after sending this information to an underwriter at A VERY WELL KNOWN AND LARGE LENDER, a simple one page decline was returned.  Of course, inquiry happened immediately.  The explanation given was that when the underwriter looked at the property, it was over-valued.  Their comps (from the neighborhood adjacent) and THE ZESTIMATE FROM ZILLOW.COM showed that the home was only worth about 150k!  Did you catch that?

So is it now procedure to use an estimate from an AVM that is grossly erred in many situations?  I thought that I would also include this statement from Zillow's web site (to be viewed here http://www.zillow.com/howto/Zestimate.htm):

"The Zestimate is not an appraisal and you won't be able to use it in place of an appraisal, though you can certainly share it with real estate professionals. It is a computer-generated estimate of the worth of a house today, given the data we have available. Zillow.com does not offer the Zestimate as the basis of any specific real-estate-related financial transaction. Our data sources may be incomplete or incorrect; also, we have not physically inspected a specific home. Remember, the Zestimate is a starting point and does not consider all the market intricacies that can determine the actual price a house will sell for, such as entertaining offers, negotiating, closing costs, timing, etc."

So my question is this.  Whose fault is it?  Is it Zillow's for having a zestimate 100k too low, or is it the underwriter for incompetently using this figure to deny a loan to a more than qualified buyer?