As published in Scotsman Guide's Residential Edition, February 2009.
One of the key messages that has come through in the wake of the subprime (aka, nonprime) lending crisis is that managing collateral risk is just as important as managing credit risk when it comes to lending money on real estate transactions. Unfortunately, mortgage professionals haven’t had access to the same risk-mitigation tools on the collateral side that they have had on the credit side.
As appraisal regulations change, so follow management solutions for mortgage professionals involved in the process. The key is transparency -- and knowing how to find it.
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Current appraisal environment
Performance metrics have been limited regarding appraisers. As national mortgage lenders captured more of the nation’s mortgage loan volume, they centralized their operations for increased efficiency and cost savings. Because appraisers operate locally across the country, this created an opportunity for management firms to provide panels of appraisers to complete appraisal orders.
The more the industry worried about appraiser pressure and the resulting fraud it represented, the more difficult it became to get a good picture of the professionals providing their collateral valuations.
Some appraisal-management companies went so far as to boast about their “black box” systems, software solutions that made it impossible to apply pressure to an appraiser because the system obscured information about who was doing the work until the job was finished. Unfortunately, such systems also made it impossible for brokers and other mortgage professionals to mitigate the risk of working with a bad appraiser.
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