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   ARTICLE   |   From Scotsman Guide Residential Edition   |   February 2013

Appraise the Situation

Know what to look for when selecting an appraisal partner

With the recent surge in regulations, it’s become increasingly difficult for mortgage professionals to find compliant business partners. As the Consumer Financial Protection Bureau (CFPB) gears up its efforts to audit compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act, it’s critical that originators and their vendors have policies in place to protect themselves from stiff penalties.

Whether you’re vetting a prospective appraisal management company (AMC) or evaluating your current provider, your company needs a partner who can effectively support, adapt and grow with your business. Choosing a poor vendor can create compliance issues, inefficiencies and delays in your operation. Even worse, a lackluster partner can create a total disruption of your pipeline.

When evaluating or analyzing potential appraisal candidates, mortgage bankers and originators should keep a few simple guidelines in mind. Gaining an understanding of these areas will help you find a partner who can increase the efficiency of your operation, maximize your pipeline opportunities and keep you in compliance with the changing regulatory landscape.

Geographic coverage

When considering an appraisal partner, mortgage professionals first should think about the geographic area that makes up their lending footprint. Many AMCs are local or regional, while others work on a national level. An understanding of your footprint will help you judge a prospective partner’s ability to support your entire reach.
In accordance with Dodd-Frank, AMCs must register with and be supervised by a certifying and licensing agency for every state in which they operate. As of press time, 30 states have passed legislation and published registration rules for AMCs operating within their state. With that in mind, make sure that your prospective partner can supply current licenses for all states in which they conduct business. Although the expense of maintaining multiple registrations can be prohibitive, compliance-minded and financially sound AMCs will have taken the necessary steps to protect themselves, their vendors and their clients.

Products and panels

Next, mortgage bankers and originators should review the types of loans they’re writing and the valuation products needed to support them. Are you writing conventional loans or originating niche products? Perhaps you’re making a lot of portfolio loans or working with home equity lines of credit, and in this case, a less- expensive collateral valuation report may make more sense for your organization. Understanding and articulating your valuation needs will help you evaluate whether the construct of a candidate’s appraiser panel and its product offerings will meet your requirements.

Mortgage professionals also should know that a quality appraiser panel is the absolute backbone of any successful AMC. Be sure to gain an understanding of how a prospective AMC builds its panel. There should be a process of due diligence before enrolling an appraiser into the panel. Accepting any interested appraiser may be a sign that the prospective partner places little emphasis on the quality of its reports or the longevity of its appraiser relationships.

"A quality appraiser panel is the absolute backbone of any successful AMC. Be sure to gain an understanding of how a prospective AMC builds its panel."

Additionally, each AMC should have a policy in place for disciplining and ultimately removing an appraiser who proves to be a poor performer. Many states have specific regulations surrounding the discipline and removal of an appraiser from an AMC’s panel, so make sure that your candidate has a written policy that provides clear documentation of how they handle such instances.

Order assignment

One of the most critical aspects of consistently returning credible valuations is the ability to assign each order to a qualified, geographically competent appraiser. Mortgage professionals should gain a solid understanding of the selection criteria used by their potential candidates. Get comfortable with their processes and take a look at the tools and information they use to make assignments. Here are some areas of emphasis that should be included in any quality AMC’s methodology:

  • Proximity to the subject property to ensure geographical competency
  • Experience and expertise of the considered appraisers
  • Current licensing
  • Organization and clarity when it comes to managing disciplinary issues
  • Current errors-and-omissions insurance
  • Consideration of historical quality and turn-time performance
  • Ability to work with inclusionary or exclusionary lists

Appraiser fees should be one of the final considerations, if considered at all. Assigning orders to the lowest bidder is typically an indication of the quality of an AMC’s output.

Payment policy

Mortgage professionals should understand how prospective partners arrive at their fees. Again, common sense may conclude that paying low fees will result in low quality. As with any industry, the best performers usually demand a fair rate for their services.

With regards to this topic, however, some additional considerations apply. For instance, does the AMC dictate fees or let appraisers set their own fees based on local market expertise? Further, how often is the AMC making payments? Appraisers that can rely on reasonable fees and a steady income stream are more likely to provide rapid turn times and quality reports.

It’s also important to note that slow payments may be an indication of cash-flow issues. The first sign of trouble for some of the national AMCs that recently closed their doors was the slow speed with which they paid appraisers. It’s a good idea to stay informed about your partner’s pay performance to prevent disruption in your production pipeline.

Customer service

Appraiser-independence guidelines have inserted AMCs squarely into the role of communication liaison between lenders and appraisers. AMCs must fulfill this communication role and keep you informed of progress, relaying any questions that arise from an appraiser and then communicating back to that appraiser, as well.

Mortgage companies must understand their prospective partners’ capabilities in this regard and decide if they can meet their business needs. To do that, ask the following questions:

  • Is the company too small to handle your order volume or too big to care about each order?
  • Is it important to get a live person on the phone each time you call or are you good with leaving messages and getting a later reply?
  • Is a daily update via e-mail acceptable or do you need communication directly to your loan-origination system (LOS) portal?

Related, technology is critical to the operation of an AMC and plays a key role in increasing the efficiency of your own operation, as well. The quality of a prospective partner’s technology platform may be an indicator of its commitment to service and longevity.

At a minimum, a prospective AMC should have the capability of providing adequate management and tracking of your order volume. You must understand your own needs for order placement and report retrieval. Even if you’re amenable to e-mailing your orders, you may want an AMC to provide a system that allows simple order entry, updates and retrieval.

Alternately, you may want an AMC to fully integrate with your LOS software to provide a seamless business solution. Regardless, make sure your partner is capable of supporting your business needs today and can adapt as you change and grow.

Compliance

It can be difficult to stay current with the latest appraisal regulations and legislative activity. Because of this, mortgage bankers and originators should be able to rely on their partner to stay abreast of regulatory activity and to assist them in remaining compliant. You’ll want to gain an understanding of the structure of your prospective candidates’ compliance and legal process.

Compliance will continue to be a critical issue and will have a major impact on mortgage originators, as the CFPB has stepped up its compliance auditing and is levying significant fines. For instance, this past fall, they reported that $435 million in relief had been provided to about 5.75 million consumers with civil penalties of an additional $101.5 million.

Although most of this was directed at credit-card issuers, mortgage originators likely will see an uptick in compliance audits, as well. Be sure that your partners are protecting themselves, their vendors and their clients.

Appraisal review

Mortgage professionals also should get specific details about the review process of each potential AMC. Appraisal reports should be reviewed for completeness, accuracy and adherence to regulatory and lender-specific guidelines before client delivery. Ideally, the reports delivered to you should be ready for underwriting with no need for technical corrections. Some areas to consider include:

  • Is the review process manual, automated or a combination of the two?
  • Does the AMC have active licensed appraisers on staff to regularly review and update review standards?
  • Is the review conducted in the AMC’s office or at a third-party location?
  • Is each report checked against all regulatory standards?
  • Can the AMC support lender specific guidelines?
  • Will the AMC warrant and certify each delivered report?

Receiving underwriter-ready reports is an important part of maintaining efficiency in your loan processing. Be certain that your candidates can detail their processes. This is particularly important because, on occasion, issues may arise after the completion and delivery of a report. These issues may concern questions on comparables, clarification of the narrative or perceived mistakes that may impact the value opinion on the initial report.

Communication at this point is sensitive, as there can be no violation of appraiser independence rules and no influence placed on the appraiser to change value. Your prospective AMC should have a concise, written reconsideration policy specifying the procedure for submitting and resolving post-completion requests. The AMC also should have a written policy and process for recording and tracking each request and ultimate solution.

•  •  •

The selection of an appraisal partner is an important decision and demands careful consideration. Understanding your candidates’ capabilities in the aforementioned areas will help you narrow your selection. If time and budget allows, make a site visit to get a better understanding of the scope and talents involved. Clearly communicating your needs and understanding your potential partner’s ability to adapt and grow with you will help you find the partner that’s the best fit for your business.


 


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