Servicers Braced to Move Quickly

In an ever-changing regulatory environment it is crucial for lender-servicers to act quickly and modify their processes to remain in compliance with the Interagency Appraisal and Valuation guidelines under the Dodd-Frank bill that went into effect on April 1.

More than ever servicers and originators need to make “sound collateral decisions,” whether it is loan underwriting, credit risk management and loss mitigation, or other issues of  “general management of their loan portfolios,” Chad Mosley, Mortgage Contracting Services vice president of business development, told this publication. 

Banks are modifying their processes to ensure they comply with the new regulatory requirements. If in the past automated-valuation-models often used to replace a full appraisal, new guidelines require that any type of automated property valuation is accompanied by a physical inspection of the property.

Mortgage Contracting Services is focusing on the impact and value of incorporating an assessment of the actual physical property condition into the valuation. It is developing a new compliance-based product for lenders, servicers and other companies trying to improve their default management practices and property valuation accuracy.

Lenders need a true understanding of their portfolio to appropriately prioritize the valuation and management of those assets, says Caroline Reaves, the company’s chief executive. MCS’ Property Condition Report provides a third-party independent review to ensure “the physical evaluation is completed by someone other than the individual that orders, performs or even reviews the valuation.”

Mortgage Contracting Services started developing a Property Condition Report, which provides a cost effective verification of physical property condition to supplement automated valuation modelsby yearend 2010 immediately after the Dodd-Frank guideline changes were announced last December.

Historically automated valuation models have been widely used as the main underwriting tool for originations, refinancing and loss mitigation processing. Today credit risk management decisions based on automated valuation models that simply use a computer database are considered riskier since they maybe inaccurate.

The new rules mandates that there must not be “obvious or material change on the physical aspects of the property,” Mosley says, which means servicers cannot gather accurate information about a property without a physical inspection and photographic documentation.

Even before the proposed changes became law, insiders were aware of and preparing for up-and-coming compliance requirements. 

In an earlier report on major market trends and developments likely to shape residential mortgage lending operations and mortgage technology in 2011, executives from Dorado Corp., San Mateo, Calif., a provider of customized consumer lending automation tools, warned, “Compliance will remain center stage, with a reliance on third party data and analytics.”

The ability to integrate compliance checks into the lending process “will confer competitive advantage,” the report notes.Only lender-servicers with more flexible technology infrastructures that can react quickly to regulatory change, and those who integrate more closely with their third party information providers, will survive.

More specifically, according to Dorado, since the top 100 lenders favor the private cloud over multi-tenant, in 2011,” the pace of single tenant, or private clouds, will continue to outpace multi-tenant solutions in the area of mission-critical systems and transactions,” that have higher processing speed, security, scalability and customization levels.

Demand is bringing new products to the marketplace. In April First American Data Tree LLC introduced ParcelIQ.com. The Santa Ana, Calif.-based online provider of public land records, property data reports and images—a subsidiary of First American Financial Corp. whose specialty is title insurance, settlement services and real estate valuations—said it designed ParcelIQ.com to allow users to access critical loan data such as property reports and related documents through a single browser-based portal. Property reports are based on a variety of public online and proprietary databases.

Users can access property, legal and other information about ownership, tax assessment values and payment status, mortgages, involuntary liens and recordable legal descriptions, including “an enhanced layer of quality-assurance review.” A complete suite of automated valuation models and flood zone reports that enable lender-servicers to validate ownership, determine a property’s current equity status and evaluate risk.

Robert Karraa, president of First American Data Tree, said ParcelIQ.com was designed for lenders, in line with the firm’s new strategy that aims to enhance the efficiency of its expansive databases of real estate collateral and imagery, which contains over 4.6 billion land records.

ParcelIQ.com customizes various reports “to match a lender’s requirements, including business rules, product cascades and data content,” he said, in addition to a line of loan portfolio management, tracking and loan document surveillance tools.

Other providers of appraisal services are following suit. SettlementOne Valuation, San Diego, recently developed a new solution for retail and wholesale jumbo lenders “to meet the increasing demand” for appraisals for higher-end properties. The challenge, according to SettlementOne Valuation’s vice president of operations, Vicky Hamilton, is in dealing with all the complexities of higher-end properties as demand for so-called jumbo mortgages is rising. In this new market it means lender-servicers require and expect appraisal management companies to source experienced, highly qualified appraisers.

Hamilton says demand is mainly generated by historically low interest rates at around 4%, compared to 6% in January 2010, “and the aggressive actions taken by the Federal Reserve in the mortgage-backed bond market during the past two years,” that have made jumbo loans more attainable. 

SettlementOne is filling that need through three specialized groups staffed with dedicated teams of experts. According to its executives, the Deluxe Appraisal Panel is “the only panel in the industry that is geared towards jumbo loans” and high-end properties. Panel members are certified general and certified residential appraisers who undergo “a stringent approval process.”

The Appraisal Quote Desk was created to accommodate the appraisal fees for a high-end property in case a custom quote is required from the appraiser. Certified appraisers provide custom quotes that ascertain fees prior to the good-faith estimate, so that the valuation process complies with regulatory requirements and ensures the highest level of loan data transparency to the borrower.

The Quality Control Desk team communicates directly with the lender’s underwriting managers. An in-house team of certified appraisers and experienced staff members with the required experience in loan underwriting and appraisal quality control operate loan reviews.