Appraisal Quality Control, Compliance On the Spotlight
Regulatory compliance pressures have renewed mortgage lender-servicers focus on real estate appraiser accountability and internal quality control strategies.
Bringing together skills that blend efficient quality control principles with industry feedback promotes “the creation of clear, concise appraisal reports,” says Joseph C. Magdziarz, president of the Appraisal Institute, the nation’s largest professional association of real estate appraisers.
Tending to that need appraisal industry veteran Scott M. Schafer, a senior managing director of the valuation and advisory group within Cushman & Wakefield Global Services Inc., where he serves as the national quality control manager describes the details of an internal quality control review process the need for clear verbal communication, active listening and effective report writing in his book “Exceeding Expectations: Producing Appraisal Reports and Services That Delight Clients.”
In his view the industry can benefit from applying to appraisals the quality control principles developed for manufacturing and other industries. According to Schafer appraisers can increase valuation efficiency by combining lessons learned from other financial industry service providers with feedback from mortgage bank clients.
Both efficient processes and compliance with the new guidelines are bound to keep lenders servicers under pressure.
Effective April 1, the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corp., Office of Thrift Supervision and the National Credit Union Administration have adopted the Dodd–Frank Act Interagency Appraisal and Evaluation Guidelines, which replace the 1994 guidelines.
The industry needs to implement the new guidelines on what consists of sound appraisals and evaluations, policies, procedures, practices and standards for OCC examining personnel and national banks. Guidelines about appraisals and evaluations incorporate recent supervisory issuances and clarify standards for the appropriate use of analytical methods and technological tools in developing evaluations. Banks are also responsible for selecting appraisers and people-performing evaluations based on their competence, experience and knowledge of the market and type of property being valued.
It means mortgage lenders and servicers should build independent programs and processes that obtain property values accurately, than follow standards that secure appropriate communications and information-sharing with appraisers and people performing evaluations.
The goal is to promote “strong internal controls” that ensure reliable appraisals and evaluations and also to hold banks responsible for monitoring and periodically updating valuations of collateral for existing real estate loans and for transactions, such as modifications and workouts.
The guidelines clarify that an analytical method or technological tool, such as an automated valuation model, cannot substitute an appraisal and highlight the recognition that while borrowers’ ability to repay a mortgage loan remains the primary consideration in a lending decision, “sound collateral valuation practices are an integral part of the loan underwriting process.”
Mortgage lender-servicers must enhance collateral valuation methods and recognize that valuation methods that do not provide a property’s market value, such as a broker price opinion, are not acceptable.
Banks may file a complaint with the appropriate state appraiser regulatory officials” such as the Financial Crimes Enforcement Network when they suspect that a state certified, or licensed appraiser fails to comply with the Uniform Standards of Professional Appraisal Practices, or engages in unethical conduct.
The Dodd-Frank Wall Street Financial Reform and Consumer Protection Act of 2010 also underscores that future revisions to the appraisal guidelines may be necessary after the implementation.