Coester Offers Repurchase Guarantee
National real estate appraisal management services provider Coester Appraisal Group, Rockville, Md., is pioneering a repurchase guarantee that protects midsize lender-servicers against appraisal-based buybacks.
Developed as a multi-tiered insurance it guarantees “all original appraisals” Coester will complete after June 1 and is applicable for any appraisal-based repurchase request “as long as the loan is in good current standing” excluding loans in any stage of delinquency.
The group’s chief executive Brian Coester told this publication the reason behind that exclusion is simple. If the loans are delinquent “there's a big risk of the blame being put on the appraisal, regardless of whether the claim is legitimate or not.”
Typically buyback requests include issues related to borrower delinquencies not appraisals. However, he says, “appraisal issues are often cited as the cause simply because it's an easier target.”
As mortgage banks update their real estate valuation methods in compliance with new appraisal guidelines lender-servicers monitor overall mortgage loan and repurchase risk.
Lenders have always been concerned about buybacks, but the Dodd-Frank bill is giving “even more reason to be concerned,” Coester says. Over 60 pages addressing appraisals in the Dodd-Frank bill indicate that unless lenders are careful, “they could be inadvertently putting themselves at buyback risk,” he said.
The insurance serves best midsize banks that as a rule are more risk adverse. The top 50 banks do not really need this type of support but lenders that do $1 billion to $5 billion a year “will see a huge impact,” Coester said.
The Coester Appraisal Group, which works with a network of 100,000 certified appraisers in 50 states offers three levels of guaranteed protection.
In cases when a participating lender receives an appraisal-based repurchase request that falls within the guarantee’s specific parameters, the Coester Appraisal Group “will initiate and fulfill a formal rebuttal campaign to refute the repurchase request” free of charge.
If the rebuttal campaign fails to contest the investor’s buyback request and the lender repurchases the loan, pledges to locate and secure a buyer for the loan. This way Coester said, the insurance coverage is extended “to protect the lender against any financial loss resulting from the sale of the repurchased loan.”
The last layer of protection is the Coester assurance to cover losses resulting from potential differences between the loan amount and the sales price on mortgage loans of up to $5 million.
The insurance is cost effective even in a worst-case scenario. It costs Coester $30 to apply all three layers of insurance to an average size loan. The insurance coverage costs anywhere from 1% to 2% of appraisal fees charged monthly or annually.
Occurrence risk also is low. Statistically speaking, the executive said, the probability an appraisal is the reason behind a buyback request is at 1% to 3% of all repurchase requests.