Keeping Up With Property Valuation Requirements

Property valuation compliance requirements are challenging lenders and servicers as much as home price fluctuations.

“It’s been challenging for banks and appraisers to be aware of the basic regulations required for residential and commercial appraisals,” said Carl Streck, CEO of MountainSeed Appraisal Management, a commercial and residential appraisal management outsourcing firm based in Atlanta. “What banks don’t know can hurt them.”

To assist mortgage banks struggling “to keep up with the numerous and changing” appraisal regulations that require time and resources to manage and carry costly penalty risks, MountainSeed offers a free Dodd-Frank Act Compliance Checklist that ensures, “the i’s are dotted and t’s are crossed on their appraisals,” Streck says.

Users can access the information by inputting their name, company, state and an email address to download the data from MountainSeed’s website. A snapshot of key appraisal regulations such as key interagency guidelines and Fannie Mae and Freddie Mac’s appraisal independence requirements, blog postings and white papers on regulatory compliance are also available online, along with feedback from the Appraisal Institute.

How to accurately value a property is bound to remain “one of the biggest challenges” for servicers, says Jacquie Doty, vice president of collateral strategy at CoreLogic. The current value of a distressed property is not very easy to determine “and really, really essential to making good risk decisions and not losing more money.”

Today an equally important part of every mortgage transaction is compliance with Dodd-Frank and keeping pace with regulatory changes that require fast and continuous updates, assessments of property values and changing regulation at the federal and local level. “It really comes down to creating new policies and procedures in the servicer shop,” she says. “They want to make their processes as efficient as possible.”

Since before the real estate crisis came about servicers did not have to manage the large inventories they are struggling with today, she recalls, they were not so focused in improving the efficiency of the real estate owned property valuation. Servicers are concerned with how to get valuations done quickly and in a cost effective manner. Establishing the value of REOs is a delicate process, she says.Unless it is properly managed, REO assessment mistakes can cause significant loan losses in a volatile market where regulatory requirements add another risk variable to REO management.

The new demand brought to the marketplace vendors and other service providers who are trying to fill the gap. The HARP 2.0 program alone is challenging many servicers, especially large servicers who are interested in identifying the pool of eligible borrowers and use AVMs to determine the underwater properties, she says. So CoreLogic offers hybrid programs designed to facilitate compliance with the Interagency Appraisal and Evaluation Guidelines.

The CoreLogic Residential Evaluation Report combines five different market value indicators and a certified restricted-use residential appraisal into one product that costs less than half a full appraisal. It is a hybrid approach to valuations by combining AVMs, BPOs and licensed real estate appraisers when evaluating a property.

The onsite property condition report is another tool that enables users to monitor and determine the physical condition of a property and the economic and local market conditions in the surrounding area.

The CoreLogic GeoAVM Distressed tool combines existing, proven AVM technology with new features developed for the default risk management needs of banks servicing distressed property portfolios. Record numbers of properties in delinquency or default and high REO inventories require constant monitoring and high management efficiency, says Doty.

GeoAVM Distressed applications include an early-stage delinquency warning system when the borrower misses the first payment allowing servicers to take immediate action; BPO verification, since regulatory agencies hold lenders and servicers responsible for valuation accuracy; Recurring valuations that keep BPOs and appraisals of distressed assets up to date by using a predetermined values range, and offer low-cost, onsite ValueView inspections to verify the property condition and note changes; Portfolio management and loan pool due diligence on distressed properties before purchasing nonperforming loan pools based on current and retrospective valuations, and area value trends.

These features help provide automated evaluations of single properties at a point in time or the value of an entire portfolio of distressed assets within minutes, she said, which is crucial in making accurate loss mitigation decisions. 

Distressed AVMs are one example are one example of the positive changes and updates that have been occurring in the marketplace recently, Doty says. “AVMs have been around for a long time, but we tweaked it, we made it a distressed AVM and now it’s being applied in the servicing portfolio. It’s kind of a hybrid.” The distressed part of it is new and clearly it is a better tool in mitigating default risk.