Systems Help Ensure Appraiser Independence

Given recent happenings around the Home Valuation Protection Program and the proposed Code of Conduct, it is becoming increasingly important to prove that lenders have a system in place that allows for appraisal independence. Technology is one answer.

For example, ValuFinders Inc., a valuation services provider to national lenders, brokers and government agencies, said that its Web-based system, Appraisal Concierge, will be in full compliance with Home Valuation Protection Program and the proposed Code of Conduct.

As a result of a settlement between the attorney general of New York, Fannie Mae, Freddie Mac and the Office of Federal Housing Enterprise Oversight, starting on Jan. 1, 2009, new requirements are being proposed in the appraisal and valuation stages of loan origination. Freddie Mac and Fannie Mae will no longer purchase loans from originators who do not comply with the settlement's proposed Code of Conduct. The code requires appraiser independence and specifically prohibits brokers and lenders from selecting an appraiser or selecting an appraisal management company that they own or control.

ValuFinders' Appraisal Concierge is an outsourcing appraisal ordering service that allows lenders to use a "blind draw" system to randomly select a licensed appraiser.

"Existing Appraiser Concierge features include the random selection of an appraiser, appraiser independence, monitored communications and free automatic delivery of the appraisal report to the borrower, which are requirements according to the proposed Code of Conduct," said Joe Williams, president and CEO of ValuFinders.

"We developed Appraiser Concierge two years ago to allow the ordering party to either select an appraiser from a pool of their approved appraisers, or to have the system randomly select someone from a list qualified appraisers. So, while there may still be some modifications to the Fannie and Freddie requirements, Appraiser Concierge is in position to perform in any environment the code ultimately dictates."

Culver City, Calif.-based ValuFinders Inc. has provided real estate collateral risk management products, including automated valuation models, quality control reviews, collateral assessment, Web-based property tracking and technology services to major corporations, brokers and government agencies, including Countrywide, Wells Fargo Bank, the Small Business Administration. ValuFinders also provides Department of Housing and Urban Development technology to track and manage HUD's nationwide inventory of REO properties and works with lenders, brokers, credit unions, government agencies and investors.

"As the legislation attempts to address appraiser independence, we've watched. In our effort to work in concert with the law changes and the Code of Conduct we created this blind draw," noted Mr. Williams. "We're talking technology that will provide that level of comfort needed to reduce risk. It improves the integrity of the process. Although many see the Code of Conduct as interfering with the process and making it more expensive, I think when the dust settles, Fannie and Freddie will address all the concerns and come up with a process to improve integrity.

"Right now they're just interested in developing a process. One of the requirements of the Code of Conduct suggests the borrower get a copy of the appraisal. We updated the Appraiser Concierge so a copy of the appraisal is available online instantly to the borrower. To date, we've been right on in addressing appraiser independence."

But will this make the process of originating a loan longer and more complex? "The turnaround time will be improved, it'll be more efficient and we'll have a better process," answered Mr. Williams. "Having worked as an appraiser, the originator can continue to do his job, but appraisers get a bad name in this situation. Appraisers don't drive the value, the market drives the value. The value is what it is. If the appraiser can go out, complete the job and not have to deal with the originator, it'll make the process better."

ValuFinders isn't the only company trying to address the issue of appraiser independence with technology. Scottsdale, Ariz.-based Zaio is a technology and database company. The Zaio network of appraisers currently serves 500 lenders with a variety of nationwide appraisal services. Zaio maintains a secure database of 140 million properties and its affiliated appraisers are now site verifying property data, photos and appraisals of virtually every property in America. Zaio's network of local appraiser experts appraise entire cities, one building at a time, using a proprietary GeoScore rating system.

"What we view as the problem is that the appraisal function itself is similar to an audit. If you look at auditing, it's done by a separate company to ensure independence. Imagine if the company being audited owned the auditing company? Also, imagine if the company being audited paid the auditor to give back a value?" stated Thomas Inserra, CEO, Zaio. "The solution is a way to protect appraiser independence. There shouldn't be a way to inflate a valuation. If you think about it, the credit bureau has fixed this problem. Credit assesses the borrower's ability to repay and an appraisal assesses the value of the property to ensure the lender has collateral. Credit bureaus solve the problem by coming to a credit score before the transaction even starts. From there, they store it to see who changed it, how and when. That's what we do with appraisals. We do the valuations before and independent of the transaction. From there we store the data and keep track of how it is changed."

Does this solve the issue of appraisal coercion? "Even with rules people will find a way to get around them. So, rules don't solve the problem," answered Mr. Inserra. "The best solution requires that the process is changed and controls are put in place so the fraud can't happen at all. Further, unless the collateral is constantly valuated monthly you're just guessing at the value. A lot of the uncertainty in the mortgage industry now is that we don't know the value of property today.

"So, what we need to do is continually valuate real estate every month so you can track how it changes over time. We want to create an appraisal bureau with continually updated values." (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/