Helping Originators Avoid Poor Quality Appraisals
There is a two-pronged approach for where technology can help mortgage originators to have high confidence in the appraisal, the head of one of the leading vendors in this area stated.
Vladimir Bien-Aime, the chief executive of Lansdale, Pa.-based Global DMS, said the first area is in vetting out the appraisers being used, whether they are coming via an appraisal management company or on the lender’s in-house panel.
“It is one of those things where you have garbage in, garbage out,” he stated. “If you have poor appraisers, you are going to get ultimately a poor quality and an inaccurate value.”
Technology allows originators to scrutinize the appraiser from all aspects. They can look at the quality of the appraiser’s work from the perspective of meeting Fannie Mae/Freddie Mac requirements and from a Universal Standards of Professional Appraisal Practice perspective.
And using technology is important for the monitoring of an appraiser from the time he or she starts working for an originator.
Bien-Aime said there are a lot of systems in the marketplace which are able to manage this function.
The second way that technology assists in making sure of the accuracy of the valuation is in the review process, he continued.
Making it easier to be able to look at what is contained in the report has been the adoption of the MISMO format. And once again, there are products in the marketplace where people can have the appraisal reviewed, validated and have a confidence score issued.
“And ultimately, I think that is the direction that Fannie and Freddie are going. Obviously with the Universal Data Collection Portal and being able to collect the data from every loan that they buy, I think it is a step in the right direction to overall quality,” Bien-Aime said.
A lot of people, he said, misunderstand the job of the appraiser. Appraisers are “reporters. They report what the value is.”
Much of the last few years, there have been a lot grumbling regarding opinions of values, with many on the real estate sales and loan origination sides of the business complaining that low estimates have killed their deal.
Even if the buyer wants to pay more, a prudent lender will not lend the money to make up the gap. The appraisal is a valuation the lender can use for determining a recovery if the loan goes bad. That amount is not necessarily the amount the buyer is willing to pay, Bien-Aime said. It has never happened where those involved in the transaction have complained that the valuation has come in too high.
But eventually things will stabilize and everyone will have a more realistic view of the market, he stated.
The use of technology tools are coming back in a big way. Automated valuation models are being used for prequalification of borrowers, for example. This give the lender a sense of the market and helps to mitigate risk, Bien-Aime noted.
Global DMS, he said, is working with other firms to add more data-rich models to its products. For example, use of multiple listing services data helps to increase the accuracy of AVMs.
But when it comes to ensuring accuracy, “data is going to be king and that is why Fannie and Freddie are collecting so much of it,” he declared.
Veros, Santa Ana, Calif., is one of those companies which provide an appraisal risk scoring product called VeroScore. Company vice president for operations, David Rasmussen, pointed out it started out as an AVM provider and later added other related products.
For originators to make sure what they are getting is accurate, he explained, they need to look at the ordering process and the review process.
Originators need to have a good comfort level with the party they are hiring to provide the valuation, whether it is an individual appraiser, an AMC or even multiple AMCs. In order to do that, they need to use some sort of technology, whether it is as simple as using a spread sheet (in a manual process) or using a broad-based valuation technology system.
There are still lenders using manual processes to send out orders to either individual appraisers or AMCs, he said.
No matter what system they use, originators must identify and track the orders which are going out, and over time, be able to look at the data and quality of the valuation being received.
Rasmussen said this is important in determining if the appraiser is using the right approach in terms of the originator’s risk tolerance level.
Accountability is important in the new regulatory environment, and being able to track the work to make sure it remains consistent and up to standards is a must.
Appraisal scoring systems help to gauge completeness and quality of the appraisal. It should be tracked over time, and this data helps to fine tune the accuracy of the valuation.
A criticism of AMCs has been that they assign jobs to people who might not be fully qualified to render a judgment of value in a certain market place.
So having review tools help to make sure of the quality of work. Rasmussen noted that AMCs have an interest in making sure the reports are up to snuff because it time and cost if the work needs to be sent back for fixes.
They also want to be as efficient as possible. That is why it is important for an independent third party to look at the appraisal, he said.
Lenders also seek to have efficient processes and the review staff should concentrate on the “difficult” reports, not the cookie cutter ones. Tools help them to find what might be risky or if there are complexities in the property, Rasmussen said.