Lenders Must Focus on Best Appraisal Practices
It is a fast-paced world out there and consumers want things quicker and they don’t want to hear stories about the extra time it takes for appraisals for compliance issues.
Thus compliance is the primary focus for providers of appraisal services and technology, said Matt McHale, managing partner and chief revenue officer of Global DMS, Lansdale, Pa.
It comes down to having best practices. The technology company works with appraisers, appraisal management companies and with lenders, with hundreds of thousands of transactions passing through it. If a lender wants to pull up records from as far back as 10 years ago when the company first started, they are available.
Lenders, whether they work through an AMC or directly with an appraiser, can see things like date and time stamps and other items of documentation on their order, McHale said.
A click can bring up a list of outstanding appraisals; another report can show appraisers the lender has on its panel whose licenses might be expiring shortly and notify them of that fact so it can be fixed.
But while the lender may be able to outsource the appraisal function, at the end of the day, they cannot outsource the responsibility for compliance with federal and state laws, McHale warned.
That is why the safeguards that firms like Global DMS provide are more and more important. And those who were hoping Dodd-Frank would be repealed or at least mitigated have to realize the rule is here to stay following the results of the presidential election, he said.
Another part of the process that needs to be dealt with is originators uploading their appraisal data to the Universal Data Collection Portal, as the secondary market agencies want.
Global DMS makes sure this information is in one place and up to date so it can be sent to the portal. If the portal rejects the submission, it could delay the closing and in the worst-case scenario, cause the loan not to close at all, McHale noted.
So for the consumer, it is important to have the appraisal done correctly, in a compliant, efficient manner and during the first time as not to delay the closing or drive up costs.
To help their customers, lenders can do things like increase automation of their workflow to make the ordering process simpler, he said. The Global DMS system also keeps tabs on whether the individual appraiser is properly and currently licensed. Things like this can mean the originator can shift its employees from spending time on appraiser compliance towards taking care of other tasks in the loan origination process.
“In 2013, it’s really going to be compliance management, it is going to be focusing to make sure these processes are in place, to make sure that they are going to be in compliance and to make sure they can be accountable for all the changes that are coming down the road,” McHale warned, adding those changes will be happening a lot quicker next year and beyond.
U.S. Appraisal Group is an appraisal management company which works with lenders both on an outsource basis as well as help them manage their own in-house appraisers. Its technology allows the lender to on-board in what company president Dione Spiteri called a “hybrid” fashion.
The company provides consulting services to give lenders help in assembling a panel or with compliance. U.S. Appraisal Group has an in-house compliance expert and an in-house legal team because the guidelines have been changing so frequently as of late.
Educating clients about the changes is one of the functions the Chicago-based company provides to help originators manage the process. “There are a lot of times when a client just doesn’t know that an update has come out or a regulation has changed or the guidelines have been modified. So it is our job as the subject matter experts to make sure our clients are aware of that,” Spiteri explained.
As for lenders being able to manage the quality of the appraisal report, vetting the appraisers and making sure they have the right levels of experience and competency is “paramount” at the start of the process, she said. Her company does provide review services using certified appraisers.
Spiteri does see a change in how AMCs are being perceived by many in the marketplace, mostly because they have changed the way they are doing business.
The “traditional” AMC had been paying the appraiser just 40% of the customary fee for the market so a lot of the appraisers doing that work were not of the best qualify.
That has changed, she continued, as she sees very few appraisers who are not seeking their full fee. Working with appraisers who compensated appropriately give lenders people with the right expertise for the area and that leads to better quality and more confidence in the report.
As a result, “I think the perception will shift in regards to quality,” Spiteri said.
To assist in the process, the originator can educate the borrower about the appraisal process, including about the comps and what to expect, she said. They can make sure the house is accessible during the inspection, and even more simply than that, get back to the appraiser in a timely fashion when called to schedule the appointment.
Frank Danna, CEO of Appraisal Logistics, Annapolis, Md., runs an AMC with a different business philosophy that applies to managing the appraisal process.
For those that elect to manage the process in-house with their own panel, Danna said the appraiser is going to be loyal to the lender as long as he or she is getting regular work and not getting beat-up on the fees.
Before the Home Valuation Code of Conduct, the relationships had been between the loan officer or processor and the appraiser and each had their favorites. One of the things which was common was having the appraiser do “a quick pencil search” to see if the property would likely meet the needed value and thus the LO was working on a viable loan. It was also easier to end the relationship with the appraiser, merely stop sending them new assignment.
This has gone by the wayside in the new appraisal independence environment, he pointed out. Now there needs to be documentation, with a valid reason stated, to end the relationship.
The loyalty for today’s appraisers should be to the lender to which they are receiving business from. Danna said lenders should be looking for a company which will manage the lender’s own approved panel, “because the company should that loyalty which they’ve had with their appraisers forever.”
But in most situations, a company chooses an AMC with the result being the appraiser has no loyalty to the lender, just to the AMC, he said. As a result the lender does not have a relationship with the appraiser.
Danna said Appraisal Logistics is unique because when a new company signs up with this AMC, that lender brings it its own approved appraiser panel.
“We’ll manage the process only with their approved appraiser panel, provide their approved appraiser panel is adequate for the coverage that they need,” he said, adding if not, his firm will request they provide more approved appraisers.
In turn, Appraisal Logistics works with those appraisers with the understanding that the relationship is between the lender and appraiser. Danna’s company is merely the middleman in this transaction.
“We’re just the communicator of information. We’re just flowing information back and forth. I would say that’s what a mortgage operation would want to find in an AMC, but the AMCs that are operating in that fashion are few and far between,” he declared.
He added that Appraisal Logistics should be treated by the appraiser as an extension of the lender and provide it the same respect as it would the lender.
In his eyes, the appraiser works for the client, which is the lender. His firm allows the lender to outsource the risk of the entire process to make better use of its own internal resources.