Accurate data is critical in the mortgage business. Yet, we often forget exactly how much data goes into every loan file, and that the amount of data continues to grow every year.
Of the tens of thousands of bits of data in each file, the information about the property that's being sold or borrowed against is of utmost importance. Often, that data is simply wrong. We've seen reports with the wrong number of bedrooms for the home, incorrect property boundaries and square footage, missing amenities and even contradictory data on the same report.
Part of the trouble lies in the fact that property data is so easily obtainable from a variety of different sources — such as multiple listing services, assessor's records, deeds, real estate agents, online databases and even past appraisal reports — that there's a danger that appraisers aren't checking it, just repeating it. The data might be inaccurate, but it's not being caught.
This issue is of concern to lenders and AMCs alike. For lenders, inaccurate property data can result in closing delays, buybacks or CFPB penalties. For AMCs, it can result in lost business and the expense of constant appraisal reviews and re-orders, which eat into profits.
If there are discrepancies in appraisal data, chances are they'll be caught eventually. Fannie Mae, for example, has collected data on millions of appraisals submitted to its Uniform Collateral Data Portal since 2011, and it is looking through those files for data inaccuracies and anomalies.
However, there are several steps organizations can take to prevent data discrepancies and catch them — before they cause real trouble.
All parties involved in appraisal delivery, from the lender to the AMC or appraisal company, need to check appraisal qualifications as well as allow reasonable turnaround times for reports to be completed. Trouble often starts when appraisers are expected to do too much in too short a time — or when the truth about an appraiser's level of local market expertise isn't being told.
A lender's underwriting staff needs to understand current market trends so they can determine whether the appraisal data makes sense. Underwriters also need access to the sales history of a property and proof that supports any adjustments in value, such as updated property features.
The best overall method to stop data discrepancies before it's too late is the appraisal quality review. An appraisal quality review checks all information in the appraisal report for completeness, accuracy and anomalies. Reviews also include thorough checklists involving appraiser certifications and an appraiser's local market knowledge and turn times. The problem is that appraisal quality reviews aren't being used nearly as often as they should.
For some, it makes sense to outsource appraisal quality reviews to a third party with broad market experience and specific expertise with identifying discrepancies in appraisal data. This is often the most cost-effective route, as reviewing appraisals in-house typically requires pulling staff off other tasks or adding salaried positions for help that may only be needed on an occasional basis.
At a time when lenders have become accountable for the actions of third parties, the time to get a plan in place is now. It really doesn't matter that lenders are dealing with enormous amounts of data. If your appraisal data doesn't look so good, neither will your future.
Corey Hulbert is assistant vice president and head of appraisal business at SLK.
