Joe Petrowsky, Mortgage Broker NMLS # 6869: LOVE GETTING TIPS TO OVERCOME APPRAISAL HURTLES

“Love Getting Tips to Overcome Appraisal Hurtles”

I want to share a recent appraisal experience that was extremely frustrating.

A Realtor referred a client, pretty simple transaction. Sale price was $335,000, borrowers were putting 20% down, plenty of income. Like I said pretty simple, until we got to the appraisal. The appraisal came in at 324,000. The process today is that a copy of the appraisal gets sent by the appraisal company to the client and to us. The client was not a happy camper and talked about backing out.

We sent copies to the two Realtors and requested they review the appraisal and I would do the same. The numbers didn’t make any sense to me, as the comparables that were used, would easily show the value at the sales price or higher.

Bingo, the calculations were wrong and needed to be corrected. Here is the problem. In the infinite wisdom of HVCC and now Dodd-Frank, the mortgage broker cannot contact the appraiser. They must be afraid that we have the ability to corrupt the integrity of the appraiser. RIGHT

So, I asked the two Realtors to contact the appraiser to ask that the calculations be reviewed as there was an obvious error. The appraiser eventually acknowledged the problem, but the process took 9 business days to get resolved, because of all the red tape.

The system is completely broken and needs to be repealed. Let  me know your thoughts or experience with the appraisal system.

Tips to Overcoming Appraisal Hurtles

By: Frank Danna

The valuation industry has been infused with a host of regulations, standards and consequently, scrutiny. Of course, these regulations were implemented to bolster a sector of origination riddled with challenges. Quality was suffering; independence lines were crossed within a lending institution at the cost of the appraisal report, and ultimately the loan itself.

The appraisal independence requirements within the Dodd-Frank Act go a long way to shedding more light onto an issue that needs to be solved, but it doesn’t go quite far enough. The regulatory bodies that govern our space—CUNA, FDIC, Consumer Financial Protection Bureau, etc.—have jointly issued a statement, “The Interagency Guidelines,” that incorporates all of Dodd-Frank as well as additional, critical guidelines on achieving true appraisal independence and the methods/steps an institution should take in order to be truly compliant.

Within the guidelines, it is illustrated how an institution can gain not only complete compliance, but also satisfy their safe and sound banking practices as well. This is critical to an industry that is struggling to regain footing. If addressed appropriately, a lender can overcome some of these most common industry hurtles with ease.

There are several takeaways that lenders can implement to strengthen their compliance posture and ensure a high quality appraisal report: focus on compliance, instill higher levels of quality control, support reasonable and customary appraisal fees and appropriately use appraisal management software. Should a lender choose to outsource appraisal independence to a third party, most of that burden will be alleviated.

Compliance concerns are excessively burdensome on the banking industry. So much so that most banks have separate compliance departments working meticulously through ever-changing compliance applications and modifications. These departments can certainly interpret the applicable regulations, create the necessary operating procedures and apply to the individual department segments, but there are weaknesses in implementation and day-to-day management of the proper compliance procedures. This is most commonly the result of unqualified and / or uneducated staff.

As required by the regulations, "the individuals working in the department must at a minimum, be trained, qualified and understand the AIR and Dodd-Frank Act, appraisal regulations and enforcement, as well as the Uniform Standards of Professional Appraisal Practice."

One of the main hurdles in today’s lending environment is maintaining appraisal quality levels. To overcome these challenges, all completed appraisal reports should pass through a multiple-stage quality control review process prior to delivery. When the appraisal report PDF is delivered it should be reviewed extensively for completeness, correctness, consistency, compliance, and cross-checks so that the lender’s processing department can use it most efficiently as an aid for underwriting and pre-underwriting. A visual review is crucial in this process. Technology alone cannot uncover common appraisal mistakes, such as missing photos, signatures, location map flags and sketches.

Higher fees to appraisers will result in higher quality reports and reliable service. The interagency guidelines recommend compensating appraisers according to reasonable and customary fees in the specific area or market of the service. A higher-paid appraiser will result in a higher quality appraisal report; a win-win for the lender since the cost is passed directly on to the borrower.

This is crucial in the selling process of a loan product. Often, HUD-1 fees can be a breaking point in negotiating a loan for a borrower. Appraisers and banks know their market and borrowers better than anyone—this is why it is crucial to work closely with both the appraiser and the lender to develop a market-specific pricing schedule for the particular region.

Technology plays a large role in all facets of banking, including appraisal management. There are several providers of appraisal management processing platforms, including loan origination system providers, all of which tout a compliant solution for internal appraisal management. Unfortunately, this simply is not the case. Automated software can’t manage compliance, the main component of any successful appraisal. Software satisfies only a portion of the solution (and consequently, only a portion of Dodd-Frank), while not at all fulfilling a lender’s safe and sound banking practices.

In reality, the following resources are needed to effectively manage appraisal compliance and processing: appraisal compliance officer/manager, appraisal processing manager, appraisal processor(s) and appraisal management database.

Keep in mind, the staff associated with the appraisal management department cannot be considered loan production staff. A lender will need to prepare the loan production staff to attain the necessary training and qualifications to manage the process—a task that many smaller institutions cannot dedicate resources to.

There is more on the table than Dodd-Frank in today’s appraisal independence in lending. Of the challenges facing the industry, many can be overcome by appropriate allocation of resources in order to ensure compliance as well as fulfillment of safe and sound banking practices. With a trend towards outsourcing, many institutions have been able to take it one step further by addressing these challenges and equipping the institution with a roadmap to loan portfolio stability.

image:renjith krishnan/freedigitalphotos.net