TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/120611
feature se r v ic i ng or ig i nat ion ORIGINATION "As more regulations fall into place throughout the coming year, altering potentially dangerous practices provides integral armor—and keeps companies ahead of the competition." S e c on da r y M a r k e t a na ly t ic s —Jennifer Miller, a la mode appraiser or valuation partner before the underwriter's review? The keys to good automation include: making sure that selected tools provide answers, instead of additional questions, and ensuring that automation processes utilize expensive, data intensive products for high-risk properties, versus applying all products against all appraisals without distinction. Warning Sign: No audit trails for appraisals. End-to-end audit trails of a company's entire appraisal process—from the time the appraisal was ordered to the time the borrower received his or her copy and opened the file—are the best defense against buyback requests and legal questions. And an accurate audit trail is the proof lenders need for compliance exams. All appraisal management operations, whether handled in house, by an AMC, or some combination of options, must include an automatic audit trail from beginning of the appraisal to the conclusion of the transaction. It's easy to do, and it's absolutely critical. 44 | The M Report Warning Sign: Underestimating AMCrelated liability. Since the AMC is an agent of the organization, lenders are actually liable for the performance of appraisal partners. Originators and banks are responsible for monitoring AMCs' policies and practices including the appraiser selection process, communication with production staff, and all information exchanges throughout the lifecycle of an appraisal order. It's already been proven that when an AMC goes out of business, the mortgage lender remains responsible for paying appraisers—and that's just one among innumerable examples illustrating the broad, costly impact of current and impending appraisal regulations. Warning Sign: Operational changes advised by compliance officers have stalled. It's been observed numerous times in today's marketplace: A compliance officer outlines procedural changes, but the company doesn't implement the operational advice as part of an overall workflow process. This failure to launch leads to dangerous inconsistencies in execution, but investing the time to establish a well-organized workflow that fully incorporates compliance policies ensures the organization is playing by the rules. Warning Sign: AMCs, technologies, or software platforms are a threat to data security. There are a variety of issues that can plague third-party providers and come back to bite originators and banks. If service partners push excessive downtime for platforms, release software updates too slowly, execute clunky errors or workarounds, make late payments to appraisers, or have a shrinking client list, lenders should beware and begin considering alternatives. The industry risks are simply too great to maintain partners with limited experience or questionable stability. Warning Sign: Appraisers' reports reveal lack of area expertise. Whether utilizing an AMC or managing operations inhouse, an "out of area" appraiser can have a serious impact on a company's appraisal quality. Though this pitfall is unavoidable in some rural areas, there are always geographically competent appraisers for assignments. Additionally, if an AMC isn't using geographically competent appraisers, this could be a sign of other problems like low fees, poor reputation, or poor service, which can directly affect lenders' compliance in a variety of ways. Warning Sign: Appraisers' reports arrive via email. This is a clear violation of federal law, specifically the GrammLeach-Bliley Act (GLBA). The act specifically addresses residential real estate appraisals with respect to consumer privacy protection, and the penalties range from $10,000 per violation (per email!) and can actually include real jail time. There are very easy solutions to prevent consumer privacy breaches, and originators and banks need not be vulnerable to appraisal operations. Warning Sign: Relying on outdated, pre-crisis tools. The same "appraisal validation" tools, AVMs, and systems that were used so heavily by the big producers during the boom are still out there. But such solutions did nothing to ring the warning bells when collateral value wasn't aligned with the appraisals before and should be considered outdated and ineffective. Given the inherent risks in today's marketplace, lenders that haven't already done so should re-evaluate all appraisal management operations. While tangible hardships like fees and penalties are severe, intangible factors like damage done to lenders' reputations when appraisal problems abound represent the strongest catalysts for heeding early warning signs. As more regulations fall into place throughout the coming year, altering potentially dangerous practices provides integral armor—and keeps companies ahead of the competition. Because businesses must address many risks that cannot be controlled through operations, and appraisal quality doesn't have to be one of them.