TheMReport — News and strategies for the evolving mortgage marketplace.
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Th e M Rep o RT | 19 Feature I t is not news to anyone in the mortgage industry that the market has changed dramatically in the last decade. Back then, volume was high and the focus was on closing as many loans as possible. Thorough review of the collateral was not the highest priority in loan decisioning or risk management as the prevailing sentiment was that appreciation would offset inaccuracies in value and mitigate any potential loss. So, why slow the process just to dissect an appraisal? Well, we all learned why thoughtful analysis of the appraisal is crucial, not just to the lending decision, but also to maintaining the financial health and perhaps the survival of the organization. The question now is how do we as mortgage professionals adjust our strategy to not only survive, but also to thrive in a market that the Mortgage Bankers Association (MBA) has forecast to see overall origination volume 37 percent lower than last year? By the way, that smaller vol- ume is already impacting most, if not all, industry participants in one way or another. Each is at least strategizing on how to get through this valley and many have begun taking action by downsizing staff, reorganizing responsibilities, and restricting ex- penditures. However, these steps may not be the ultimate formula for success—tasking fewer people with more or new duties while still meeting operational goals and ensuring compliance is always a difficult formula for success. The difficulty is in reducing staff without revising the business process, time frames, or support to maintain effective risk manage- ment. The last thing management can afford to deal with is staff burnout due to overload that can jeopardize operations. Cost- efficient automation or automated tools and services can be strategi- cally inserted to shore up work- flow on many fronts and enable a smaller staff to perform at or above previous standards without increased risk to mental, physical, or organizational health. In the midst of trying to main- tain workflow with a smaller staff, there remains an increas- ing focus on effective appraisal analysis. Regulatory requirements, investor demands, corporate management, and now disclosure to the borrower have elevated the collateral analysis to the same lev- el of scrutiny as financial analysis. The information provided in the appraisal report has expanded to encompass much of what is needed to adequately understand market value of a property, but it still requires validation and analy- sis to ensure the right decision is made for both the borrower and the organization. Does the em- ployee now tasked with appraisal analysis have the necessary train- ing, skill, and experience to fully analyze the appraisal and make that right decision? Fortunately, great progress has been made in automated tools and services for appraisal analysis that can enable that employee to do just that. Innovation A s effective appraisal analysis become a prominent focus in the industry, providers of automated services focused on creating compelling prod- ucts and offerings to serve the need. Initially, they found ways to provide data or access to data that previously required contracting outside resources to individually collect, such as property records, title transfers, and ownership verification. In- stead of waiting days or weeks to get county records on a property, services were deployed to provide deep data on almost any property in the country almost instantly. One can now readily review the information in the appraisal to ensure its accuracy and begin the analy- sis for potential fraud or other unacceptable activities on the subject property and comparable sales used to support the ap- praiser's value estimate. Data validation, while impor- tant, was not the only part of the appraisal analysis that could be automated. Metrics were created based on market activi- ties to show the direction local markets were moving or whether the market was stable in terms of values and activities—sales, transfers, foreclosures, zoning, and growth. Listing activities are researched to overlay cur- rent market information on the historical data. Data is then re- viewed over time to understand trends and patterns in order to see how it might all relate to both the value and marketability of the subject property. All of these metrics evolved because of a need for innovative ways to as- sist the reviewer in analyzing the information in the appraisal that is not readily accessible. The industry is now at the point where we can take the evolutionary next step and fully analyze the appraisal itself. This goes beyond just internal form checking and discrepancy review. The data and metrics can now be incorporated into a rules- based underwriting analysis of the appraisal report content that results in directions and decisions that are efficient, consistent, and compliant. Efficiency E fficiency is always important in business operations, but it is now vital in the industry. Though the volume is smaller, customer expectations for ser- vices remain high while regula- tory requirements and investor demands have increased. The organization must meet those expectations, requirements, and demands with a reduced or reorganized staff coping with changed responsibilities. When fewer people are responsible for a successful operation, there is no room for wasted time, as the operation must at least ensure it completes its daily workload and time frame constraints. An efficient operation meets or exceeds its goals for timely delivery of good product, which translates in our industry to performing loans that meet compliance requirements. Automation improves opera- tional efficiency as it provides scalability. Incorporating automa- tion or automated products and services into the operation can enable it to handle volume fluc- tuations without resizing staff. A smaller staff can still deliver good product as volume eventu- ally rises because automation brings efficiency to the process and workflow. During quieter By Jocelyn Smith, Project Manager of Mindbox Group