April 2016 - Tech Revolution

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26 | TH E M R EP O RT FEATURE EAD With Ease 5-Step Method Gives Lenders a Map toward Successful EAD Implementation By Mike Floyd A fter many years of slowly adopting new technology, increased regulatory scrutiny is forcing the hand of the mortgage indus- try; and organizations are trying catch up at breakneck pace. Even as many lenders and ser- vicers are still recovering from the rigorous new tech changes required to maintain compliance with TRID and UCDP, the next wave is already upon us. EAD on the Horizon T he Electronic Appraisal Delivery portal, or EAD, is the Federal Housing Adminis- tration's (FHA's) answer to the Fannie Mae UDCP and Uniform Appraisal Dataset. The manda- tory implementation date of June 27 is fast approaching, and this will apply to all FHA- approved mortgagees with case numbers assigned on or after that date. Like FNMA's UCDP, FHA's portal requires standardization of appraisal report information in order to allow the collection of that information for automated tracking and analysis. As stated by the FHA, the purpose is to provide "real-time feedback on compliance with FHA appraisal data and report requirements." Additionally, it seems that the FHA envisions a future where ap - praisal data can be utilized for ad- vanced risk modeling and scoring, as is presently seen from FNMA's Collateral Underwriter. While the implementation of EAD is likely to lead to higher efficiency in appraisal submission, there are several potential stumbling blocks that need to be considered by participating lenders. A Five-Step Method for Being Prepared I n our experience, there is an effective framework to guide lenders and vendors through a successful regulatory imple- mentation. These steps include: 1) evaluate current capabilities; 2) ensure comprehension of the new regulations; 3) collaborative- ly engage throughout the actual implementation process; 4) exam- ine the appraisal review process itself; and 5) establish "go-to" subject matter experts and task them with staying abreast of changing regulations. Lenders and vendors often skip ahead and jump right into the third step of implementation. Skipping over or underestimating the importance of the first two steps almost always results in a fundamental lack of preparation, leading to ineffective, time-con - suming, and delayed implemen- tation. Failure to execute on the important fourth and fifth steps often results in an unsustainable process that is not equipped to adapt to future changes. Here are these five steps in more detail: 01 Evaluate the appraisal vendor. F irst, lenders must consider their valuation technology vendors. The lender may use a full-service appraisal manage - ment company, simply utilize a technology portal service, or deploy a hybrid solution. Then, the lender must determine who is responsible for submitting the actual appraisal report—either the vendor or the lender. If this responsibility does lie with the appraisal vendor, then lend - ers must ensure their vendor has specific and dedicated IT resources that are experienced and knowledgeable in custom - ized system integrations with the various platforms used in our industry. Delays in imple- mentation due to inexperienced vendors could hamper the timely processing of new loan applications and have huge implications for the lender. For example, does a vendor also submit on the lender's behalf to the UCDP? Do they have a thorough understanding of the differences between UAD and EAD, to account for—and advise about—potentially time-consum - ing conflicts? 02 Ensure the vendor has a comprehensive understanding of EAD rules. W hile many of the for- matting requirements between the UCDP and EAD portals are identical, some are not. Such ambiguity can be problematic if not identified and considered by the technology vendor up front. For instance, when a subject property has no heating or cooling source, UAD formatting requires the appraiser to check the box marked "Oth - er" and then insert the word "None." EAD rules, as outlined within the Data Delivery Guide, identify no such requirement. Or if a lender starts a loan with the intention of obtaining FHA insurance but decides later to convert the loan to convention - al, they may encounter delays when attempting to submit the appraisal through the UCDP, unless their vendor has already identified such situations and in- structed appraisers to follow the more rigid standard between the two sets of rules. These are just a couple of real-world examples

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