Magazine article Mortgage Banking

Three Legs of the Appraisal Management Stool: Lenders Need a Commonsense Approach to Collateral Valuation Policy That Embraces Three Key Components: Regulatory Compliance, Quality Assurance and Fraud Management. This Three-Legged-Stool Approach Can Keep Valuation Risk at Bay

Magazine article Mortgage Banking

Three Legs of the Appraisal Management Stool: Lenders Need a Commonsense Approach to Collateral Valuation Policy That Embraces Three Key Components: Regulatory Compliance, Quality Assurance and Fraud Management. This Three-Legged-Stool Approach Can Keep Valuation Risk at Bay

Article excerpt

There's no question that the appraisal industry has been turned on its head by the many unintended consequences of the Home Valuation Code of Conduct (HVCC). However, while the spotlight is stolen by discussions of appraisal management companies (AMCs) versus appraisers or unfair fee splits, there's another little-noticed consequence to ponder: Mortgage lenders are forgetting that prudence in the appraisal management field requires more than simply complying with the HVCC. Value pressure is down from the heady days of the boom, but that likely would have happened with or without the HVCC as buying power evaporated in the credit crisis. Regulation alone neither solved the problem nor will prevent the next round of abuses. It's valuable, then, to look at traditional regulatory compliance as just one leg of a stable "three-legged stool" of collateral valuation policies, with the other two being proactive quality assurance and fraud management. All three need to be employed in commonsense fashion as part of a comprehensive approach to risk factors affecting every institution. "Common sense" means that they can't be treated as mere checklist items in a policy review. They have to drive actual daily lending behavior, in balance with each other and consistent with safe and sound banking policy.

[ILLUSTRATION OMITTED]

[ILLUSTRATION OMITTED]

Traditional alphabet-soup compliance

Today, collateral valuation is affected by a wide variety of "alphabet soup" agencies, policies and laws. The most common abbreviation heard today is the HVCC. However, the Federal Housing Administration's (FHA's) recent guidance (Mortgagee Letter 09-28) on appraiser independence--often mistakenly cited as "FHA adopting the HVCC"--threw another variation on appraisal management into the mix.

To make matters still more interesting, the Interagency Appraisal and Evaluation Guidelines--issued jointly by the Federal Reserve, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS) and the National Credit Union Administration (NCUA)--affect appraisal policy even more broadly.

Add to that the Gramm-Leach-Bliley Act (GLB), which affects security, privacy and record-keeping, and which expressly covers appraisals. And finally, the Federal Housing Finance Agency (FHFA) recently issued rules regarding required submission of appraisal reports in MISMO [R] extensible markup language (XML) format under its Uniform Mortgage Data Program, with the first portions to be implemented by Jan 1, 2011. If you think about this in terms of the time required to change workflows to accommodate those data requirements, that's right around the corner.

And one more thing: As this article goes to press, Congress is expected to eliminate the HVCC and replace it with "something else" as part of the financial reform legislation package.

Yes, it's a mess. The best way to approach the interwoven policies is to find the commonalities and the differences. Then craft a set of policies that meet the strictest standards in each overlapping area and take into account the unique areas covered only by one set of governing standards. A short list of areas to check in your organization might look like the following:

* Appraiser-independence protection: Do you have strict written policies in place to ensure that appraisers are not coerced by either direct value pressure or by the threat--real or implied--of blacklisting for future work, even if not by your own staff but by an AMC? Do you audit your real-world practices? The Interagency and FHA rules are most vocal on this issue.

* Interaction of commissioned parties with appraisers: FHA is most clear on this issue, stating that anyone with a commissioned interest should be banned from directly or indirectly influencing the choice of an appraiser or the suitability of a valuation report. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.