QUESTION
We revised our appraisal management policy. Our banking department told us it should include both required and Best Practices. We do not know much about the Best Practices involved in appraisal management.
Last year we got approved by Fannie Mae, and yesterday we received their MORA letter to come here and do an audit. I think we're unprepared for the appraisal management policies and procedures.
Our main concern involves the required procedures. We appreciate your response. Thank you!
What are some required appraisal management procedures for an appraisal management policy?
ANSWER
Your Appraisal Management policy and its references to Appraiser Independence Requirements (AIR) should contain a checklist to support your self-assessment. I will provide a responsive but not necessarily comprehensive reply because these aspects of appraisal compliance are somewhat vast. You can contact me here to discuss your concerns or retain us to review your Appraisal Management policy.
Indeed, it is the case that many state banking departments and the GSEs expect companies to conduct self-assessments. If you've been following my articles, hopefully, you have noted my descriptions of the importance of these self-assessments.
There are many required self-assessment criteria relating to appraisal compliance. When we conduct an Appraiser Tune-up®, we consider these criteria. We also consider many recommended or Best Practices criteria in our evaluation. Required assessments and Best Practices should be part of your Appraisal Management and AIR initiatives.
I am offering an outline below; however, depending on a financial institution's size, complexity, and risk profile, the list may need to contain many more processes.
Required Review Criteria for Appraisal Compliance
· Qualified appraisers and appraisal management companies (AMC) should be selected according to GSE guidelines – essentially, the industry standard.
· Sales and loan production employees should be restricted from the appraisal process (i.e., ordering appraisals and communicating with the appraiser).
· Be sure to have "firewalls" in place to ensure no employee, director, agent of your company, or any third party acting on behalf of your company influences the ordering, development, reporting, result, or review of an appraisal through coercion, extortion, collusion, compensation, inducement, intimidation, bribery, or in any other manner. Review these actions with counsel if unsure of what legally constitutes them. Include examples, as needed.
· If you are a wholesale lender, implement controls to prevent the mortgage broker from selecting from an approved appraiser AMC list.
· At least annually, AMC and appraiser lists should be reviewed for credentials and licensing.
· Include a process flow regarding AIR to manage appraisal assignment distribution properly.
· Be sure there is a systemic means to provide a copy of the appraisal to borrower(s). Alternatively, make sure there is a systemic means to get a signed waiver at least three days before closing. And, be sure there is a systemic means to ordering transferred conventional appraisals in adherence to AIR.
· Before ordering the appraisal, be sure that the assigned appraiser has the active credentials and appropriate license level to complete appraisal assignments based on the complexity and transaction amount, among other things.
· Appraisers should evince sound reasoning and provide evidence to support the methodology chosen to develop the value opinion; therefore, there should be a procedure to ensure such oversight, particularly in cases not explicitly covered by GSE guidelines.
· Before the loan delivery, priority procedures should be established for appraisals to be successfully submitted to the GSE portals (i.e., to Fannie Mae through the Uniform Collateral Data Portal (UCDP)).
· Continually evaluate the appraiser's work through the quality control process.
· A dedicated staff should be designated to be responsible for appraisal quality.
· If you use an AMC, an oversight process must be implemented to monitor the outcomes of the work produced. All defects should be noted and cured.
· Compare potential new appraisers to an in-house exclusionary list, other investor exclusionary lists, and, for instance, Fannie Mae’s Appraiser Quality Monitoring (AQM) list. (The AQM list includes appraisers whose work is subject to 100% post-acquisition review or is no longer accepted by Fannie Mae.) If you encounter appraiser misconduct, you should refer the matter to the applicable state appraiser certifying and licensing agency or other relevant regulatory bodies.
· Report fraudulent appraisal practices to the Mortgage Asset Research Institute (MARI), the GSEs, The Appraisal Foundation, and state and/or local regulatory authorities.
· If you use Desktop Underwriter (DU), validate that the property condition has not materially changed in areas identified as disaster areas, and procedures should provide the requirements to resubmit loan case files to DU.
· Pay attention to high risk scores, escalating through a process to review appraisals with high Collateral Underwriter (CU) risk scores (viz., 4 or 5 on a scale of 1 to 5, with 5 being the riskiest)
Note: You must establish policies and procedures to ensure that loans - whether or not your financial institution originated them - are not secured by properties encumbered with a private transfer fee.
Jonathan Foxx, Ph.D., MBAChairman & Managing Director
Lenders Compliance Group
