Friday, February 6, 2015

Collateral Underwriter - AMCs an Incomplete Solution to AIR Compliance

Collateral Underwriter Emergence a Prescription for AMC Appraisal Quality Failure

The Appraiser Independence Rule (AIR) became effective in October, 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Essentially, this rule codified the principles of the Home Valuation Code of Conduct (HVCC), which went into effect in May, 2009 (but applied only to FNMA/FHLMC loans), into law which now applies to all loans.  Many industry participants looked to so-called Appraisal Management Companies (AMCs) to solve the operational problems of complying with the rule. Unfortunately the AMC paradigm only solved one element of the rule.  Lenders have found that they still carry a huge burden with respect to appraisals.  In addition, as is evidenced by the recent introduction of Fannie Mae's "Collateral Underwriter", AMCs did little to improve appraisal quality.

Appraisal Management Service - Never a Complete Solution

Many lenders and brokers believed that an appraisal management service solved the compliance problem.  Unfortunately, while it does provide an arm’s length appraisal ordering service, it does not manage the other problems in the mortgage process:
  • How does an individual loan originator establish value for pre-qualification purposes?  What are the permissible means for obtaining value estimates when a transaction’s feasibility is pending property valuation?
  • In ordering appraisals from an Appraisal Management Service, how are how are problems with incorrect appraisal, billing, or contact coordination appropriately handled?
  • How are approved/disapproved appraisers managed internally?
  • How do lenders quality control an appraisal ordering process they don’t control?
  • How does third party management allow the lender to ensure the borrower receives a copy of the appraisal three days prior to closing?

Because of this, we have developed a system that can be applied to all production and deals with all areas of AIR, predatory lending laws and state lending laws. 
  • Production Use of non-AVM Value Estimates
  • AIR Appraisal Ordering Process
  • Appraiser Approval Process
  • Appraisal Quality Control
  • Underwriting Review of Appraisals
  • Effect on Industry Procedures

We have suggested a policy that allows the company to maintain control of an independent appraisal ordering process, but provides the disconnection of all production personnel from substantive interaction with valuation service providers.

In addition the policy we recommend doesn’t leave the originator or sales person without any process by which he or she can obtain any confirmation of a value estimate for the purposes of structuring a new transaction. 

The updates for the modules are available on the download page

Implementing the Appraiser Independence Rule (AIR) Changes in Your Business

Quality Control, Policies and Procedures Modules Affected:

Origination Process – Estimating value without appraisers, Pre-Qualification without Value Acknowledgement Form, Originator Acknowledgement
Processing – Random Selection, No Communication of Value on Request Form, Checking Approved Appraiser for Outside investor, Appraisal Copy Delivery Process
Underwriting – Appraiser Approval Process, Random Appraiser Selection Process, Appraiser Denial Process, Appraisal Review Process, Multiple Appraisal Policy
Closing – Appraisal Copy Process
Admin-Operations – Appraiser/Vendor Approval Process, Random Appraiser Selection Process, Appraisal Payment Process, Identity of Interest verification
Quality Control – Appraisal Review Process, 10% Random Selection, Appraiser Approval, Random Appraiser Assignment