March 8, Ins and Outs of Appraisal Independence What Lenders Need to Know

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1 March 8, 2016 Ins and Outs of Appraisal Independence What Lenders Need to Know 1

2 PRESENTATION TEAM Michael Dresden Executive Vice President Tom Moser Director of Quality Control 2

3 AGENDA What is AIR? Staffing Requirements Rules of Engagement Post-delivery requests AMC vetting and selection Questions 3

4 AIR: Appraisal Independence Requirements Laws, Regulations and Policies Federal (Dodd-Frank, TILA, FIRREA) Individual States GSE s Agencies Lending Institutions Prohibits third parties and lenders from influencing or attempting to influence the: Development, Result, or Review of an appraisal report 4

5 Staffing Requirements Absolute Independence Org Structures Assessing Your Company 5

6 Absolute Independence Anyone who: Is responsible for generating loan volume Stands to financially benefit from funding of a loan Anyone responsible for: Ordering; Reviewing and/or Accepting appraisals and evaluations 6 Includes their superiors and subordinates

7 Non-Compliant Org Structure Chief Loan Officer Valuation Review Staff Residential Real Estate Loan Officers Commercial Real Estate Loan Officers Source: FDIC 7

8 Compliant Org Structure Valuation Review Staff Board or Loan Committee Chief Loan Officer Source: FDIC Residential Real Estate Loan Officers Commercial Real Estate Loan Officers 8

9 Assess Your Reviewer Independence Between valuation reviewer and supervisor, identify: Reporting lines Document flows Decision points Examine your loan approval process Discuss the issue of independence internally Executive management Credit review staff 9

10 Expectations for Smaller Lenders Can t achieve absolute lines of independence due to small/limited staff size? Still required to demonstrate prudent safeguards Isolating collateral review from influence or interference by mortgage production 10

11 Rules of Engagement Appraiser Recruitment Appraiser Engagement 111

12 Appraiser Recruitment Current license Verify with government/state websites Regularly monitor Experience information Geographic competency E&O insurance 12

13 Appraiser Engagement Written engagement letter Assignment should be based on: Experience Property type Scope of work Required certification Geographic competency Availability 13

14 Appraiser Engagement Independence compromised when: Borrower recommends an appraiser Production staff selects appraiser Mortgage broker had a role in selecting, retaining or compensating the appraiser 14

15 Post-Delivery Requests Correction requests Reconsideration of value Inappropriate commentary 15

16 Acceptable Correction Requests Objective, factual errors to be corrected GLA measurements Remodeling/updating Amenities missing View/site description Reasonable subjective information Lack of or unsupported adjustments Inferior/superior comparables 16

17 Reconsideration of Value Commentary should be observed by market Avoid emotional appeals Provide up to 3 sales with explanation Sales should be more similar than appraisal comps Located in the subject market Recent sales Market data trends indicating time adjustments 17

18 Inappropriate Commentary Insulting or derogatory language Target values Specific adjustment amounts Any language violating Fair Lending Act 18

19 AMC Vetting & Selection Best practices AMC monitoring AMC rotation Software platforms 19

20 Best Practices: AMC Vetting & Selection Check referrals and experience Have they been endorsed by other industry leaders? Is the AMC managing significant volume? How long have they been handling appraisal management? Demand performance reporting CFPB TPO requires you to monitor and report on vendor performance Access to performance stats such as quality, turn time, etc. is mandatory 20

21 Best Practices: AMC Vetting & Selection Payment to appraisers Do they pay on time? Ask for fee sheets by state How often does the AMC review C&R fees? Consider a site visit Integration Exploration Is the AMC integrated with your LOS? Do they have the ability to assist you with UCDP uploading? What type of system does the AMC have for ordering? Ability to make quick changes? Is system easy to use and understand? 21

22 Best Practices: AMC Vetting & Selection The AMC team Are they readily accessible? Do they provide you with real-time updates and status? Strong management team to oversee production and compliance? Is the AMC truly national? Licensed in all states that require AMC licensure? How are they managing state to state requirements? Do they contract out to larger AMCs to fill voids in certain states? 22

23 Best Practices: AMC Vetting & Selection Compliance Processes Is staff trained on regulatory and compliance issues? How often are they trained? Is the staff USPAP certified? What procedures are in place to ensure policies are being followed? What does their service agreement/contract look like? What is SOP for terminating an appraiser relationship? Does the AMC have a dedicated compliance leader? Is there a documented disaster recovery plan? 23

24 AMC Monitoring Per CFPB TPO, continuously monitor your AMC partners Performance to SLA Turn Time Correction percentages Audit at least annually 24

25 AMC Rotation Is rotation among multiple AMCs necessary? No, but gives some lenders peace of mind Compliant methods of rotation Split by volume percentage Geography (assign certain states/region) Non-compliant methods of rotation Broker/LO choice 25

26 A Note on Software Platforms Can be valuable tool for rotating appraisers and AMCs Does not guarantee compliance Still responsibility of lender to: Separate production and review staff Ensure staff is following assignment guidelines Comply with communication rules 26

27 Questions CONTACT INFORMATION: Michelle Gimbutis Dart Appraisal Marketing Manager