In our experience with numerous lenders and AMCs, appraisal quality assurance is typically one extreme or the other: too manual or too automated — both leading to inconsistent or ineffective results. If any of these 10 warning signs sound familiar, it’s time to implement a procedural change for compliance and a defensible position that results in better lending decisions.
1. You use multiple AMCs with no standard platform.
Most lenders use multiple AMCs, and every AMC has a different process. You can still have all the benefits of using multiple AMCs, and require a standard process across all the vendors you use. Plus, a side benefit of your standardized QC process is much faster boarding with new AMCs as your growth dictates, or as you try different vendors. When you define the strategy, they’re meeting your guidelines instead of you adjusting to the service levels of various vendors.
2. Different divisions of your company have different appraisal processes.
Does wholesale use a different solution than retail? Do your divisions use the same process? Do branches use different solutions? Without transparent QC consistency, it’s difficult to ensure quality, and your compliance is at risk.
3. You have no audit trail for each appraisal proving due diligence.
A process can be thorough, but you still need documentation. An end-to-end audit trail for the due diligence process on each appraisal should be standard operating procedure to minimize risk of compliance penalties and buybacks, and it’s actually easy to achieve with technology, at no additional cost to the loan file.
4. You order extra valuation products on every appraisal just to cover yourself.
This practice is fairly common, but it can be a significant and unnecessary expense. The idea is just to add an AVM or analytics on every appraisal, whether the supplemental information warrants it or not. The problem is that these reports don’t really QC anything, but instead just provide additional data. When ordered on every report whether you need it or not, the expense adds up and the value just isn’t there.
5. You go back and forth with your AMC too often.
Most of the time, underwriters and lending processors aren’t sure what the AMC has already done or what they’ve missed, so they’re wasting time asking questions of the AMC and the appraisal vendors. In your process, make sure to include a way for staff and the AMC to easily (preferably automatically) document what they’ve done. With this strategy, your AMC can proactively isolate the issues that your underwriters need to pay focused attention to, so you’re really getting the value from your AMC and your staff can save valuable time.
6. Each of your underwriters or processors QC a little differently.
Without consistent appraisal QC standards you’ll have confusion among LOs, appraisers, AMCs, examiners, and borrowers about your organization’s valuation requirements. There are inherent reputational and compliance risks in this situation, and it makes growth very difficult.
7. You’re asking underwriters to be appraisal experts when you employ AMCs as your appraisal experts.
Experienced underwriters are now much harder to come by and departments continue to shrink, yet many underwriters are wasting time going back and forth with your AMCs. If your underwriter is reviewing the entire report instead of just the incurable issues isolated by your AMC, processing files much slower and less effectively. Without a consistent way for your AMCs to report the QC work they’ve already done and the ability to quickly isolate the issues that need underwriting review, your organization is at a disadvantage.
8. You’re asking AMCs for too many revisions, and you don’t have a documented audit trail to prevent the same revision requests repeatedly in the future.
If you’re looking at the QC of each appraisal independently and not leveraging solutions for common issues across your entire process to limit future revision requests, it will be difficult to grow. Your process can’t improve quickly as a whole, and your only growth solution is to pile on employees and payroll expenses to handle your tasks. As we all know, throwing more people at a problem can result in more inconsistency and additional compliance risks.
9. Deals are dying because of valuation issues, but you aren’t sure how to identify it when the loan is originated.
Valuation problems are consistently cited as one of the largest risks, and a consistent QC process can significantly reduce risk and keep you compliant with regulatory and investor requirements.
10. Your appraisal QC checklist is all in a guy's (or girl's) head.
If an examiner or an investor asks about your appraisal QC process and the appraisal desk manager just gives a wink and taps his or her head like “it’s all in here,” you’re probably in trouble. Get a documented, consistent, flexible process in place as soon as possible.
If any of these warning signs sound familiar, you could see tremendous benefit from reviewing your process for compliance and efficiency.
