Effective appraisal management and underwriting processes within your organization are a must to ensure that you have quality appraisals that are done accurately. Listed below are key components of an effective appraisal management process that the GSE’s recommend you follow to keep your operations running smoothly and compliantly.
General Processes and Controls
You should document and monitor compliance—along with its effectiveness—using a set of policies and procedures, and implement any necessary changes to either these policies or procedures in a timely fashion. Good communication with your staff on what the policies and procedures are is a must, and again should be done in a timely fashion. You should provide training and guidance to employees on underwriting appraisals, as well as approving, monitoring, and managing appraisers or AMCs.
It’s a good idea to proactively measure and manage appraisers, AMCs, and appraisal reviewers by both monitoring their performances and using specific appraisal quality benchmarks. Conduct due diligence of an AMC’s policies, processes, and key controls at the time of approval, as well as on an ongoing basis thereafter. Appraisal review processes should be applied to all appraisals, and be varied based on predefined levels of risk. You should conduct a quality control test on a randomly selected, but statistically significant percentage of appraisals using a system like MARS (MISMO Appraisal Review System) offered exclusively at Global DMS—report any adverse, negative, or irregular findings right away.
Appraiser/Appraisal Management Company Controls
You should only utilize knowledgeable and experienced staff members to select and approve individual appraisers or AMCs, and completely separate them from the production staff to avoid influence on who gets selected. When selecting appraisers or an AMC, you should use criteria that focuses on the quality of the collateral assessment instead of other factors like price or completion time. You should also evaluate and select qualified individual appraisers or AMCs by performing background checks on: state licensing, references, errors and omissions insurance, work samples, market knowledge, and experience in specific property type valuations.
Once you’ve selected appraisers or an AMC, you should identify unsatisfactory performances at either the AMC, appraisal company level, or at the individual appraiser level, and take the necessary actions to correct or remove the deficient performers. You should also document the results of the monitoring process, and share those results with both the appraisers and the AMC. Lastly, you want to implement adequate business controls in order to prevent appraisers from being subject to undue influence when performing appraisals.
Appraisal Review Controls
You need to review every appraisal to determine the completeness of the appraisal report, the reasonableness of the reported value, that the appraiser’s techniques were adequate, and that the appraised value is well supported. You must keep the appraisal review and the determination of the quality and accuracy of the appraisal completely separate from the credit assessment. It’s also recommended that you establish specific criteria for escalating the review of appraisals based upon the potential collateral valuation risk—the level of risk may vary depending on the transaction type, property location, HVE variance, Calibrator Score, or any other collateral related risk attributes. Don’t forget to document the results from all appraisal reviews that are conducted for future reference.
Appraiser’s Opinion of Market Value Controls
The appraiser’s opinion of the market value for the subject property must not include the value of any furniture or any other personal property. Any changes to the opinion of the market value may only be made by a licensed and certified appraiser who is experienced in the market area in which the subject property is located. These changes must be fully documented by the appraiser, and need to include comparable properties to justify the changes.
After an appraisal is completed, you should utilize AVMs and other risk assessment tools during the review process to verify appraisal information, provide additional sales data, and/or flag potentially inflated values. Any valid concerns regarding an appraisal must be resolved with the appraiser, and if an appraisal deficiency can’t be resolved, the original appraisal must be thrown out and a second appraisal must be obtained. In accordance with the Appraisal Independence Requirements, when there is a reasonable basis to believe that an appraiser or AMC is violating the law, the matter must immediately be sent to the relevant regulatory body in the state which the AMC or appraiser was operating in.
Global DMS can help in your risk assessment by providing your company with several high-quality AVMs that are fast and cost-effective. Our models use detailed local, regional, and national information to provide you with accurate valuations within seconds.
We take compliance very seriously here at Global DMS, and our line of industry leading products will always ensure that you and your institution remain compliant throughout the entire appraisal process. Contact us today to receive a free consultation, and put your compliance worries behind you.