The New World of Mortgage Compliance
Welcome to the mortgage industry’s new world, one that’s dictated by regulatory and investor criteria. These days, all eyes in the mortgage industry are on collateral valuation, which means that lenders are under even more pressure to make sure their decisions are based on rock solid appraisals—and that includes credit unions.
The good news is that by embracing technology, credit unions can easily and economically establish a powerful, watertight appraisal review and quality control program that ensures their appraisal reports are comprised of factual, compliant data. Good technology can provide a transparent audit trail for regulators and investors.
Some credit unions have been resistant to using new QC technology. They instead rely on their underwriters’ experience and market knowledge to perform the appraisal review function. Others farm out appraisal reviews and quality control to appraisal management companies. The issue is, there are inherent risks with both of these choices.
In the past, a manual QC process may have served you well. But these days, we’re dealing with more regulations, tighter guidelines, and a wide range of requirements for different investors. Violations can carry very serious penalties, not to mention the risk of buybacks.
Should your credit union be in the unfortunate position of being investigated for noncompliance or served with a buyback request, it must be able to demonstrate a sound, consistent review process to regulators and investors. That kind of a paper trail would likely be difficult to produce when you’re handling all of your reviews manually.
The Interagency Guidelines point out that lenders must "establish an effective, risk-focused process for reviewing appraisal and evaluations prior to a final credit decision." That means the burden of proof falls on the lender’s shoulders.
Bottom line, if you’re using a manual process, you’re exposing yourself to inconsistency. After all, even the best underwriters are only human. It’s virtually impossible for all of your reviewers to possess the same level of market and appraisal knowledge.
The beauty of technology is that it’s consistent. If an appraisal falls outside your traditional lending footprint, technology can apply the same consistent review as with any other appraisal. Even if you mandated that your staff of reviewers uses an appraisal review checklist to maintain consistency and transparency, attention to detail can wane.
Technology doesn’t fluctuate. It pays the same level of attention to reviewing an appraisal early in the morning, late in the day or even five minutes before closing time on a Friday.
Credit unions that rely on AMCs to perform appraisal quality control and review duties are essentially charging another company with keeping them compliant with all of the appraisal guidelines and regulations. Credit unions should thoroughly check the AMC’s review process to ensure it is in-depth and meets the same compliance criteria as in-house review.
If you want a review to protect you against buybacks and noncompliance, your AMC’s process needs to delve much deeper than simply verifying that all fields are complete. If you use a good review technology, you can customize the system to your credit union’s specifications. An AMC might opt for a standard review that it uses for all its clients.
Since the mortgage meltdown, regulators are also focusing more on the “red flags” that indicate potential valuation fraud. If your credit union opts to make the change to automated reviews, look for systems offering appraisal review report cards that issue warnings for potential fraud. These software programs contain algorithms that can review public record information, neighborhood trends and estimates of value to compare with an appraiser’s opinion of value.
Their other programs can apply your credit union’s appraisal review checklist in a full-scale collateral review process that can include a forensic review. Automated collateral review technologies can help streamline your appraisal review process and avoid the bottlenecks that can hinder loan production.
In today’s regulatory environment, credit unions need to protect themselves from the fees, fines and buybacks that can be caused by appraisal inaccuracies. With cloud technology, implementation times are faster than ever, and if you find a solution that charges on a per-transaction basis, you can be sure you’re only paying for what you use.
Credit unions don’t have to lose high touch service in the new world of intensified mortgage compliance. Adding high tech appraisal reviews to your arsenal of tools is a smart, cost-efficient way to add one more layer of protection, not only for you but also for your members.
Patti Recser is senior account manager with Platinum Data Solutions in Aliso Viejo, Calif.