Modern residential lending requires much tighter focus on compliance and valuation standards than ever before.
Prior to the inception of the Home Valuation Code of Conduct in May of 2009, credit unions typically did not sell loans backed by primary residential real estate to the GSEs, and thereby felt no need to be concerned regarding compliance. Similarly, banks that portfolio their residential mortgage loans assumed the risk without fear of compliance issues.
With the sun-setting of the HVCC this past November and the introduction of Appraisal Independence Requirements within the Dodd-Frank legislation, any institution lending on primary residential property is required to comply not only with Dodd-Frank, but also with the much broader scope of the Inter-Agency Guidelines as well.
This process marks a significant change from the nature of home valuations and appraisal standards and requires an immense commitment to upholding new regulations.
For a growing number of credit unions, managing this process in-house is becoming cumbersome and expensive, with many uncovered costs associated with poor quality appraisal reports and autonomy requirements. Ultimately, an appraiser’s fee will be slashed in order to compensate for this additional burden on resources. Unfortunately, lower appraiser fees are directly related to lower quality reports and inadequate turn-time on appraisal reports, eventually affecting the bottom line.
Most lenders try to cover these costs with an application fee, processing fee or just absorb it in their overhead. Managing the process internally spreads the department’s cost over the entire membership, which negatively affects dividends for all members.
Credit unions are known for keeping the cost of lending to an absolute minimum by providing lower interest rates on loans and maximum dividend benefit to members on their share savings accounts. Because of this, looking outside the institution for appraisal management could prove to be a cost-effective and efficient option – and one that supports newly implemented regulatory requirements.
There is potential in outsourcing for an institution to minimize overhead costs, which increases the potential for a higher dividend to the overall membership. Although the cost of the loan will increase to the member obtaining the loan, the member will benefit from higher dividends: loans get to closing faster with lower turn times, higher accuracy and reduction in revisions.
The credit union movement is committed to lower costs and higher dividends for members. This drives credit unions to uncover the most accurate, cost-saving solutions that will enable them to pass along those savings to members.
Dodd-Frank has launched credit unions into a new era of residential lending, one with tighter regulatory scrutiny. It is at this point that it becomes imperative for credit unions to build the appropriate answer to appraisal independence standards, and one that optimizes benefits to members.