appraisal compliance: quality assurance and ecoa

1Mercury Network by a la mode

Critical appraisal compliance update:

Quality control and appraisal disclosures


L ender

AMC AMC Appraiser

Mercury NetworkCloud-based vendor management platform, connecting more than 600 lenders and AMCs to their appraisal vendors.


Mercury NetworkMercury Network is part of a la mode, the leading software provider for the residential real estate industry.

We’re also the company that produces the leading formfilling software for appraisers, used by more appraisers than all other brands combined. You’ve probably seen our name at the bottom of your reports.


ExperienceMore than 600 of nation’s largest lenders, AMCs, and mortgage technology providers rely upon Mercury Network’s backbone to power half of the nation’s residential real estate transactions, and deliver over 20,000 appraisals a day.


Appraisal quality assurance

Consistency, accuracy, efficiency, and compliance


Appraisal QC: An overview of the requirements

Fannie Mae’s July Selling Guide Announcement requires:

• A documented QC program that incorporates systems and processes for achieving your QC standards

•Your program must specify the location of QC findings and all related QC documentation (a QC audit trail)

•You must develop severity levels to categorize defects•You must report QC findings monthly to senior management



Fannie Mae’s UCDP portal continuously expands to include warning messages and future hard stops for:

• Questionable condition and/or quality ratings• Inconsistent condition and/or quality ratings between

reports by the same appraiser, and eventually between multiple appraisers



Dodd-Frank’s appraisal rules, section 1472 require common sense, consistent appraisal quality control and review.

Freddie Mac also requires a quality control review on appraisals in their Appraiser Independence safeguards.



FDIC requires consistent quality control procedures for appraisals. See their Statements of Policy, section XVII.


Appraisal QC: Institutional risks

You’ve already read the scary headlines about the penalties for non-compliance. They range based on the violation, but they’re all calculated on a per-violation, per-day basis, and punitive and civil damages are added to the top. It’s not a pretty picture.

Compliance issues aside, the lack of a consistent, transparent appraisal QC process results in unnecessary institutional expenses, significant reputational risk, dead deals, and poor lending decisions. An inadequate appraisal QC system dramatically affects underwriting too, stretching already understaffed departments too thin.


How’s your QC process???

10Warning signs


10:You use multiple AMCs

If every AMC has a different QC process, how will you ensure consistency and transparent due diligence documentation? Mandating consistent processes across all your AMCs is necessary.


9Divisions or branches

have different processesDo your branches, divisions, or credit lines use the same solutions?

Do they have consistent underwriting standards? You need transparent QC consistency.


8You have no documentation

Your appraisal QC process could be excellent. But without documentation and audit trails on

every file, you can’t prove it to examiners.


7You order extra valuation

products just to cover yourselfExtra products don’t QC anything, but just provide additional data. When ordered on every report whether warranted or not, the expense adds up.


6You often send reports back to

your AMC with questionsIf your AMC isn’t documenting their due diligence for you, you could be

wasting time going back and forth with questions.


5Each underwriter QCs

a little differentlyWithout systemic consistency, you have

inherent reputational and compliance risks.


4You’re asking underwriters

to be appraisal expertsIf your underwriters are reviewing the entire appraisal report rather

than just exceptions, they’re processing much slower and less effectively than they could be.


3Your revision count is high

If you’re looking at the QC of each appraisal independently and not leveraging solutions for common issues across your entire process

to prevent repeat issues, growth will be difficult.


2Deals are dying because of

valuation issuesHow do you manage this and identify potential problems when the loan is originated? Valuation issues are consistently cited as

one of the biggest risks to closing.


1Your appraisal QC checklist

lives in someone’s headWhen an examiner asks about your appraisal QC process and the appraisal desk manager just gives a wink and taps their head like

“it’s all in here”, you might be in trouble.


So you need a new process, but change is hard.

Every organization has experts who resist change, especially considering the compliance risks today. Here’s a key question to help overcome this:

“You do a tremendous amount of QC work on every file. How do we prove it to examiners and investors?”

This is where a system with automatic audit trails will help. It memorializes all the QC work done and travels with the loan file.


Regulations are still being formed. Should you wait for everything to be finalized before you make changes?

No. Rapid and continual change are the only constants in our industry lately. Instead of desperately trying to keep up with new investor guidelines and regulations, you need a flexible system in place that will let you make changes as regs and risk tolerance evolve.


Delivering appraisals to the borrower

Compliance and efficiency


The CFPB says:

Borrowers must receive copies of all appraisals the lender obtains, before three days prior to closing.


The new ECOA Valuations Rule:

Effective January 18th, 2014

“A creditor shall provide an applicant a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. A creditor shall provide a copy of each appraisal or other written valuation promptly upon completion, or three business days prior to consummation of the transaction.”


What does the CFPB consider an appraisal or other written valuation?According to the CFPB, a “valuation” is any estimate of the value of a dwelling developed in connection with an application for credit.

• An appraiser’s report• A document your staff prepares

that assigns value• A report approved by a GSE for

describing to the applicant an estimate of value

• AVMs• BPOs


Don’t forget: GLBA

You can’t send appraisals to borrowers using traditional e-mail.

• Violates consumer privacy laws

• Penalties are $10,000/day per instance

• Must use secure delivery methods if sending electronically

This free white paper takes an indepth look at GLBA and appraisals: www.MercuryVMP.com/GLBA


Traditional solution: Certified mail

• Too slow: Certified mail takes 3-5 business days, and can impact your compliance

• Expensive: Approximately $7 per send

• Confusing: When do you send it? Sooner or later?


Technology is the solution...

• Two out of three people in the US use e-mail (Adults account for 87% of all US e-mail users*)

• Appraisals are delivered electronically already

• Most borrowers are technically savvy enough to receive and open an appraisal sent electronically

*eMarketer.com Newsletter, March 4th, 2013

BUT...


The new ECOA Valuations Rule and The E-Sign ActIf sending electronically, you must:

• Get and document their consent first

• Provide hardware and software requirements for successful download of the appraisal

• Prove borrower can access the report

• Get time and date stamps to prove compliance to examiners


Appraisal eDisclosure compliance checklist

If sending electronically, you must:

• Have a secure method, no simple e-mail attachments allowed

• Send it before three days prior to closing

• Get their consent first

• Provide hardware and software requirements

• Prove the borrower can access the report

• Get time and date stamps to prove compliance later


Technology solution for appraisal QC:

Appraisal Quality Management (AQM)


AQM: A comprehensive quality assurance tool

An integrated QC workflow system:

• Rule automation (ours, yours, or a combination of both)

• Integrated QC checklists

• Integrated/structured revision requests to the appraiser

• Incurable items documented for lender

• Scores provided for intelligent routing



Common uses:

• Verify that all appraisals across all vendor channels are evaluated consistently and transparently

• Verify and record that the appraisal has been checked against required external data sources

• Provide proof that incurable items have been identified• Eliminate the need for costly valuation validation reports when

the property or loan doesn’t warrant them• Route complicated assignments to experienced underwriters• Reduce or eliminate revision requests from underwriting• Refute buy back claims based on the documented QC process



Over 650 rules that include checks for:

• Completeness• Compliance• Comparables• Reconciliation• Site• Market and neighborhood• Appraiser eligibility• Accuracy• Valuation

RULE EXAMPLES


The AQI: Your QC due diligence documentation

Provides incurable items for faster underwriting and serves as documented proof the appraisal was QC’d.

97

73

79

50

Completeness Index: Low Risk

About This Report

Accuracy Index: Moderate Risk

Value Index: Moderate Risk

Per appraisal, foreclosure sales are a factor in the market.

�Closed�comparable�sales�adjusted�value�range�is�greater�than�15%.�This�is�likely�due�to�a�miss�valued�market�influence�which�leads to a less reliable opinion of value. Wide range of adjusted values is a value concern. Recommend an additional comparable to tighten range. If none available, per ap-praiser, recommend a field review. There are not two comparables that have sold in the last ninety days. Appraiser did not provide comps within 90 days yet 1004mc shows 19 sales. This is a concern.

�The�appraiser�made�a�large�single�line�item�adjustment�of�over�10%�of�the�subject’s�opinion�of�value. Pool adjustment to comps 1 and 2 are 15% of overall value and comp 2 without this upward adjustment has a lower opinion of value. This is a concern.

The�appraiser�made�a�Condition�line�item�adjustment�of�over�10%�of�the�subject’s�opinion�of�value.Large condition adjustment, but still adjusts to low end of range.

The comparable sold range on the top of page 2 does not fall within the neighborhood one-unit housing price range.Inconsistent market results.

5 SE 13th St. Deerfield�Beach,�FL�33441

Appraisal Quality Index

The�appraiser�made�a�large�single�line�item�adjustment�of�over�10%�of�the�subject’s�opinion�of�value.� Pool adjustment to comps 1 and 2 are 15% of overall value and comp 2 without this upward adjustment has a lower opinion of value. This is a concern.

The Completeness Index electronically evaluates your appraisal for missing data critical to the most educated risk assessments. In addition, the appraisal is thoroughly checked for blank fields that could impact underwriting and closing schedules, formatting issues that could affect agency and non-agency investor acceptance, fields required for specific report types, and more.

This comprehensive score provided with this report is compiled by analyzing the risk factors from the five appraisal quality index factors shown below. Each index is scored with dozens of salient, weighted rule sets that determine areas of risk for your consideration. The report will help you determine if your appraisal requires additional review, or further due diligence. This report is designed to help lenders and other stakeholders make better valuation decisions by providing a comprehensive, independent third party review of your appraisal report.

The Accuracy Index scores your appraisal based on a thorough check of variables that impact the accuracy of the data contained in your report. Examples include consideration of value adjustments, relevance of comparable properties, confirmation of data with outside information sources, and more.

The Value Index considers additional data and information to assess the reliability of the value the appraiser assigned to the subject property. Examples include proximity of comparables, recent market sales, marketing time, zoning restrictions, and more.

Provided Courtesy of AXIS APPRAISAL MANAGEMENT SOLUTIONS 2 of 3

Property Risk Index

Market Risk Index

Accuracy Index

Value Risk Index01 02 03 04 05Completeness

Index

Borrower Name Bob and Ellen SmithAppraiser Name John WatsonProduct Name URAR (Form 1004 - UAD Compliant)Assignment Type RefinanceAppraised Date 03/11/2013Sale Price N/A

$138,000Prior PricePrior Date

Appraised Value

06/01/08 $127,000

Appraisal Quality Index

5 Southeast 13th StreetDeerfield Beach, FL 33441

Calculated: Five Appraisal Quality Index Factors

Comments AQI Scoring System

Property Risk Index

Market Risk Index

97 79

Accuracy Index

Value Risk Index01 02 03 04 05

97 79 50

This comprehensive score provided with this report is compiled by analyzing the risk factors from the five appraisal quality index factors shown below. Each index is scored with dozens of salient, weighted rule sets that determine areas of risk for your consideration. The report will help you determine if your appraisal requires additional review, or further due diligence. This report is designed to help lenders and other stakeholders make better valuation decisions by providing a comprehensive, independent third party review of your appraisal report.

1 of 3

CompletenessIndex

73

This appraisal needs additional substantiation.

This appraisal measures at lower risk.

This appraisal may need additional substantiation for full collateral value decision.

80-100

50-80

0-50

Overall Score


Appraisal Quality Management (AQM)

Let’s see it in action...


Technology solution:SureReceipts


• Instant: Borrower receives the file instantly, no waiting

• Far less expensive: It costs only 50¢ per document

• Comprehensive: The required borrower acknowledgements are automated for you, and recorded in the audit trail

• Reliable: The solution has already applied over 7.2 million compliant eSignatures

SureReceipts:


SureReceipts

Let’s see it in action...


Do you need to send hundreds or thousands of documents to borrowers?

No problem.• SureReceipts is exposed as

an open API • Solution can be integrated

into any platform or existing system


Getting started is easy: Quick Start Guide

Need help? Call us anytime. 1-888-794-0455

Quick Start Guide: Using SureReceipts

for compliant eDisclosuresSureReceipts™ is an eDisclosure compliance solution for securely sending documents to

borrowers. Lenders and AMCs using Mercury Network have this tool built in to their platform.

However, the tool was made available to the entire industry for compliance in February of 2014.

To use SureReceipts to send compliant eDisclosures:

1. Create a Mercury Network account. It’s free, and it will provide your secure login to SureReceipts.

Go to https://Secure.MercuryVMP.com/SignupWiz.aspx to sign up now.

2. There is a 50¢ charge for each eDisclosure sent through SureReceipts. Add a credit card to

your account, or you can sign up for monthly billing by calling 1-800-434-7260. To add a

credit card, log in to your account at www.alamode.com/myaccount, click Mercury Network

on the left, select New Card, and fill out your information:

Go to http://help.alamode.com/docs/5500.htm for step-by-step instructions on adding a credit

card to your account.

• No implementation fees or minimums

• Download the Quick Start Guide here: http://alashort.com/1ggXctF

• Your first 10 sends are FREE, and each send after that is just 50¢


Questions

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appraisal compliance: quality assurance and ecoa

Documents

modeappraisal qc

compliance6mercury network

different qc process

related qc documentation

inadequate appraisal

location of qc findings

documented qc program

qc standardsyour program