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The hard lesson the mortgage lending industry has learned over the past several years is that property valuation is key to portfolio stability, and that lending is not just a credit question anymore. With more regulatory uncertainty on the horizon, accurate documentation and reasonable conclusions regarding current market property value are more important than ever for both good decisioning today and a defensible position tomorrow.

To offset the risks and challenges associated with reviewing and analyzing an appraisal, originators, servicers and appraisal management companies need to begin moving beyond simply completing a manual, administrative check on appraisal quality. Instead, it is imperative for mortgage professionals to implement strategies that will allow them to perform a comprehensive and defensible interrogation of a property valuation by implementing advanced review solutions that complete consistent reviews based on specific business rules, leverage automation technology to quickly determine the best allocation of resources and deploy additional intelligence for improved accuracy, productivity and efficiency.

Review Every Appraisal Based on Specific Business Rules and Compliance Requirements

It is essential to ensure that every appraisal goes through the same standardized review process that enacts each of your business rules consistently, objectively and appropriately. Automation is the key to doing so. While it is important not to eliminate the value of a human review, a manual process simply cannot account for every element required for an acceptable, comprehensive evaluation of an appraisal. Instead, manual efforts should focus on resolving problematic, true exceptions to be most efficient and effective.

To highlight this, just consider the myriad of metrics that must be evaluated to assess how well sales comps meet your requirements, the accuracy of sales comp adjustments, and whether the appraiser used the right trends and assumptions in assessing local market conditions (to complete the 1004MC). The calculations needed to truly evaluate appraisal quality on these components can quickly move into the hundreds. The potential for errors or simply missing certain parts of the evaluation is huge. This makes an automated solution the only viable approach to ensure the review is completed consistently and accurately

Leverage Automation and Technology

Along with consistently deploying business rules across all appraisals, advanced review technology can also quickly prioritize a review queue to identify appraisals with major problems requiring a full review from those that meet predetermined requirements. With this knowledge, it is easier to know where to deploy the resources of an experienced review staff more effectively. In the end, this saves time, and more importantly, it saves money as your very expensive review resources are spending their time evaluating the most suspect appraisals.

For example, DataQuick research has shown that when deploying the company's automated review process, the percentage of appraisals requiring only a summary review, as opposed to a more detailed, full-line-item review, ranges from 33% for customers with more stringent review requirements all the way to 70% for those with more lenient standards. Even with a more stringent approach, the savings with knowing that even 33% of appraisals do not require a deep dive is substantial.

Deploy Additional Intelligence

In addition to validating the key components of an appraisal, next generation review solutions must also deliver relevant intelligence to all appraisal stakeholders to boost accuracy, productivity and efficiency. The mass amount of information available to mortgage professionals today allows them to leverage additional intelligence to ensure the accuracy of every aspect of the appraisal, including ensuring sales comp adjustments are reasonable, ensuring reported market conditions are realistic, ensuring the appraised value is reasonable and defensible, and making sure subject property and sales comp characteristics are accurate.

The challenges are substantial in ensuring all aspects of the appraisal are thoroughly evaluated, and given recent regulatory requirements, future efforts will be even more challenging. However, the advances being made in deploying additional intelligence through more comprehensive, smarter appraisal review solutions will allow mortgage professionals to nail the assessment and, ultimately, protect themselves from future risk.

Credit: By Randy Wussler

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