In-House Appraisal Management
A lender may in fact order appraisals directly from an Appraiser in an HVCC compliant manner. Before making the decision to move forward with an internal Appraisal Management Department, one must understand the complexities involved in developing and managing the Department. In order for the Department to be successful, you will have to employ the proper staff, develop a proprietary MIS and create the necessary policies and procedures. Implementing these systems comes at a cost.
The expense of setting up an internal Appraisal Management Department can be excessive. Particularly for a small to moderate size organization.
In order to manage the processes internally, you will need at a bare minimum;
Staff – Must be an individual or individuals that are not considered Loan Production Staff. Loan Production Staff as defined by the Office of the Comptroller of the Currency – “The loan production staff consists of those responsible for generating loan volume or approving loans, as well as their subordinates. This would include any employee whose compensation is based on loan volume. Employees responsible for the credit administration function or credit risk management are not considered loan production staff.”
System – A secure proprietary MIS that will manage the processing of the appraisal orders in an efficient and HVCC compliant manner. There are many providers for off the shelf systems that will efficiently manage the order processing. The typical system / service provider will have annual fees in addition to per order fees. The annual fees typically range from $2,000.00 to $4,000.00. The per order fees can range from $4.00 to over $20.00 per appraisal report.
Policies and Procedures – You will need a staff member and / or Attorney that has thorough knowledge and understanding of the HVCC, its rules and regulations. This individual will need to continually monitor the GSE’s and the IVPI for any and all changes, revisions, etc… The information and any interpretations thereof will need to flow to the staff managing the internal processes.
Generally speaking, the costs of the above outline are lender specific and an unknown. The research and business plan models that we have prepared for several of our Clients estimates cost as compared to net revenue to be on the average 3.5%. This is based on - a profit margin of approximately 18%, a very efficient Appraisal Management Department assuming low to average costs and expenses for computer systems, MIS software, transaction processing fees and moderate staff salaries.
Let’s use the below assumptions to create a generic forecasting model;
Conv. Loan Volume = $90,000,000.00 / month, average loan amount = $250,000.00 = 360 loans / month.
Gross Revenues = 2% of loan volume = $1,800,000.00 / month
Net Revenues = 18% of Gross Revenues = $324,000.00 / month
ABC Mortgage; Appraisal Management Department
Staff: 1 Administrator / Manager = $50,000.00 / year = $4,167 / month + FICA and Benefits = $800.00 / month = $4,967.00 / month X 12 = $59,604.00 / year
System:
Computer & equipt. = $1,800.00 one time fixed
Software = $2500.00 / year
Transaction Fees = $15.00 each X 360 loans / month = $5,400.00 / month X 12 = $64,800.00 / year
Policy and Procedure Maintenance: Assuming you consult an Attorney for set-up and HVCC review etc.. Let’s assume 5 hrs for set-up + 2 hrs / month for changes, up-dates etc. = 29 hrs at a rate of $190.00 / hr = $5,510.00 / year
Office Space = 200 square feet @ $12.00 / sq. ft. = $2,400.00 / year
Based on the above assumptions, the gross expense for the Department is $136,614.00 / year
Dept. Exp. / Net Revenues = % of Net revenue
$136,614.00 / $3,888,000.00 = 3.51%+/- of your net to run your internal AMD.
As previously stated, an internal Appraisal Management Department is feasible. Notwithstanding the expense as outlined above, one must consider the additional liabilities of maintaining the Department. Is the Department in fact performing its duties in accordance with the HVCC and IVPI?
The administrator will be responsible for:
· Managing the Code, any and all revisions of the Code as well at the IVPI
· Preparing for the annual audit
· Managing the Appraiser Panel - Keeping the Panel up to date with licenses, E&O information and coverage area.
· Research and provide for out of area Appraisers
· Collecting and accounting for appraisal fees from the Borrower
The position should be handled by an individual that has significant compliance experience.
So what is the alternative to the expensive, and increasingly complex task of managing the appraisal process in house?
Employ the services of Appraisal Logistic Solutions (ALSI) to manage the appraisal processing for you at no additional expense, hassle or liability.
· Managing the Code - We are experts in managing the appraisal process in an HVCC compliant manner. We constantly monitor Fannie Mae and Freddie Mac for any and all new information, rules and / or regulations regarding the Code. We immediately implement and changes and forward all information on to our Clients. Keeping our clients in compliance is our primary concern!
· Preparing for the annual audit - We store and maintain your files and paper trail as evidence to prove HVCC compliance for audit purposes.
· Managing the Appraiser Panel - We regularly audit our client's Appraiser Panel to make sure their licenses, E&O information, and coverage are up to date, and ensure their ASC status.
· Research and provide for out of area Appraiser - We have an extensive nationwide network of pre-qualified Appraisers. We can provide our Clients with Appraiser's that meet, or exceed their individual internal requirements with regards license level, years of experience, and E&O coverage limits.
· Collecting and accounting for appraisal fees from the Borrower - ALSI can collect all fees. We assume the responsibility of ensuring Appraiser payment, and the associated bookkeeping.
AlSI is run by appraisal and mortgage industry professionals. We have the knowledge, and real world experience, to handle the complexities of managing the appraisal process and HVCC compliance.
The following are excerpts from the HVCC to be considered when deciding to manage the appraisal process internally. The full HVCC document is available on our website, www.gotoals.com
· “The lender and any appraisal company or any appraisal management company providing the appraisal to the lender has adopted written policies and procedures implementing this Code of Conduct, including, but not limited to, adequate training and disciplinary rules on appraiser independence (including the principles detailed in Part I of this Code of Conduct) and has mechanisms in place to report and discipline anyone who violates these policies and procedures”.
· “The lender’s appraisal functions are either annually audited by an external auditor or are subject to federal or state regulatory examination, and, unless prohibited by law, the lender promptly provides to Fannie Mae or Freddie Mac the results of any adverse, negative, or irregular findings of such audits and examinations indicating non-compliance with any provision of this Code of Conduct, whether or not the examination was conducted for the purpose of determining compliance with this Code of Conduct”.
· “A lender shall certify, warrant, and represent that the appraisal report was obtained in a manner in compliance with this Code of Conduct. If the Enterprise determines, on its own or from a referral made by the Institute, that a lender is in breach of a material aspect of this Code of Conduct or in violation of a provision of the Code by a complaint referred from the Institute, the Enterprise will enforce all applicable rights and remedies, including suspension or termination of the lender’s eligibility to sell loans to the Enterprise, if the lender fails to remediate”.
Assumed Employee Requirements
· Must have a full and complete understanding of the HVCC/IVPI.
· Must be appropriately trained in the area of real estate appraisals
· Must have a working knowledge of appraisal quality control and USPAP
· Make sure the Borrower receives a copy of the appraisal report 3 business days prior to closing or signs the required waiver document.
· May not directly or indirectly report to a supervisor or officer of the company who may be involved in loan production.
· Must keep all information secure and separate from loan processing during the appraisal assignment process through assignment completion.
· Must insure no one involved in loan production has access to or communicated with the appraiser prior to completion of the assignment.
