This piece originally appeared in the January 2022 edition of MReport magazine.
As lenders work to add needed efficiencies to their back offices, the appraisal process is getting heightened attention.
While most aspects of mortgage fulfillment can be fixed with digitization, automation, and artificial intelligence, the appraisal process is a bit more complicated. It’s the only part of mortgage fulfillment that relies on an actual person going to a physical location at a specific date and time. And while automated valuation models (AVMs) have come a long way, they are unlikely to fully replace the role of human intelligence for more complex appraisals. Thus, appraisal is not just a technology challenge but a logistics challenge as well.
In order to gain more control, many lenders are choosing to bring ownership of the appraisal process back in-house. Depositories and independent mortgage banks often maintain control of this important department already, but now we’re seeing wholesale lenders take the process out of the hands of their brokers to handle in the central office. It’s that important.
While choosing to manage a direct panel of appraisers rather than working exclusively with AMCs can offer many benefits to lenders, this approach introduces challenges as well. From pipeline management to compliance and everything in between, it’s important for lenders managing their own appraiser panel to be proactive about their appraisal operations.
For lenders who take this path, here are seven questions to answer that will set the foundation for appraisal department efficiency.
1. Can You Quickly Identify Risks in Your Pipeline?
Good pipeline visibility reveals potential problems before they become serious. For example, appraisals that are overdue, appraisals with outstanding communication from the appraiser, or orders that have yet to be accepted should all be immediate red flags.
While it can be challenging during periods of high loan volume, appraisal managers must have their fingers on the pulse of the operation at all times. Powerful appraisal management technology can help a lot with this, providing real-time visibility, robust pipeline management, and automated alerts. Note: The Loan Origination System (LOS) usually has no functionality to provide complex appraisal management pipeline visibility.
Providing transparency into the pipeline also reduces staff work, as they will spend less time informing stakeholders of the loan’s position in the workflow.
Good appraisal management software will allow lenders to avoid problems while they preserve borrower satisfaction and keep loan officers sourcing new business instead of worrying about missed closing dates.
2. Is Your Order Allocation Efficient?
Order allocation is one of the areas where technology can play a pivotal role in creating efficiency and shortening turn times for lenders. While lenders might have a natural inclination to want to control the selection process and ensure the proper matching of appraisers, the latest algorithm-based technology presents faster and more accurate ways of accomplishing this.
Getting the job accepted by a qualified appraiser and into production quickly is critical. Efficiency reduces cost and takes time out of the process, but it cannot come at the expense of compliance.
For compliance, it’s important that the appraisal department is aware of the individual appraiser’s credentials including licensing and agency approvals, as well as certifying that their documentation is on file and up to date.
3. How Are Your Appraisal Vendors Performing?
Regardless of how the appraiser performs, lenders must have a way to measure the appraiser’s performance against their established performance standard. Vendor scorecards have been in use in our industry for quite some time, but it’s even better to have a scoring mechanism built into the appraisal department’s technology platform.
While appraisers are independent, and compliance with state and federal laws requires that they remain so, modern technology can help give lenders visibility into the status and potential delays. For example, a loan officer could receive an automated notification informing of a potential delay, which would allow them to either troubleshoot or reset expectations with the borrower.
Over time, these scores will give lenders useful information that can help create a more efficient appraisal process. For instance, if the data shows that certain appraisal vendors can complete certain products at a higher level of service or produce higher quality results, they can be given priority with allocation decisions.
4. Do Stakeholders Get the Right Information at the Right Time?
Everyone agrees that effective communication and transparency is a requirement for success, especially in collateral valuation. This applies to all of the key stakeholders involved, including a lender’s appraisal vendors, loan officers, and borrowers.
Good communication goes beyond logistics and expectation setting, as it impacts a lender’s overall reputation. Buyers, sellers, and agents all want to know how the deal is progressing, and good technology can provide updates without human intervention.
It starts with setting clear expectations around the amount of work each appraiser can expect to receive, as well as setting guidelines for the quality of service the lender expects. Likewise, it should be easy for appraisers to communicate back to the lender’s appraisal desk.
5. Are You Maintaining Compliance?
Lenders must keep compliance in mind as the loan progresses through every step of the origination process to avoid hefty penalties. Appraisal management is no exception. Ensuring that the appraiser selection process is compliant and operating within applicable regulations and policies is one of the core functions of this department.
When a lender manages their own appraisal panel, it means that the company is taking responsibility for adhering to all compliance standards and requirements. There are many reasons that lenders are willing to take on this additional risk, as maintaining long-standing relationships that provide mutual benefits, increased efficiency, and increased control can benefit lenders and borrowers alike.
Fortunately, modern appraisal management software offers built-in features to help lenders maintain compliance. Without such technology, it could easily take a full team of compliance professionals to mitigate noncompliance risk. For these reasons, few lenders will attempt to manage this function manually.
6. Are You Wasting Time With Payment Processing?
It’s in every lender’s best interest to pay their appraisers in a timely and automated manner, if nothing else, to strengthen the partnership. Happy and compensated appraisers will be more motivated to stay loyal to that lender while delivering work quickly and efficiently.
For many lenders, this is an overly complex and tedious process. Accounting teams often have to manually cut checks on thousands of transactions, which adds time and expense to the process. This also puts the lender’s relationship and reputation with the appraiser at risk, if payments fall behind. Loan officers, in particular, tend to find the payment process tedious.
Modern appraisal management software can automate this process, tracking the fee amount and sharing data with the LOS to ensure accurate disclosure to borrowers. The software can tell if the fee a vendor requests exceeds the amount disclosed to the borrower to temporarily stop the deal and alert the department. Perhaps most conveniently, the system can collect fees directly from the borrower, without human interaction.
7. Do You Have a Great Technology Partner?
Everything we’ve mentioned in this article could be accomplished manually, in theory, by a well-trained team in the appraisal management department. But it would have to be a large team. Staffing is incredibly difficult today and even if it wasn’t, the costs would be too high.
A better solution is available through technology, but the tool is only part of the investment the lender is making. The people behind the technology are at least as important and so choosing the right technology partner is critical for success.
In our experience, lenders will only get the full benefits of these process improvements if they employ modern appraisal management software. That’s really the master key that unlocks each of the best practices mentioned in this article.
Fortunately, that software is available today, in use in the industry, and proven to help lenders capitalize on all of these best practices.