Flawless Underwriting Relies Heavily on Sound Appraisal Review. What Lenders Need to Do to Ensure Both

Flawless Underwriting Relies Heavily on Sound Appraisal Review. What Lenders Need to Do to Ensure Both

August 24, 2018

Flawless Underwriting Relies Heavily on Sound Appraisal Review. What Lenders Need to Do to Ensure Both

The role of an underwriter is to assess facts underscored in an appraisal report and establish the most credible value of a property. The accuracy of the appraisal report, therefore, plays a crucial role in helping the underwriter make up his mind on the risks involved in offering a loan. This, therefore, entwines the two in such inextricable ways, that an error in one invariably leads to an error in another, thereby leading to catastrophic outcomes. To steer clear of such a possibility, it falls upon the lender to ensure that the mortgage appraisal process consists of a thoughtful analysis of all factors that influence the property value followed by a thorough and critical review of the appraisal report to identify possible deviations.

HUD ML 1994-54: “lenders must accept responsibility equally with the appraiser for the integrity, accuracy and thoroughness of the appraisal and will be held accountable by HUD for the quality of the appraisal.

What Lenders Need to Do Ensure High Quality Appraisal

The quality of an appraisal report depends a lot on the quality of the appraiser hired by a lender. Though each lender is free to determine what makes for adequate training and qualifications, at a minimum, the lender should judge them by their understanding of Freddie Mac’s appraisal requirements, appraisal regulations and enforcement, and the Uniform Standards of Professional Appraisal Practice. Some of the salient requirements include:

  • • License to appraise property in the state where the property is located
  • • Experience in appraising similar property
  • • Performance review in the last licensing cycle
  • • Check the average turnaround time of the appraiser and ensure its reasonable
  • • Knowledge of market area so that they have right access to data sources

Guidelines for specific appraiser selection criteria:

  • • Fannie Mae Selling Guide §B4-1.1-03: Appraiser Selection Criteria
  • • Freddie Mac Single-Family Seller/Servicer Guide §44.3: General appraisal requirements

With a quality appraiser it is possible to get a report with quality features such as:

  • • Strong comparable sales selection
  • • Consistent comparable sales adjustments
  • • Acceptably addressed repair items
  • • Property meets minimum FHA Property Requirements
  • • Addresses all concerns related to neighborhood
  • • New construction requirements are met

What Lenders Need to do to Ensure High-Quality Review

A lenders job in procuring accurate appraisal report remains incomplete until he picks a qualified underwriter to interpret the report. While even in this case, a lender is free to determine what makes for adequate qualifications for an underwriter, but at a minimum the underwriter must be trained and should be aware of market trends in order to determine if an appraiser’s opinion of value is strictly in keeping with the market value. Like the appraiser, it is important for the underwriter to be acquainted with Uniform Standards of Professional Appraisal Practice, Freddie Mac appraisal requirements and other applicable laws.

An underwriter familiar with appraisal practice is always better equipped to compare the appraiser-provided comparable sales against a range of sales transactions in the same market area. As a result, the underwriter can spot deficiencies with ease and question the appraiser on the report. This can go a long way in enhancing the quality of the report.

Areas of an Appraisal Report that an Underwriter Helps to Improve:

  • • Completeness of Report
  • • Correct Usage of Forms
  • • Correct photos to support property value
  • • Opinion of Market Value Supported
  • • Consistency of Report in terms of Adjustments
  • • All Requisite Attachments/Addenda
  • • Compliance with UAD requirements
  • • The Report Meets the Applicable Lending Standards

Besides these, lenders need to use automated valuation models (AVMs), particularly ones recommended by Freddie Mac, to measure the accuracy of the appraisal. These include Home Value Calibrator, Home Value Explorer etc. as well as other collateral valuation tools. For instance, Freddie Mac’s automated underwriting system, Loan Prospector can flag overvalued properties and prod lenders for a second review or more careful consideration. Further lenders need to instate policies and procedures for the valuation processes which should include an escalation and revaluation process when a tool puts a question mark on an appraised value.

While ensuring all of these can fortify a lenders mortgage origination process, the effort that goes in can be halved by outsourcing back office requirements to an expert third-party service provider. EMAs expert appraisal and underwriting review services is based on strong controls and multi-stage checks to eliminate all risk components involved in these two critical stages. Talk to our experts now to know how we make your process error-free and consistent.

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