Is Your HVCC Solution the Best Choice for Your Company?

Is Your HVCC Solution the Best Choice for Your Company?
The four questions you need to consider

The Home Valuation Code of Conduct was designed to set forth guidelines that govern appraisal-related activity for loans sold to Fannie Mae and Freddie Mac. In an effort to reduce the risks associated with the appraisal process, most of the stipulations focused on ensuring objectivity in ordering real estate appraisals. Here are four questions you should ask yourself about how your company is handling HVCC.

1. How do you know if your organization chose the right solution for HVCC compliance?

The key to effective workflow management is utilizing a system that addresses your unique needs so you can deliver impeccable service to your clients. At any time, extensive proof of compliance may be required. For an in-house management solution, this could include: external audits, copies of written HVCC compliance policies, quality control procedures, organizational charts, and employee roles and responsibilities. Working with an AMC is an instant way to provide compliance on loans that are critical to your core business.

For example, Flagstar Bank requires that you can either use an AMC exclusively OR provide:

• Audited company financial statements indicating a net worth of equal to or greater than $1,000,000
• Organizational chart that indicates who will be ordering appraisals
• Copy of appraisal ordering employee’s job responsibilities and job description
• Copy of company’s most recent articles of organization
• List of other lenders with which you are an approved HVCC correspondent
• Copy of written HVCC policies and procedures
• Proof of an external audit trail
• Copy of Appraisal Quality Control procedures

The key disclosure written throughout the requirements is that these are all absolved if you are using an AMC exclusively.

2. What if you want to keep your existing appraiser relationships?

Some AMCs offer a hybrid option where appraisal workflow is managed utilizing your existing appraiser fee panel. US Appraisal Group, an AMC available in Encompass, will re-qualify and import your approved panel of appraisers and rotate assignments. This arrangement can preserve your local appraiser relationships while providing instant compliance.

Several banking clients have found that having an AMC manage their existing fee panel can actually lead to better appraisal quality and lower costs. Because AMCs manage appraisers as their core competency, they are able to offer additional benefits, not to mention saving bankers an immense amount of time that could be used to generate revenue.

3. What if we went with an AMC and are unhappy with the service and quality levels?

Management companies have been criticized for putting quality last and shifting the cost of the appraisal to lenders and borrowers. But it is the lender, not the management company, that determines the appraisal fee. Management companies can adopt “lean” business models such as the one used by US Appraisal Group, where the appraisers can be compensated around market rates. When contracting services with a management company, several lenders have negotiated nationwide pricing, which allows the management company to recuperate costs in some market areas but forces a loss in others. When the fees are negotiated at lower rates, it is most advantageous for the management company to work with low-cost appraisers, who are sometimes less experienced than higher-priced appraisers in the same market area.

How can lenders resolve this issue?
Engage management companies that pay market rates to appraisers or charge a management fee instead of forcing appraisers to agree to a fee-split arrangement. Most of the time, this can be done without any significant additional cost to the lender. With this structure, appraisers are compensated at fair market rates and are more likely to provide quality appraisals that meet guidelines.

4. What if we are committed to managing the process in-house?

Following are some guidelines for ensuring in-house compliance:

• Can you prove that your entire loan production staff and anyone monetarily incentivized by the loan process does not identify, select, retain, communicate or compensate the appraiser?
• Are your in-house staff members independent of the loan process “appropriately trained and qualified in the area of real-estate appraisals?”
• Do you verify appraisal licensure and conduct ongoing audits for licensing and E&O insurance?
• Do you have written policies and procedures addressing each element of the Code and including disciplinary policy for selection, instruction, communication and compensation of each appraisal assignment?
• Can you prove that appraiser removals from your approved list are done with written notice and well-documented reasoning?
• Do you ensure timely appraiser payment regardless of the file outcome?
• Can you prove the borrower receives a free copy of appraisal within three business days of closing?
• Are you reviewing appraisals for USPAP compliance and storing the review with the finished appraisal and engagement letter?
• Can you prove that no estimate of the subject property’s value, proposed loan amount, or proposed loan-to-value ratio, was provided or communicated to the appraiser?
• Can you guarantee that additional appraisals on the same subject are only ordered if the original appraisal had errors or omissions that are adequately documented as per your written policies and procedures?
• Are you randomly selecting 10% of your appraisal files for objective quality control and objectivity testing?
• Are appraiser disciplinary matters documented and communicated to licensing agencies or other relevant regulatory bodies?
• Can you represent and warrant the process on every applicable loan?

Unsure which solution is best for you? Get a complimentary needs’ analysis

All Encompass users are being offered a complimentary needs’ analysis of their current appraisal solution with no obligation from US Appraisal Group. Our analysts will profile your existing appraisal solution to determine areas of non-compliance or areas where a more efficient system could be utilized. The data is then analyzed based on hundreds of other lenders and presented to you in a format that can be used by your management team to make immediate decisions about this critical area of your business. All the analysis is done with no obligation to work with US Appraisal Group or any other management company as sometimes the best solution is to handle the process in-house. USAG can also provide recommendations of ways to best leverage Encompass’ tools and services to ensure solid compliance and peace of mind.

Phone (888) 580-USAG for your complimentary needs analysis today! Or visit us online at usappraisalgroup.com/your-needs.