REQUIRED READING: With tighter restrictions and new state and federal regulations, many lenders are feeling their freedom being taken away one regulation at a time. But even with the Dodd-Frank Act and the new Interagency Appraisal and Evaluation Guidelines looming over the industry, lenders still have the freedom of choice when it comes to how they manage their appraisal processes.Â
Lenders can stay compliant, whether they manage their processes in-house, start their own appraisal management company (AMC) or outsource to an independently owned AMC. If you're wondering which option is best for your company, take a few moments to review the pros and cons of each option.
Let's start with the do-it-yourself approach. One of the most obvious benefits of an in-house appraisal management program or a company-owned AMC is control. After all, it is much easier to keep a close watch on operations that are run and staffed by your own employees – you obviously cannot do that with someone else's company.
Aside from control, there are also financial considerations. With an internal solution, lenders can charge an appraisal administration fee that would normally be charged by an AMC to manage the appraisal order process. Ensuring that all tasks and activities are completed according to guidelines and regulations takes effort – which, of course, translates into added costs – and the administration fee helps to cover those additional expenses.
Lenders that start their own AMCs are not able to charge a separate administration fee, but they benefit from an additional revenue stream created by the profits generated from their new operation.
There is also another financial consideration for lenders that keep their processes in-house or start their own AMCs: New guidelines will mandate that AMCs register with every state in which they are conducting appraisals. State registration fees can range from a few hundred dollars to over $5,000, with fines and fees for noncompliance reaching $10,000 to $20,000 per day. However, according to the Dodd-Frank Act, lenders and lender-owned AMCs are exempt from this requirement.
However, there are some serious considerations involved here. Lenders that opt to keep an in-house appraisal process or establish their own AMCs will need to staff the department or organization, create new processes and implement new technologies.
As far as the logistics of the technology itself, lenders will need to decide whether they want a hosted or non-hosted solution. A hosted solution can keep lenders from having to hire and staff an information technology administrator, which can be a huge headache-saver. With a non-hosted solution, the company will likely have to purchase a license for the appraisal process management software – in addition to hiring an administrator.
While lenders are interviewing their technology providers, it is crucial to ask if these providers' technology handles the new data-delivery requirements. Also, the new technology provider should have a SAS 70-certified facility with strong redundancy procedures and, if possible, a secondary facility that is at least 500 miles away from the primary facility. In-house technology should also be easily integrated with the lender's loan origination system, support some level of automated review and be connected to the Appraisal Subcommittee's site to verify appraiser licensing.
Outside the office
Lenders that outsource this function are able to gain convenience at a reduced cost, at least where start-up costs are concerned. Getting started with an independent AMC is generally straightforward. After going through the paperwork and logistics of becoming a client, the lender has no new technologies to implement, no additional personnel to hire and, of course, no added employee-related costs, such as heath insurance and employment taxes.
But that does not mean that they can just hand this off to another company and assume everything will be fine. Lenders seeking an outsourced AMC should treat that company's management the same way they would research a technology vendor that would set up an internal operation. In addition to asking basic questions, such as how the AMC handles quality and compliance, lenders should also inquire about issues like the security of their data and the AMC's redundancy procedures.
Every AMC should also have errors-and-omissions insurance up to $2 million. Find out what the AMC's insurance policy stipulates, along with what it does and does not guarantee. If an outsourced AMC is out of compliance, that violation will ultimately come back to the lender.
In addition, the industry is putting a significant focus on state registration. If an AMC is not registered but does business within a certain state, that compliance violation will fall onto the lender's shoulders. Dodd-Frank Act requirements state that reviews must meet Uniform Standards of Professional Appraisal Practice guidelines, and the government-sponsored enterprises must have mandates for the way appraisal data must be delivered.
There is no one-size-fits-all answer to appraisal management. Lenders have unique appraisal needs and challenges, and they have the ability to address those nuances in the way that works best for them.
Vladimir Bien-Aime is CEO and co-founder of Global Data Management Systems LLC, based in Landsdale, Pa. He can be reached at (877) 693-8722.