Press
Appraiser selection called out as a major risk for lenders
Recent Office of the Comptroller of the Currency bulletin warns that lenders are ultimately responsible for third-party vendors, including appraisers they select
POMONA, CA (November 8, 2013) — Banks and mortgage lenders that use third-party companies to manage appraisals are cautioned to choose these vendors carefully, as regulators will hold lenders responsible for any misdeeds by appraisers as well as the quality of their work, explained Keith D. Murray, MAI, president and CEO of PCV Murcor, one of the nation’s largest providers of real estate valuations. This comes on the heels of an Office of the Comptroller of the Currency (OCC) bulletin recommending new risk management guidelines for national banks and federal savings institutions regarding relationships with third party vendors, including appraisal management companies (AMCs).
Concerned about the increasing reliance of financial institutions on third-party vendors for critical tasks, the OCC stated in a press release last week that it “expects more comprehensive oversight and management of third-party relationships that involve critical bank activities,” and laid out steps for doing so. Following the release of the bulletin, in a panel discussion hosted by the Collateral Risk Network (CRN), an industry group comprised of lenders, government agencies, Wall Street firms, AMCs and appraisers, panelists made it clear that appraiser selection is, bar none, the single most important part of appraisal assignment and completion. The panelists further warned that the lender is ultimately responsible for an appraiser’s work.
The OCC bulletin, “Third-Party Relationships: Risk Management Guidance,” laid out steps lenders should take to manage risk with their third-party relationships, including identifying inherent risks; performing proper due diligence in selecting a third-party provider; conducting ongoing monitoring of the third-party’s activities and performance; maintaining property document and reporting; and conducting independent reviews of the risk management process. The OCC said it will pursue enforcement actions to address violations of the law and unsafe practices by the lender or its third party, and has the authority to assess special fees against lenders when it finds transgressions in the activities of their third party providers.
“As a company that has made appraiser selection and assignment a core component of everything we do, we agree with the OCC’s new recommendations,” said Murray, whose company provides appraisals for some of the mortgage industry’s largest lenders and servicers. “Appraisal quality begins with the appraiser, and when the right appraiser is selected, the downstream risk is minimized tremendously.”
According to Murray, AMCs should be using a blend of technology and licensed staff appraisers to thoroughly analyze and score every appraisal before sending it on to their client. This continual monitoring provides the foundation to ensure they have the best appraisers on their panels and the appropriate appraiser is selected for every order. Critical factors in the assignment process include the appraiser’s knowledge of the property type, knowledge of the neighborhood, proximity to the subject property, and the appraiser’s record of performance. “Too often, we hear of appraisers being chosen on the basis of just one of those factors, or just the lowest fee, which can actually be a recipe for disaster,” Murray said. “AMCs should be looking at all these different data points and selecting appraisers based on how well they match up to a specific appraisal order. The simple fact is that not all appraisals or appraisers are alike. Every market and every property require different competencies. As an example, appraising a $200,000 tract home versus a $500,000 custom home in a gated community may require two different appraisers with specialized knowledge and specific skill sets.”
“The federal government is serious about the issue. As an appraisal provider, and for the benefit of our clients, we are giving this our full attention. And, frankly, we think the industry as a whole should as well,” Murray said. “There has been a lot of focus on appraisal compliance, fees and reviews, and clearly these issues are important to making sound collateral decisions. But everything starts with appraiser selection, and lenders should be questioning and auditing their AMCs to ensure they are with the right partner — the financial and reputational risks are just too great.”
For more information visit www.pcvmurcor.com.
About PCV Murcor
For over 30 years, PCV Murcor has provided real estate valuations for the country’s largest lenders, servicers, brokers and insurers. Founded by Keith Murray, MAI — who continues to serve as President and CEO — PCV Murcor is focused on delivering credible valuations and broker price opinions (BPOs) on a broad spectrum of commercial and residential properties. The company offers a full slate of real estate valuation products and consulting services, and prides itself on both the accuracy and the high quality of the valuations and customer service it provides all clients. The company was founded in 1981 and is based in Pomona, California. For more information, visit www.pcvmurcor.com.