By Charlie W. Elliott Jr., MAI, SRA, ASA
Appraisal Review Goes High-Tech This month’s column is the first of three installments that I am writing to bring attention to and to extol the virtues of the three most-commonly used appraisal review reports as a quality control tool. These tools are:
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NationalMortgageProfessional.com
MortgageCompanySpecialist@amertoner.com
OCTOBER 2010
www.amertoner.com
NEW MEXICO MORTGAGE PROFESSIONAL MAGAZINE
loans, require specialized review attention. A few of them will require a lot of review and scrutiny. I would go so far as to say that the 80/20 rule is alive and well in the appraisal review business. Said another way, it is probable that 20 percent of the appraisals require 80 percent The Electronic Appraisal Review, of the review resources invested by a bank The Desk Review, and for a given lot of loan applications. The The Field Review. process of resource allocation and the directing of scrutiny toward specific They are listed in the order of the appraisals requiring the most attention least comprehensive to the most com- can be an onerous one. prehensive. This series of How does one determine columns is designed to which of the appraisals repassist the reader in makresent the 20 percent that ing the proper decision as cause most of the heavy liftto which review tool is ing? How do we tell if a best for a given situation. given appraisal justifies a lot With all the concern of review time and expense? today about the mortgage Those in charge of the meltdown and what appraisal review budget caused it, much discussion may be interested to learn has been focused on the that there is a safe and ecoaccuracy of appraisals. nomical way to perform While we would all agree reviews without betting the that there are many confarm on each deal. It is “Realizing that the tributing factors to one of called the Electronic bank must make an the largest banking disasAppraisal Review and is an investment in the ters in history, the real electronic screening tool quality of its estate appraisal undoubtthat serves to identify the edly deserves its share of appraisals is one thing. qualities that are out of sync How much should be with the norm or the typithe blame. While there are many different types of invested is this quality cal. Electronic review tools shortcomings associated control another.� are offered by a number of with appraisals, most can mortgage IT companies, be detected with a proper appraisal including ACI and FNC. These review sysreview. It is the responsibility of the tems only work on standard appraisal financial institution to monitor the quali- forms, such as the Fannie Mae 1004 (stanty of all appraisals it uses in connection dard) or its 2055 (drive-by) formats. They with its collateralized loans. hone in on the fields of each form and This responsibility does not come address each part of the appraisal with without a monetary cost. Realizing that what are called rules. If a field does not the bank must make an investment in the conform to the pre-prescribed rule, it will quality of its appraisals is one thing. How receive a demerit for that part of the much should be invested is this quality appraisal. The demerits are cumulative control another. It would be very easy to depending what field a rule is broken in. for a bank spend more on the review of Some review systems have their own foran appraisal, than it did for the appraisal mula that is used to grade an appraisal. itself. These costs manifest themselves in Some fields carry more weight than others. a variety of ways, including office over- Once the review is complete, depending head, technology services, staff costs and upon the software program, a decision can review appraisers. More than half of the continued on page 14 appraisals, considered for collateralized