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Inside the Valuation Nexus: Strengthening your valuation program to help limit losses, reduce costs, and deliver a positive customer experience

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Is your valuation program fulfilling its potential? Trying to control costs while reducing risk and keeping customers satisfied can be difficult. The valuation nexus gives you five components to help ...

Is your valuation program fulfilling its potential? Trying to control costs while reducing risk and keeping customers satisfied can be difficult. The valuation nexus gives you five components to help you get the balance right. By taking a more strategic approach to valuations, you can help limit the financial exposure on your real-estate assets—and boost their returns. More info: http://www.pwc.com/us/en/consumer-finance/publications/valuation-process-customer-experience.jhtml

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    Inside the Valuation Nexus: Strengthening your valuation program to help limit losses, reduce costs, and deliver a positive customer experience Inside the Valuation Nexus: Strengthening your valuation program to help limit losses, reduce costs, and deliver a positive customer experience Document Transcript

    • www.pwc.com/consumerfinance Inside the valuation nexus Strengthening your valuation program to help limit losses, reduce costs, and deliver a positive customer experience December 2012
    • Inside the valuation nexus Table of contents Introduction........................................................................................................ 1 The valuation nexus: balancing cost, risk, and the customer experience ....... 2 The current state of the valuation process ........................................................ 5 Achieving the valuation nexus ...........................................................................8 Planning ahead for a smooth transformation ................................................. 16 Getting started .................................................................................................. 17 How PwC can help ............................................................................................ 18 For more information ...................................................................................... 19
    • Introduction $1.3 trillion The dollar amount of mortgage originations expected to occur in 2013. Property valuations have long been one of a residential mortgage company’s first lines of defense in helping protect its assets, minimize losses, and make well-informed lending decisions. Now, as the housing market has rapidly transformed, property valuations have never played a more important role. Consider the following statistics:  $1.3 trillion in mortgage originations (including purchases and refinance activity) is forecast to occur in 2013.1  2.3 million properties are estimated to exist in the residential shadow inventory.2 This could translate into $411 billion in distressed assets across the industry.3 But despite their strategic importance, many valuation programs aren’t delivering the benefits that they could, leaving companies exposed to greater losses, higher operating costs, and in the case of originations, increased risk of customer dissatisfaction. Property valuations include appraisals, broker price opinions (BPOs), and automated valuation models (AVMs) used to estimate the value of a property. Why aren’t valuations fulfilling their intended purpose? In carrying out their valuation strategies, companies focus on three primary objectives: managing risk, controlling cost, and delivering a positive customer experience. But many organizations place an unbalanced focus on these objectives. The problem with this approach is in the trade-off: a gain in one area is often achieved at the expense of another. This constant push and pull prevents valuation programs from delivering longer-term, strategic benefits. 1 Mortgage Bankers Association, MBA 2013 Forecast: $1.3 Trillion in Originations; 2012 Revised up to $1.7 Trillion, 2012. 2 CoreLogic, CoreLogic Reports Shadow Inventory Continues to Decline in July 2012, October 26, 2012. 3 Based on national median home price in US of $178,600. The Wall Street Journal Online, Housing Market Posts Gains; Sales of Previously Owned Homes Rose in October, Supply of Properties Shrinks, November 19, 2012. Inside the valuation nexus 1
    • The valuation nexus: balancing cost, risk, and the customer experience To demonstrate the imbalance that can exist within today’s valuation programs and the results that can occur, consider the following examples: An imbalanced focus on the customer may result in:  Excess spending in an effort to please customers, which in turn drives up costs.  A focus on turnaround time and achieving a value in line with customer expectations, which can result in greater long-term loss exposure because asset protection isn’t prioritized. An imbalanced focus on cost containment can result in:  Increased risk exposure that stems from short-term cost reduction efforts that are ultimately outweighed by elevated long-term losses.  Development of a backlog in your valuation queue, which can impact customers with delayed closings.  Deterioration of valuation quality, which increases losses and impacts your customer base. An imbalanced focus on risk can result in:  An overabundance of caution that leads to ordering high-cost valuations on properties that may not represent an elevated risk, which in turn increases spending.  Ordering multiple valuations or performing multiple validation checks for the purpose of risk avoidance, which could delay the closing process, negatively impacting the customer experience. A mortgage company’s customers consist of borrowers who are purchasing properties as well as loan investors who have a stake in the financial performance of their portfolio. Inside the valuation nexus 2
    • The valuation nexus Now is the time to remedy this imbalanced focus and instead implement a strategy that balances cost, risk, and the customer — what we refer to as the valuation nexus. The benefits go far beyond a satisfied customer base, lower operating costs, and reduced risk exposure. It will also move your valuation program from a transaction-based approach to a strategic one. This in turn can help limit the financial exposure on the real estate assets your organization values as well as boost the returns they deliver. We’ve identified five components that will help companies attain this balance: (1) holistic governance, (2) a risk-based valuation strategy, (3) performance measurements and analytics, (4) quality and fraud controls, and (5) technology. These components are discussed in more detail in Achieving the valuation nexus on page 8. Inside the valuation nexus 3
    • A closer look: Why achieving balance across cost, risk, and the customer experience is more important than ever. Today’s market forces are placing more pressure on mortgage companies to proportionately meet their cost, risk, and customer goals. The stakes are higher — creating an opportunity for those companies that achieve the valuation nexus to gain a competitive advantage. Below, we explore the three components of the valuation nexus, how each is critical to success in today’s environment, and the market factors that are intensifying the urgency for equilibrium. Cost Mortgage companies spend a significant amount of money on valuations. Cost control is becoming both increasingly important and more difficult across the industry. Contributing factors include:  The rising cost of conducting business as a result of more stringent capital and liquidity requirements.  The cost to implement and maintain compliance with a host of new regulations and oversight. Risk Regulatory changes The last few years have ushered in a host of new regulations across the industry. As a result, regulators are now examining mortgage companies more closely to confirm their appraisal practices are meeting increasingly stringent regulatory requirements. Some of these regulations include:  The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).  Final Interagency Appraisal and Evaluation Guidelines (Interagency Guidelines) issued by federal financial institutions’ regulators.  Newly proposed regulations that would require an additional appraisal on mortgages that are considered high risk.4 This rule would apply if the seller is re-selling the property for a higher price within six months of when they purchased it. A high-risk mortgage is any first lien with an APR that is at least 1.5% higher than the average prime offer rate. The cost for the secondary appraisal would not be transferable to the borrower and would need to be absorbed by mortgage companies. Marketplace risks Managing risks related to valuations has become increasingly challenging in this difficult marketplace. For instance, in the robust residential sales markets of the past, comparable sales were easy to find, making the valuation process relatively straightforward. In today’s market, the lack of comparable sales in some regions has forced appraisal valuation professionals to rely more on residential listings versus actual sales, an issue that could result in less accurate valuations, exposing organizations to greater risk of valuation inaccuracy. Additionally, the proliferation of appraisal management companies (AMCs) has caused many in the industry to question whether quality is being sacrificed to achieve lower costs. Customer Consumers have never held more sway. They have more choices and significantly more influence than ever before. They’re sharing their experiences — good and bad — in real time through social communication channels. Positive customer experiences can translate into increased retention, referrals, and cross-selling opportunities, while the reputational damage of negative publicity can take organizations years to overcome. Meanwhile, regulators have raised the stakes. DoddFrank created the Consumer Finance Protection Bureau (CFPB), a federal agency responsible for overseeing and regulating consumer protection. The CFPB received more than 45,000 consumer complaints in its first year and has made it clear that origination practices are an area of focus.5 Mortgage companies are also responsible for meeting the needs of other stakeholders, including investors. In default liquidations, sophisticated investors and master servicers have been increasingly skeptical of valuations used to support liquidation values. In some instances, they’ve developed their own internal valuation models to challenge the values produced by servicers. CFPB, Consumer Financial Protection Bureau Launches Consumer Complaint Database, June 19, 2012. 5 Board of Governors of the Federal Reserve System, Agencies Issue Proposed Rule on Appraisals for Higher-Risk Mortgages, August 15, 2012. 4 Valuations
    • The current state of the valuation process To understand how to transform your valuation infrastructure to achieve the valuation nexus, it’s important to first examine the current state of many valuation programs across the industry. Today’s operating and economic environment presents challenges to even the best-run programs. Below, we explore some of the most common challenges that serve as obstacles to achieving balance in today’s valuation programs. Significant duplication Consider the following scenarios:  A home with a first mortgage and a home equity loan enters foreclosure. The same bank owns both loans, but because the mortgage department and the home equity department are working the property independently, the bank orders two sets of valuations on the same property.  A BPO is ordered on a short sale. The borrower is deemed ineligible for the opportunity, and the property is moved to real estate owned (REO) status. The REO department isn’t aware that a valuation was recently completed for the short sale transaction, and another set of valuation products is ordered to help set a market price on the property. These examples are not uncommon and underscore a prevalent issue banks are contending with: a lack of information sharing across the business caused by operating silos and valuation policies that are not uniform. The obvious consequence of duplication is excess costs. It can also cause customers to have a negative experience when it affects borrowers on the originations side of the mortgage life cycle. Inside the valuation nexus 5
    • Weakened governance Governance silos can weaken oversight and controls, potentially diminishing valuation quality and increasing financial and reputational risks. Inconsistent views of risk across the organization lead to differing policies across channels, business units, and even within functional areas. These inconsistencies make it increasingly difficult for executives to make well-informed, strategic decisions. Inconsistent credit policies can also contribute to cost overruns, increased risk, and a diminished customer experience. For example, policy inconsistencies often surface when customers come in through different channels and are subject to different valuation requirements. These policy differences often frustrate customers and can have a negative impact on the overall relationship. Companies have also struggled to achieve consistent governance over vendor management practices. As a result, some organizations use different valuation vendors in different parts of the company, and they often don’t score these vendors against predetermined expectations. Increasing fraud Fraud by the numbers    $3 billion – The cost of mortgage fraud in 2011. 31% – The increase in suspected mortgage fraud reports filed with the Treasury in 2011 compared with 2010.6 8% – The rise in property valuation fraud during the fourth quarter of 2011 compared with 2010.7 Mortgage-related fraud as a whole cost the industry a staggering $3 billion in 2011.8 The FBI cautions that the most prevalent schemes target foreclosure rescue, loan modifications, and short sales.9 The depressed housing market is an attractive environment for perpetrators who are now expanding their schemes beyond originations and eyeing the default servicing end of the mortgage life cycle. Mortgage fraud can be difficult to detect because it hides among the masses of valid transactions. But if examined carefully, fraud will begin to reveal telltale signs. To pick up on the signs of fraud, companies should have the right vendor oversight as well as sophisticated controls that can identify potential fraudulent valuations for analysis while not significantly slowing down the mortgage process. Companies also should adjust their fraud prevention practices by investing in analytics and sharing information across the enterprise, in order to keep up with the evolving threats targeting defaults. 6 www.fincen.gov, FinCEN Reports Mortgage Fraud SARs Increased in 2011 Even as Fourth Quarter Levels Decreased, April 23, 2012. 7 National Mortgage News, Be Wary of Short Sale Fraud, March 26, 2012. 8 MBA National Fraud Issues Conference 2012, Mortgage Fraud Schemes Every Lenders Should Know, FBI Mortgage Fraud Trends presented by Christa Lynn Greco, FBI Senior Intelligence Analyst, April 23, 2012. 9 www.fbi.gov, 2010 Mortgage Fraud Report. Inside the valuation nexus 6
    • Quality challenges The industry changes that have taken place over the past few years have underscored an important point: valuation quality is a fragile commodity that’s more difficult to achieve in today’s marketplace. For instance, the dependency on stale comparable sales or listings introduces more variability into the valuation process. And the rise of AMCs has contributed to a shortage of valuation professionals as many certified appraisers exit the profession amid pricing pressures. The result has been a smaller appraisal workforce to handle the demand, which sometimes requires professionals to work on appraisals outside of their areas of expertise. Additionally, as regulators tighten controls over valuation processes, they’re enacting stricter guidelines around quality. Dodd-Frank contains provisions that regulate appraiser independence and appraisal management companies. The Interagency Guidelines address supervisory matters related to real estate appraisals and evaluations used to support real estate related financial transactions. Regulatory examiners will analyze individual transactions to see whether the appraisals were developed with methods, assumptions, and value conclusions that were reasonable and consistent with the institution’s written real estate lending policies. Examiners will also analyze steps taken by institutions to make sure that those who perform the appraisals or monitor and assess the controls over the appraisal process are qualified, competent, and independent. Linear valuation decisions Deciding which type of valuation to use has historically been an operational decision based on where a property is in the mortgage loan life cycle. For instance, full appraisals are traditionally used for originations, AVMs for home equity loans, and BPOs for many loss mitigation and liquidation processes. But this type of decision-making process often results in ordering high-cost valuations for low-risk loans, which drives up costs. Conversely, it can lead to ordering low-cost valuations on high-risk loans, a problem that exposes the organization to an increased risk of losses. Capacity management Many organizations struggle with creating a scalable capacity management strategy to meet valuation demand as the market fluctuates. Without such a strategy, when appraisal activity peaks (for instance, during a refinance boom), vendors struggle to keep up with their valuation orders. The length of time to complete appraisals grows and costs go up as appraisals become outdated. Consequently, customers may walk away with a negative experience that they’ll remember when deciding which lender to do business with in the future, while potential production income will go unrealized. Inside the valuation nexus 7
    • Achieving the valuation nexus Adjusting your valuation program to strike the right balance between cost, risk, and the customer can advance the valuation beyond just a data point to a true differentiator that is mutually beneficial to your company and your customers. This approach can result in returns through increased quality, lower costs, more satisfied customers, and decreased risk exposure, providing a tangible advantage in a market with reduced margins for both error and profit. The following components can help companies achieve the valuation nexus. Although the components should remain the same, the way they’re applied in each organization will vary depending on your company’s current level of balance as well as its strategic goals. Inside the valuation nexus 8
    • Achieve holistic governance In an industry that has seen a great deal of change in such a short time, fragmented governance is a natural offshoot. But as the industry moves forward, it’s imperative to augment valuation governance and oversight so it’s managed holistically across the enterprise. Companies should have a centralized team that’s responsible for governance and oversight of valuations across the organization. This central group should focus on quality, compliance, and uniformity across the company; sharing and leveraging information; and eliminating duplicate or conflicting practices. This team should:  Make sure each business unit is using the same approved vendors.  Institute consistent performance metrics to assess valuation quality.  Facilitate valuation-related information sharing across the organization.  Develop and maintain consistent policies and procedures across departments.  Institute uniform risk thresholds across the business, as well as rules related to exceptions. Create protocols that govern departmental ownership Companies should consider implementing protocols that determine which area will handle the valuation process when multiple business units are involved. For instance, in the earlier example where two valuations are ordered on the same foreclosure property by both the first mortgage department and the home equity department, a clear ownership roadmap can serve to reduce the redundant work and excess costs that result in this type of scenario. Reassess the triggers that lead to a valuation As a property progresses along the default life cycle, it usually triggers a valuation order. But the decision to order a valuation when a property moves to a new stage often occurs in a vacuum, without considering the timing of the last valuation that was performed on the property (with the exception of valuations that are driven by investor requirements). This is illustrated in the following common scenario: A property is moved to REO status, but a valuation was completed 60 days prior while in the foreclosure process. However, the transition to the REO unit leads to another valuation order even though the previous valuation is still valid. The results: added time before the property can be marketed, additional costs, and the need to reconcile the duplicate valuations. Inside the valuation nexus 9
    • Companies should aim to create a process that carries valuation data forward with each property as it moves throughout the servicing life cycle and is handed off to different units. With this holistic perspective, organizations can make well-informed decisions regarding which properties are in need of a valuation. How holistic governance will help achieve the valuation nexus Cost  Short-term increase in cost to establish infrastructure followed by a long-term, sustainable decrease in cost by: – Reducing unnecessary valuations. – Having valuations that may reflect collateral value more accurately. – Reducing instances of multiple valuation points, thereby requiring fewer resources to reconcile values. Risk  Increases consistency in decisions made throughout the life cycle.  Reduces risk by developing robust and consistent practices across the organization. Customer  Limits valuation charges passed on to borrowers.  Expedites decision-making timeframes by preventing unnecessary re-ordering.  Eliminates charges for unnecessary valuations.  Creates consistency of experience. Adopt a risk-based valuation strategy Mortgage companies have traditionally determined the type of valuation product to use based on what their existing procedure dictates without giving enough consideration to risk factors (such as loan-to-value ratio or a property’s location in a high-fraud area). A risk-based valuation strategy uses the property’s risk exposure as the primary input when choosing the appropriate valuation product (see Figure 1). For instance, a risk-based strategy would call for a full appraisal on a high-cost property that exposes you to greater losses, because an appraisal tends to provide the most accurate valuation. Conversely, an AVM could be used on lower-cost or lower-balance loans where the financial exposure is minimal. When the type of valuation product that must be used isn’t optional, such as in the originations process, the use of a second analysis or other data points to verify a property’s value should be a risk-based decision. Inside the valuation nexus 10
    • Figure 1: Use a risk-based strategy to determine which valuation method to use How a risk-based strategy will help achieve the valuation nexus Cost  Valuation spending is better aligned to the risk exposure of the subject loan and property. Proper selection of the valuation type can prevent overspending on valuations.  A clearer alignment of cost and risk can reduce unnecessary spend on low-balance valuations. Risk  A risk-based approach can reduce risk exposure and/or serve to mitigate losses on high-risk assets. Customer  In the case of REO properties, investors can benefit through improved execution decisions on high-cost loans, which can result in increased recoveries and decreased marketing timeframes. Inside the valuation nexus 11
    • Develop performance measures and analysis It’s important to establish a performance measurement and monitoring framework to assess the quality of valuations from internal and external sources. This will help meet regulatory compliance requirements and achieve the right balance in your valuation program. An emerging practice we’ve observed includes not only scoring appraisal companies, but also individual appraisers. Examples of criteria to consider in the performance measurement and monitoring framework include:  Does the valuation report contain enough detail to support the adjustments and deductions included in the determination of values?  Is the extent of research, analysis, and adjustments/discounts consistent with valuations received from others for similar property types, market conditions, and geographic locations?  Is the scope of the valuation report received consistent with terms of the engagement letter for a transaction with the related risk and complexity profile?  Was the appraisal received within the agreed-upon time frame?  Did the appraisal process require undue consultation between the appraiser and the organization?  In looking back on subsequent transactions, what was the variance between the estimated market value and the actual transaction proceeds?  When looking at multiple instances of valuation reports received, are there observed trends in generic information included within the valuation reports? When measuring performance, metrics associated with quality and depth of support for adjustments and deductions, the timeliness of completion, and the extent of research and analysis used should be given more weight. The assessment process should be performed on a quarterly basis, and each appraiser should be evaluated at least every 12 to 18 months. If the results are outside of the acceptable range, advise the appraiser of the assessment and agree on an action plan to remedy the variances based on the terms outlined in the service level agreement or engagement letter. Internal audit should also periodically assess the appraisal process to verify that it meets professional and confidentiality standards. Inside the valuation nexus 12
    • How performance measures and analytics will help achieve the valuation nexus Cost  Overall valuation costs can go down as a result of building economies of scale with high-performing appraisal providers. Risk  Awarding work to high-performing appraisers instead of poor-performing ones can minimize risks. Customer  Shorter decision timeframes help improve customer satisfaction. Develop impactful quality and fraud controls Fraud management If left unchecked, fraud can chip away at overall valuation quality, taking a potentially serious financial and reputational toll. Taking strategic steps to prevent fraud can lower the risks to your company and preserve the integrity of your valuation infrastructure. Leading practices include:  Understanding which geographic regions and property characteristics are most susceptible to fraud, and then tailoring prevention efforts to stem fraud in these high-risk areas.  Establishing the appropriate level of vendor oversight by: – Using only vendors that are on the organization’s approved vendor list. – Ensuring assignments are randomly generated. – Performing analyses and quality checks on appraisers. – Tracking properties you suspect might have suspicious activity (such as price setting) to see if the same appraiser is involved. Significant swings in valuation require further analysis Consider the following scenario: A valuation on a foreclosure property is assessed at $100,000. The property moves to REO status 90 days later. A new valuation assesses the property at $150,000. This variance should trigger a follow-up for further analysis to determine if the discrepancy is an indication of potential fraud, or if an error occurred. If it’s the latter, there should be processes in place to determine an accurate valuation by ordering different or more sophisticated valuation products. Inside the valuation nexus 13
    • Backtesting As a preventive measure, organizations should consider developing backtesting frameworks that look at data points in the valuation life cycle and analyze the performance trends of those data points to identify potential risks. Examples of backtesting scenarios include:  Comparing valuations to transaction prices on comparable properties.  Comparing the variance between the vendor valuation and the actual transaction price on the property.  Comparing variance between valuation product types (i.e., accuracy of AVMs compared with appraisals). Capacity controls It’s critical to identify scenarios that require you to move certain appraisals to the front of the queue, and communicate these requirements to your vendors. For example, regulatory requirements dictate specific time frames for mortgage decisions. In addition, some situations require accelerated valuation responses (for instance, a short sale or REO property that has an interested buyer with an immediate occupancy need). A prioritization scheme can allow you to identify exceptions that need special handling based on regulatory timelines or unique customer circumstances. How impactful controls will help achieve the valuation nexus Cost Increased responsiveness to unique situations that lead to optimal liquidation results. Risk Improved adherence to required regulatory timelines. Customer Increased satisfaction levels for those customer situations that warrant special handling. Inside the valuation nexus 14
    • Bringing it all together: Invest in the right technology The valuation nexus requires the right technology that will enable you to capture, store, share, and analyze information about your valuation program, including the ability to:  Reduce duplicate valuation orders by storing valuation history based on loan numbers/property addresses so each department can see the information associated with the property’s valuation history (storing valuation data in a central, accessible location has additional benefits, such as serving as a repository for comparable valuations for nearby properties).  Standardize and centralize valuation ordering, for instance through a valuation ordering portal.  Store policies and procedures as well as approved vendor lists for use across the organization.  Categorize and record properties’ risk thresholds to help carry out a risk-based valuation strategy.  Analyze data stored in the system for potential signs of fraud.  Provide automated controls over valuation data integrity.  Monitor and improve valuation quality.  Enable compliance with internal procedures and regulatory requirements. As organizations invest in new technology, stakeholders from across the organization should help determine the business requirements so that one unified solution can be designed and developed to minimize the initial cost of implementation. When determining the right technology to use, keep in mind that bolt-on or in-house systems provide short-term, less-costly solutions, but often require workarounds or manual validation processes that end up costing more than they save. How the right technology will help achieve the valuation nexus Cost Reduces duplication, drives consistency with risk-based strategy, and minimizes the costs of maintaining and validating valuation data. Risk Uses the valuation product that meets the most onerous need within the organization and eliminates the variances between multiple valuation products and techniques. Customer Creates a consistent experience for the customer through standardization and uniform processing time. Inside the valuation nexus 15
    • Planning ahead for a smooth transformation Making the adjustments necessary to achieve the valuation nexus won’t be without challenges. But these challenges can be overcome more easily when you know what obstacles to expect and have a plan to work through them. Following are common challenges that organizations might face and leading practices to overcome them. Challenges How to overcome the challenge Initial net investment (technology) vs. short-term cost pressures Involve the appropriate stakeholders and use a cost-benefit analysis for a disciplined approach. Breaking down silos (linking originations, servicing, and REO departments) Establish and enforce policies that require departments to share valuation information through an easily accessible source. Establish cross-functional valuation oversight teams to share challenges and needs in real time. Redesign of policies and procedures Perform a formal inventory and analysis of existing valuation policies and procedures and compare it with leading industry practice. Balance key policy decisions based upon considerations of cost, risk, and the customer. Change management (developing a flexible process) Work with the compliance department to get their perspective on newly emerging regulatory requirements. Take action based on operational breakdowns. Execute a periodic risk and control assessment for valuation practices. Meeting regulatory requirements (including requirements for vendor management) Design robust quality control and quality assurance practices that focus on areas of heightened risk and on maintaining compliance with key regulatory requirements. Inside the valuation nexus 16
    • Getting started The last few years have brought about rapid transformation for residential mortgage industry participants. Regulatory, economic, and consumer influences have each left an indelible mark on the industry. As companies move forward, they operate in an environment where increased expenses and decreased servicing margins are the norm. Achieving the valuation nexus can provide an opportunity to reduce long-term costs, limit risk exposure, and improve the customer experience. The transition to the valuation nexus will be a process of incremental change. It should start with an end-to-end assessment of your currentstate valuation processes to identify existing gaps. Based on these gaps, you can then develop a plan that will help your organization balance cost, risk, and customer needs so your valuations are doing their strategic job of limiting financial exposure and improving returns. Inside the valuation nexus 17
    • How PwC can help PwC has worked with large and small financial institutions to help establish end-to-end residential valuation frameworks and enhance existing valuation processes. We can help your organization with the following: Valuation How PwC can help competencies Valuation process diagnostic  Execute a diagnostic of current-state valuation practices and identify areas of relative strength and weakness.  Develop recommendations and work with management to produce long-term action plans in pursuit of the valuation nexus. Valuation risk management and oversight  Define and implement risk management frameworks such as valuation policies and procedures that govern independence, evaluation versus appraisal decisions, reconciliation criteria, useful life, compliance, and quality reviews.  Perform gap analyses for existing risk management frameworks between current valuation policies and procedures and those prescribed by regulatory guidance. Valuation quality  Develop analytics-based valuation quality assessments that include backtesting of useful life, post-transaction monitoring of re-sales, and other performance monitoring techniques. Internal valuation database  Assist companies in leveraging baseline valuation data via an enterprise-wide database that can be queried for internal comparative purposes, including: – Assess feasibility of an enterprise-wide database. – Define business requirements and specifications for the database. – Develop extraction and reporting requirements for business users. – Develop data collection requirements. – Develop requirements for supporting valuation quality. Risk-based valuation processes  Develop and implement risk-based valuation policies and procedures and effective internal control structures over these processes. Valuation model risk management  Develop a model risk management program for vendors as well as internally developed valuation models and tools.  Assist with development and execution of valuation model and validation procedures. Third-party appraiser independence  Establish oversight policies and procedures for the selection and validation of appraiser independence. Inside the valuation nexus 18
    • For more information PwC Consumer Finance Group contacts Martin Touhey Principal 206 790 8751 martin.e.touhey@us.pwc.com Carlos Brunet Senior Manager 203 539 3857 carlos.brunet@us.pwc.com Ron Freeman Senior Manager 415 498 8481 ron.freeman@us.pwc.com John Beyer Manager 716 481 6773 john.beyer@us.pwc.com Brian Rudzik Manager 312 298 3140 brian.rudzik@us.pwc.com Follow us on Twitter @PwC_US_FinSrvcs Inside the valuation nexus 19
    • www.pwc.com/consumerfinance © 2012 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.