Critical appraisal compliance update: Quality control and appraisal disclosures

1. Critical appraisal compliance update:
Quality control and
appraisal disclosures
Mercury Network by a la mode 1

2. Mercury Network
Cloud-based vendor management platform, connecting more than 600
lenders and AMCs to their appraisal vendors.
Lender
AMC AMC A pprai ser
Mercury Network by a la mode 2

3. Mercury Network
Mercury Network is part of a la mode, the
leading software provider for the residential
real estate industry.
We’re also the company that produces the
leading formfilling software for appraisers,
used by more appraisers than all other
brands combined. You’ve probably seen our
name at the bottom of your reports.
Mercury Network by a la mode 3

4. Experience
More than 600 of nation’s largest lenders, AMCs, and mortgage
technology providers rely upon Mercury Network’s backbone to
power half of the nation’s residential real estate transactions, and
deliver over 20,000 appraisals a day.
Mercury Network by a la mode 4

5. Appraisal
quality assurance
Consistency, accuracy, efficiency, and compliance
Mercury Network by a la mode 5

6. Appraisal QC: An overview of the requirements
Fannie Mae’s July Selling Guide Announcement requires:
• A documented QC program that incorporates systems and
processes for achieving your QC standards
• Your program must specify the location of QC findings and
all related QC documentation (a QC audit trail)
• You must develop severity levels to categorize defects
• You must report QC findings monthly to senior management
Mercury Network by a la mode 6

7. Appraisal QC: An overview of the requirements
Fannie Mae’s UCDP portal continuously expands to include
warning messages and future hard stops for:
• Questionable condition and/or quality ratings
• Inconsistent condition and/or quality ratings between
reports by the same appraiser, and eventually between
multiple appraisers
Mercury Network by a la mode 7

8. Appraisal QC: An overview of the requirements
Dodd-Frank’s appraisal rules, section 1472 require common
sense, consistent appraisal quality control and review.
Freddie Mac also requires a quality control review on appraisals
in their Appraiser Independence safeguards.
Mercury Network by a la mode 8

9. Appraisal QC: An overview of the requirements
FDIC requires consistent quality control procedures for
appraisals. See their Statements of Policy, section XVII.
Mercury Network by a la mode 9

10. Appraisal QC: Institutional risks
You’ve already read the scary headlines about the penalties for
non-compliance. They range based on the violation, but they’re
all calculated on a per-violation, per-day basis, and punitive and
civil damages are added to the top. It’s not a pretty picture.
Compliance issues aside, the lack of a consistent, transparent
appraisal QC process results in unnecessary institutional
expenses, significant reputational risk, dead deals, and poor
lending decisions. An inadequate appraisal QC system
dramatically affects underwriting too, stretching already
understaffed departments too thin.
Mercury Network by a la mode 10

11. How’s your QC process???
10 Warning signs
Mercury Network by a la mode 11

12. 10:
You use multiple AMCs
If every AMC has a different QC process, how will you
ensure consistency and transparent due diligence documentation?
Mandating consistent processes across all your AMCs is necessary.
Mercury Network by a la mode 12

13. 9
Divisions or branches
have different processes
Do your branches, divisions, or credit lines use the same solutions?
Do they have consistent underwriting standards?
You need transparent QC consistency.
Mercury Network by a la mode 13

14. 8
You have no documentation
Your appraisal QC process could be excellent.
But without documentation and audit trails on
every file, you can’t prove it to examiners.
Mercury Network by a la mode 14

15. 7
You order extra valuation
products just to cover yourself
Extra products don’t QC anything, but just provide additional data. When
ordered on every report whether warranted or not, the expense adds up.
Mercury Network by a la mode 15

16. 6
You often send reports back to
your AMC with questions
If your AMC isn’t documenting their due diligence for you, you could be
wasting time going back and forth with questions.
Mercury Network by a la mode 16

17. 5
Each underwriter QCs
a little differently
Without systemic consistency, you have
inherent reputational and compliance risks.
Mercury Network by a la mode 17

18. 4
You’re asking underwriters
to be appraisal experts
If your underwriters are reviewing the entire appraisal report rather
than just exceptions, they’re processing much slower and
less effectively than they could be.
Mercury Network by a la mode 18

19. 3
Your revision count is high
If you’re looking at the QC of each appraisal independently and not
leveraging solutions for common issues across your entire process
to prevent repeat issues, growth will be difficult.
Mercury Network by a la mode 19

20. 2
Deals are dying because of
valuation issues
How do you manage this and identify potential problems when
the loan is originated? Valuation issues are consistently cited as
one of the biggest risks to closing.
Mercury Network by a la mode 20

21. 1
Your appraisal QC checklist
lives in someone’s head
When an examiner asks about your appraisal QC process and the
appraisal desk manager just gives a wink and taps their head like
“it’s all in here”, you might be in trouble.
Mercury Network by a la mode 21

22. So you need a new process, but change is hard.
Every organization has experts who resist change, especially
considering the compliance risks today. Here’s a key question to
help overcome this:
“You do a tremendous amount of QC work on every
file. How do we prove it to examiners and investors?”
This is where a system with automatic audit trails will help. It
memorializes all the QC work done and travels with the loan file.
Mercury Network by a la mode 22

23. Regulations are still being formed. Should you
wait for everything to be finalized before you
make changes?
No. Rapid and continual change are the only constants in
our industry lately. Instead of desperately trying to keep
up with new investor guidelines and regulations, you need
a flexible system in place that will let you make changes as
regs and risk tolerance evolve.
Mercury Network by a la mode 23

24. Delivering appraisals
to the borrower
Compliance and efficiency
Mercury Network by a la mode 24

25. The CFPB says:
Borrowers must receive copies of all appraisals the lender
obtains, before three days prior to closing.
Mercury Network by a la mode 25

26. The new ECOA Valuations Rule:
Effective January 18th, 2014
“A creditor shall provide an applicant a copy of all appraisals and other
written valuations developed in connection with an application for
credit that is to be secured by a first lien on a dwelling. A creditor shall
provide a copy of each appraisal or other written valuation promptly
upon completion, or three business days prior to consummation of the
transaction.”
Mercury Network by a la mode 26

27. What does the CFPB consider an appraisal or
other written valuation?
According to the CFPB, a “valuation”
is any estimate of the value of a
dwelling developed in connection
with an application for credit.
• An appraiser’s report
• A document your staff prepares
that assigns value
• A report approved by a GSE for
describing to the applicant an
estimate of value
• AVMs
• BPOs
Mercury Network by a la mode 27

28. Don’t forget: GLBA
You can’t send appraisals to borrowers using traditional e-mail.
• Violates consumer privacy laws
• Penalties are $10,000/day per instance
• Must use secure delivery methods if sending electronically
This free white paper takes an indepth look at GLBA and appraisals:
www.MercuryVMP.com/GLBA
Mercury Network by a la mode 28

29. Traditional solution: Certified mail
• Too slow: Certified mail takes 3-5 business days, and can impact
your compliance
• Expensive: Approximately
$7 per send
• Confusing: When do you
send it? Sooner or later?
Mercury Network by a la mode 29

30. Technology is the solution...
• Two out of three people in the US use e-mail (Adults account for
87% of all US e-mail users*)
• Appraisals are delivered electronically already
• Most borrowers are technically savvy enough to receive and
open an appraisal sent electronically
*eMarketer.com Newsletter, March 4th, 2013
BUT...
Mercury Network by a la mode 30

31. The new ECOA Valuations Rule and
The E-Sign Act
If sending electronically, you must:
• Get and document their consent first
• Provide hardware and software requirements for successful
download of the appraisal
• Prove borrower can access the report
• Get time and date stamps to prove compliance to examiners
Mercury Network by a la mode 31

32. Appraisal eDisclosure compliance checklist
If sending electronically, you must:
• Have a secure method, no simple e-mail attachments allowed
• Send it before three days prior to closing
• Get their consent first
• Provide hardware and software requirements
• Prove the borrower can access the report
• Get time and date stamps to prove compliance later
Mercury Network by a la mode 32

33. Technology solution for
appraisal QC:
Appraisal Quality
Management (AQM)
Mercury Network by a la mode 33

34. AQM: A comprehensive quality assurance tool
An integrated QC workflow system:
• Rule automation (ours, yours, or a combination of both)
• Integrated QC checklists
• Integrated/structured revision requests to the appraiser
• Incurable items documented for lender
• Scores provided for intelligent routing
Mercury Network by a la mode 34

35. AQM: A comprehensive quality assurance tool
Common uses:
• Verify that all appraisals across all vendor channels are evaluated
consistently and transparently
• Verify and record that the appraisal has been checked against
required external data sources
• Provide proof that incurable items have been identified
• Eliminate the need for costly valuation validation reports when
the property or loan doesn’t warrant them
• Route complicated assignments to experienced underwriters
• Reduce or eliminate revision requests from underwriting
• Refute buy back claims based on the documented QC process
Mercury Network by a la mode 35

36. AQM: A comprehensive quality assurance tool
Over 650 rules that include checks for:
• Completeness
• Compliance
• Comparables
• Reconciliation
• Site
• Market and neighborhood
• Appraiser eligibility
• Accuracy
• Valuation
Rule examples
Mercury Network by a la mode 36

37. The AQI: Your QC due diligence documentation
Provides incurable items for faster underwriting and serves as
documented proof the appraisal was QC’d.
73
$138,000
Prior Date Prior Price
06/01/08 $127,000
This comprehensive score provided with this report is compiled by analyzing the risk factors from the five appraisal quality index factors
shown below. Each index is scored with dozens of salient, weighted rule sets that determine areas of risk for your consideration. The report
will help you determine if your appraisal requires additional review, or further due diligence. This report is designed to help lenders and other
stakeholders make better valuation decisions by providing a comprehensive, independent third party review of your appraisal report.
Market
Risk Index
97
01 Completeness
02 Accuracy
03 Value
04 Property
Index
Index
Risk Index Risk Index
05 Market
Risk Index
The Completeness Index electronically evaluates your appraisal for missing data critical to the most educated risk assessments. In addition,
the appraisal is thoroughly checked for blank fields that could impact underwriting and closing schedules, formatting issues that could affect
agency and non-agency investor acceptance, fields required for specific report types, and more.
79
5 SE 13th St.
Deerfield Beach, FL 33441
About This Report
Completeness Index: Low Risk
Per appraisal, foreclosure sales are a factor in the market.
Accuracy Index: Moderate Risk
Appraisal
Quality Index
01 02 03 Risk Index 04 05
97 79
The Accuracy Index scores your appraisal based on a thorough check of variables that impact the accuracy of the data contained in your
report. Examples include consideration of value adjustments, relevance of comparable properties, confirmation of data with outside information
sources, and more.
Closed comparable sales adjusted value range is greater than 15%. This is likely due to a miss valued market influence which
leads to a less reliable opinion of value.
Wide range of adjusted values is a value concern. Recommend an additional comparable to tighten range. If none available, per ap-praiser,
recommend a field review.
There are not two comparables that have sold in the last ninety days.
Appraiser did not provide comps within 90 days yet 1004mc shows 19 sales. This is a concern.
The appraiser made a large single line item adjustment of over 10% of the subject’s opinion of value.
Pool adjustment to comps 1 and 2 are 15% of overall value and comp 2 without this upward adjustment has a lower opinion of value. This
is a concern.
The appraiser made a Condition line item adjustment of over 10% of the subject’s opinion of value.
Large condition adjustment, but still adjusts to low end of range.
5 Southeast 13th Street
Deerfield Beach, FL 33441
Appraisal Quality Index
Borrower Name Bob and Ellen Smith
Appraiser Name John Watson
Product Name URAR (Form 1004 - UAD Compliant)
Assignment Type Refinance
Appraised Date 03/11/2013
Sale Price N/A
Appraised Value
Calculated: Five Appraisal Quality Index Factors
Property
Risk Index
Accuracy
Index
Value
Completeness
Index
97 79 50
Comments AQI Scoring System
Mercury Network by a la mode 37
This comprehensive score provided with this report is
compiled by analyzing the risk factors from the five appraisal
quality index factors shown below. Each index is scored with
dozens of salient, weighted rule sets that determine areas of
risk for your consideration. The report will help you determine
73
This appraisal needs
additional substantiation.
This appraisal may need
0-50
50-80
Overall Score

38. Technology solution:
SureReceipts
Mercury Network by a la mode 39

39. SureReceipts:
• Instant: Borrower receives the file instantly, no waiting
• Far less expensive: It costs only 50¢ per document
• Comprehensive: The required borrower acknowledgements
are automated for you, and recorded in the audit trail
• Reliable: The solution has already applied over 7.2 million
compliant eSignatures
Mercury Network by a la mode 40

40. Do you need to send hundreds or thousands of
documents to borrowers?
No problem.
• SureReceipts is exposed as
an open API
• Solution can be integrated
into any platform or existing
system
Mercury Network by a la mode 42

41. Getting started is easy:
Quick Start Guide
Quick Star t Guide: Using SureReceipts
for compliant eDisclosures
SureReceipts™ is an eDisclosure compliance solution for securely sending documents to
borrowers. Lenders and AMCs using Mercury Network have this tool built in to their platform.
However, the tool was made available to the entire industry for compliance in February of 2014.
To use SureReceipts to send compliant eDisclosures:
1. Create a Mercury Network account. It’s free, and it will provide your secure login to SureReceipts.
Go to https://Secure.MercuryVMP.com/SignupWiz.aspx to sign up now.
2. There is a 50¢ charge for each eDisclosure sent through SureReceipts. Add a credit card to
your account, or you can sign up for monthly billing by calling 1-800-434-7260. To add a
credit card, log in to your account at www.alamode.com/myaccount, click Mercury Network
on the left, select New Card, and fill out your information:
Go to http://help.alamode.com/docs/5500.htm for step-by-step instructions on adding a credit
card to your account.
Need help? Call us anytime. 1-888-794-0455
• No implementation fees
or minimums
• Download the Quick Start Guide
here: http://alashort.com/1ggXctF
• Your first 10 sends are FREE, and
each send after that is just 50¢
Mercury Network by a la mode 43

42. Questions
info@mercuryvmp.com
1-800-434-7260
Mercury Network by a la mode 44