If you have been following along from my previous article titled “Property Evaluations – A New Opportunity Under Old Regulations” (Wisconsin Banker, April 2021), you will come to understand that appraisal requirements continue to be a critical part of credit underwriting, but with limited staff knowledge and expertise. This article explores a different view of an old regulation.
It is true that appraisal thresholds were increased in 2019, but that did not really offer much in the way of relief. In fact, by moving the needle on larger transactions that still require an appraisal, the fewer appraisals that are required and the more complex those appraisals become. Much like the real estate evaluation process, what skills, training, and certifications do your staff possess to accomplish the regulatory requirement of appraisal review? It was stated in my last article and worth repeating again: “If a bank employee reviews appraisals, the individual should possess the requisite education, expertise, and competence to perform the review, commensurate with the complexity of the transaction, type of real property, and market.” (Federal Reserve Bank)
Over the years, examinations have focused on the reasonableness of the facts and assumptions found in the appraisal and whether review of an appraisal provides a credible opinion of the value of the collateral. This is true for both residential and commercial real estate. As I am performing review services for the industry, I become increasingly concerned when I see nothing more than a simple checklist completed by an internal banker with limited knowledge of appraisal requirements and expectation of USPAAP standards. But there is hope on the horizon.
I have found that those banks that appear to be more efficient in their mortgage and commercial loan process have one thing in common: they outsource the appraisal review to third parties who remain independent of the appraisal completion and then pass along this cost to the customer. In these instances, the review appraiser does not need to state a second value opinion, rather they simply express an opinion on the quality of the appraisal received. Partnering with the right appraisal review company will be key, but at the end of the day you inherently improve the quality of your appraisal review process. The operational savings these banks enjoy really do impact the bottom line.
However, for those banks that choose to continue to conduct this process internally, I encourage the opportunity to train your staff on May 20, 2021. The Wisconsin Bankers Association is hosting a webinar called Residential Appraisal Review Start to Finish. Bankers will learn the appraisal rules, anticipate examiner expectations, implement strong review process, and take away necessary tools to do their job. You can find registration information at www.wisbank.com/events. Hope to see you there!
If you would like to learn more about becoming efficient or compliant in your loan processes, you can reach me at firstname.lastname@example.org.
Schmid is FIPCO director – compliance and management services. Contact him at email@example.com or 608-441-1220.
By, Alex Paniagua