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In less than two months, on March 19th, desktop appraisals will officially transition from a 2020 covid flexibility to a long-term reality for some GSE products. As a result, the Post-Closing QC appraisal field review for many conventional loans is no longer required. Replacing the field review requirement on 10% of conventional loans in Post-Closing QC samples, is a Collateral Risk Assessment on 100% of these loans.
In preparation, the LoanLogics LoanHD® loan quality management platform implemented the completed Collateral Risk Assessment questionnaire as part of the loan level reporting package. To address the needs of our audit services clients and ensure tight compliance on this new appraisal change, we are trifurcating the review process (credit, compliance, collateral), sending this review to a skilled subject matter expert on appraisal theory.
Audit trifurcation is one of the many automated audit workflow flexibilities offered in our quality control platform. It can not only be leveraged internally with your own audit teams but also across hybrid workflows where both a third-party outsourcing team is used alongside internal resources. A great example of this latter workflow option is to contract an audit service provider to handle Post-Closing reviews and retain Pre-Closing reviews within the responsibilities of your own audit staff.
While the flexibility is a nice to have, lenders should remain cognizant of the inherent fraud risk (appraisals included) in a purchase market. Couple that with current market environment risks whereby:
- Market competition drives fraudulent behaviors
- Underwriters already working in over-drive
- and the unknown of how desktop appraisals will fair in the long run
Another way to address appraisal risk on the secondary market side of things is for investors purchasing loans to incorporate a fraud analysis into their pre-funding reviews. LoanLogics spoke on this topic in a prior blog. Seamless integration of your audit platform to a fraud verification vendor helps easily assess loan origination fraud in the QC process and prior to purchase, across all categories, identity and income included.
Finally, with the expected growth of purchase volume in 2022 and a softening of refis, it might be a worthwhile exercise for lenders to consider standalone QC appraisal reviews to sample the quality of the origination appraisal. While the trend has been to streamline the process with limited or no appraisal requirements, and with desktop reviews here to stay, now is a good time to shore up controls with quality checks on a periodic basis.
Prepare yourself for the full-time additional of desktop appraisals. Learn more about how our appraisal QC reviews work in both our platform and audit services, request a product introduction on our website.
