BRAIN C. COESTER'S BLOG
#SPIRITON

Archive for September, 2013

If I could live my life over again.

September 25th, 2013

Humorist Erma Bombeck once wrote a column titled “If I had my life to live over.” In it she offered such nuggets of wisdom as, “I would have invited friends over to dinner even if the carpet was stained and the sofa faded” and “I would never have insisted the car windows be rolled up on a summer day because my hair had just been teased and sprayed.”

Country singing star Tim McGraw wrote his blockbuster song “Live Like You Were Dying” shortly after the death of his father, baseball great Tug McGraw. I understand the notion that you have to live each day as if it were your last. Today I have that same focus. Before each speech I think: This is the last speech I am ever going to make. This is the last negotiation I am every going to enter, so it better be good. This is the last project I’m going to be working on or even this is the last night out with the friends.
And then I get ready to do it again!

When I was in Greece this summer Captain Bill Joel told me a really wise things in that you don’t live your life in years but you live your life in summers. He said “Brian if you play football with your buddies once a week on Thanksgiving and your 28, lets say you do it until you 40, you don’t have 12 more years, you have 12 more games in your life with your friends so don’t miss a thing”. That statement really resonated with me and is why I try to study the “Art of Living” as much as possible and focus on living a full life.

If you had your life to live over, what would you do differently?

I’ve thought about that more than once. Besides the routine items like spending more time with my family and on leisure activities like working out, I came up with my own list. I still have plans to work on a few of these!

  1. I would have been more available whenever a friend was in trouble or was going through a tough time due to divorce, financial trouble, job loss or even DUI. I would move mountains to contact them right away and say I heard about your problem . . . I’m thinking about you . . . and if there is anything I can do to help, let me know. And I would wish them luck.
  2. I’d make sure I’m always there for my significant other and listen without judgment.
  3. I’d take more time to have fun with friends
  4. I’d work really hard and make sure that I do all the things I don’t want to do. Things like water sky, bungee jump, and things you can do only at certain ages of life are really important to take advantage why you still can.
  5. I’d always take the high road when it comes to other people. I wear a “Spirit On” bracelet everywhere I go not as a religious reminder as much as it a reminder to always think in spirit and to always do the right thing. I think everyone knows the right thing to do.
  6. I’d go to Church more. Giving my life to Christ took me 28 long years and it’s something I wish I did sooner. It has changed my life in so many ways in such a positive way.
  7. I’d mentor more people. I am very busy, but I’d spend more time giving back and mentoring people. I’d been very fortunate in my life so far and I feel like I should give back and help out to people that are struggling.
  8. You know when I say if I could live my life all over again, of course there’s things that I’d do over again but at the same time I don’t know if I would. I think when looking at doing your life over again its more about setting a better sail for the future rather then trying to change the past. I know the lessons I’ve learned, mistakes I’ve made have taught me such great lessons about people and myself that I don’t know if I would have traded them in or avoided them. But I do know is that I’ve learned from them and will continue to learn and grow everyday which is more then enough for me.

Thank you –
B.Coester

 

Why Appraisal Management Software Won’t Keep You Compliant

September 20th, 2013

Your appraisal management software isn’t cutting it–and neither is your appraisal management company’s.

I want to dispel a common misconception. Despite what you hear from the appraisal segment’s technology vendors, appraisal management software won’t keep you compliant. Period, full stop. If you don’t believe me, ask your technology vendor. The truth is, appraisal management technologies can be great tools for automating processes, but compliance is about more than automation. True compliance takes an expert.

As everyone in the mortgage industry is aware, the appraisal process has changed a lot over the past few years. In the most recent news, we have the Consumer Financial Protection Bureau’s third-party oversight requirements. This is a big concern for lenders. The big focus is on the fact that it’s now the lender’s case to prove that its vendors are in compliance. But that’s the only the beginning. Lenders must also be able to prove that their processes (a) use proven predictable methods, (b) can identify issues, and (c) proactively prevent those issues from happening again.

Thanks not only to the CFPB, but also to the Dodd-Frank ActFannie Mae’s appraisal independence requirements and the Uniform Collateral Data Portal, not to mention numerous state and federal regulations, there is simply no way for lenders–or AMCs–to get around having a dedicated program for ensuring a compliant appraisal transaction.

Some of you may be thinking that you’ve been doing just fine with your appraisal management software. While anything is possible, it’s more likely that the reason lenders are “doing just fine” is simply because they haven’t been through an audit that indicates otherwise. Yet.  

It’s easy to get tempted into believing that it’ll be easy to manage the appraisal process yourself, especially now that appraisal management technology vendors are offering their systems as a Software as a Service type, where you can buy software off the shelf and implement it quickly.

The idea is that if you take the appraisal process internally, you will have a better overall appraisal process, while still maintaining some control. But this is overlooking one very important detail: a strong appraisal process requires experts, not just someone who manages technology. Generally speaking, a self-managed appraisal process is not ideal, nor should it be looked at as a long-term option.

Are there are exceptions to the rule? Yes. However, I don’t know if I’ve ever seen one. I’ve spoken with hundreds of lenders and banks–both customers and non-customers–and I’ve never heard of a self-managed appraisal process working long-term. Every lender we deal with, that has tried to manage the process on its own, has ended up outsourcing to an appraisal management company. The reason is simple: it’s more effective, efficient and compliant. Those are their words, not mine.

The reality is that no one–not even an appraisal management company–is capable of being compliant with software alone. Thinking that an appraisal management software will make you compliant is like expecting Microsoft Word to make you a Pulitzer prize-winning author. Microsoft Word can give you the vehicle to convey your story, but it takes a lot of skill and dedication to write well enough to win the Pulitzer, just as it takes a lot of skill and dedication to be compliant with all appraisal regulations.

If lenders expect to be 100 percent compliant, they’ll need a serious compliance program that includes quality control procedures; internal audit procedures; an internal appraisal and valuation audit system; and a host of compliance systems that keep close tabs on potential customary and reasonable fee issues, quality issues, USPAP violations and appraisal fraud. If you’re missing any one of these ingredients, your system is not going to cut it.

There’s also the issue of appraiser independence. The guidelines state that lenders must establish “absolute lines of independence.” That “absolute” part can mean the difference between smooth sailing and a costly compliance violation. The practicality of a small regional lender or even a midsize national lender establishing “absolute lines of independence” while keeping their appraisal process in house is not realistic.

To be 100 percent compliant with this regulation, the lender would have to set up an entirely new office with a manager, staff appraisers and processors. Most mortgage companies that manage their appraisals in-house are not nearly as equipped or trained as the code requires and typically end up rushing processors into ordering appraisals.

If you’re wondering why this hasn’t been much of an issue lately, it’s because most lenders have not gone through audits with FHA, Office of Thrift Supervision and investors. When this does happen, how are they going to prove that they have maintained “absolute lines of independence,” when the appraisal department is in the same office as the processors and production staff, who are interested parties?

Using an independent third party to manage appraisals provides an extra layer of protection against collusion, which in turn increases investor confidence. There are also the benefits of reduced cost, and enhanced productivity among processors and loan staff, who can stop being concerned with the appraisal process and start focusing on higher yield activities.

There’s no way around it. When appraisal services are handled in-house, overhead costs get higher when production increases, but when volume dips, layoffs become inevitable–after a period of covering the costs of being overstaffed, of course. If volume spikes again, companies are then forced to rehire staff. It’s easy, especially when there’s a revolving staff door, to fall into the trap of quickly assigning the appraisals rather than taking the time to have them done right. Most appraisal companies, on the other hand, have economies of scale, which allow more orders to be done faster and more efficiently than any in-house process.

There’s no excuse for risking these compliance violations, particularly when shifting the appraisal process to an independent third party is usually free to lenders or at least at a heavily reduced rate.

Outsourcing the appraisal process brings consistency to your quality levels, turnaround times and overall costs, regardless of volume. Conflicts of interest will vanish and variable costs will turn into profits. Your third-party appraisal management company can answer any investor questions, just as it can take care of any errors, should they occur.

Adopting a truly independent appraisal process helps ensure long-term success, allows for future growth and makes it easy to maintain positive relationships with investors. That’s something that an appraisal technology just can’t do.

Customary and Reasonable Fees – Not so Customary, Not so Reasonable.

September 19th, 2013

One of the biggest topics in the industry is customary and reasonable appraiser fees. The theory is that the appraiser should be paid a customary and reasonable fee for their specific market area, which may vary.  With this, I agree 100%.   Appraisers should be paid a fair fee for their work based on the specific market area conditions, and doing so will greatly benefit the industry. This, however,is a concept that is far greater in theory than in reality.  I believe that this regulation is somewhat of an unattainable ideal as there seems to be nothing that would allow this on a day to day basis from a practical standpoint.

Here’s why:

  • It was never meant for the appraiser to be paid a customary and reasonable fee.

The term “customary and reasonable fee” is widely used in legislation, medical, insurance, title, etc. – almost all consumer facing industries have some form of customary and reasonable fee language. This is intended to prevent the borrower or service provider from getting ripped off. So, if an appraisal is typically $450 dollars in Rockville, Maryland a lender can’t charge the borrower $1,500 without. Thus the fee must be customary and reasonable, within a normal justifiable range. Let’s say $350 – $600 would be reasonable for the area based on what the lender has previously charged for loans, this has nothing to do with the appraiser. If you listen to a talk that GlobalDMS had during its Global Tech Summit, one of the senators in attendance even admitted to just “throwing it [the language] in there”(The video is no longer available their site, however).

  • Lenders do compete on fee.

Have you ever been on bankrate.com or any other appraisal industry-based site? You will see that all of these have the appraisal fee as one of the options and line items for the quote (side note: I, personally, don’t like the idea because a lot of other fees aren’t included; however, they’re there and need to be dealt with).  Also, remember that the appraisal fee is the only thing that is paid upfront.  Everything else is paid at closing. The appraisal is basically an application fee to see if the borrower actually qualifies for the loan. The appraisal is a big piece of the pie that’s more costly in comparison to the credit and flood, and lenders absorb the cost and pass it on at closing. This is why AVMs are appealing or zillow.com is appealing – even though it’s not accurate, it doesn’t cost an exorbitant amount to get an idea of what the value of the property is. That is particularly important for a mortgage office that’s trying to convince a borrower to go with them as opposed to a competitor. The reality is that a borrower is going to talk to multiple lenders hence the appraisal fee is a factor and the lower, the better. This is why a lot of national lenders have a flat fee either nationally or by state, it makes it easier not only for loan officers to quote fees but also for everyone to streamline the entire appraisal process so that there’s not a lot of back and forth.

  • A fee plus model won’t work.

Some appraisal management companies say they operate on a fee plus model, and let the appraisers charge whatever they want.  The reality is that they do not and cannot, regardless of what you,they, or anyone else might think.  How much is the appraiser making?  Less than what the appraisal management company is charging, and that’s pretty straight forward.  Now, I do admit there are some better models out there. I like our model, in which we allow a vendor to set any fee that they want and then we set a minimum profit per file that you must be eligible for. We don’t assign the file based on fee alone but rather competency and accuracy with a fee set at a minimum. The fee plus model would mean that the appraiser sets their fee at a price, let’s say $350, and the AMC would add onto it with their fee, let’s say $100, as the additional amount of money. This on a one off basis sounds great.  All the same, when you really think about rolling out a national platform with some consistency in pricing it doesn’t make much sense for any lender or AMC to agree to this. That would mean almost every appraisal having a different fee and, on top of that, assigning the appraisal and getting the price before charging the borrower’s credit card which might cause huge business process issue. Furthermore, it would be nearly impossible to sell to a borrower. A loan officer isn’t going to be able to sell “We don’t know what the appraisal fee is yet, but we will find out soon enough!”  Anyone who has been in commission sales knows that will not work, especially when another company can easily say “It’s going to be this exact amount as we don’t do fee increases,”(our model).

  • There’s always a loophole.

Lets be honest here, there are plenty of loopholes in any legislation, and the appraisal legislation has many.  Most appraisal management companies use the old “If you agree it’s a customary and reasonable fee…” but this is a cheap shot at the appraiser as it isn’t really anything other than some added text.  Some companies have improved by allowing the appraisers to set their fee, sometimes on top of displaying the average fee set by a vendor. Despite this, as long as it’s left up to a few pieces of paper stored at your local government office, it’s not going to be respected 100%.

A Solution:

“Customary and reasonable fees” are really a way of the industry saying that they’re being fair, when in reality the appraisers are dealing with hell trying to fight for a fee. The simple solution to this issue is to remove the “customary and reasonable fee” completely and have the state AMC legislation set the appraisal fee for the state, not the county. The fee would then be a mutual agreement upon an appraisal management fee with the board (which should consist of appraisers and AMC owners, perhaps a few lenders and builders, but no realtors). This way, it’s really simple – the appraiser gets paid what is reasonable for the state, the appraisal management company has a built-in profit, and the lender and builder have agreed that it’s reasonable as well. This ensures that at least everyone is heard, which is something that the appraisers have not had in a very long time (possibly ever).  It would also eliminate any loopholes besides those of staff appraisers or mutually agreed upon volume discounts.  The title industry has successfully adopted this concept for set title charges, so why not apply the same within the appraisal industry? The appraisal industry would then have a model that would be sustainable for appraisers and appraisal management companies, which are here to stay.

 

Thank you,

Brian Coester