I am reading both the Interagency Appraisal and Evaluation Guidelines issued in December and the AIR Issued under Dodd-Frank.

We currently do our real estate lending through 2 avenues:

1. Branch loans with 90% of the loans only using TAV or AVM (no purchase loans - mainly HELOCs and cash out equity under $80,000). When an appraisal is needed, the processor orders from a list of approved appraisers. Underwriting reviews and approves use of the appraisal.
2. Mortgage department loans which 99.99% have an appraisal (1st lien closed end refi or purchase through this department). The processor orders the appraisal from an AMC. Underwriting reviews and approves use of the appraisal.

I understand both areas and the types of loans they close need to comply with the Interagency Appraisal and Evaluation GUideilnes. What about the Dodd-Frank AIR on the branch loans? We have not had the branch loans follow the HVCC in the past so I am somewhat confused on whether the Dodd-Frank part of the appraisal process needs to apply to those loans.

Yes, the guidelines apply to the type of loans made at your branches, and no, using only a TAV or AVM by itself is not acceptable. You may use the TAV or AVM as supporting data for the value conclusion of the evaluation, but you also need to visit the property to certify its condition, etc. An evaluation is now going to take a quite bit of work beyond obtaining the AVM.

Thank you for the information.
Is there a $ threshold where the AVM or TAV would be acceptable without having to visit the property?

River Girl,

I noticed that in both your examples your underwriter reviews the appraisal. Does your underwriter also have final approval on the loan request based on the appraisal value? Am asking because our underwriters review the appraisals and approve the loans. The new Reg Z appraisal requirements seem to prohibit this based on the following:

“Loan production function” includes an employee of the creditor who has responsibility for approving covered transactions per 226.42(d)(5)(i). 226.42(b)(4)(iv) includes as part of the meaning of “Valuation management function” – reviewing or verifying the work of a person that prepares valuations. In section (d) on prohibitions on conflicts of interest, it states in (d)(2) and ((d)(2)(ii) that a creditor does not have a conflict of interest violation if the person “performing a valuation management function” reports to a person who is not part of the creditor’s loan production function.

Does anyone else interpret this the same as we do - that because the underwriter is part of the loan production function by definition that they can not also be part of the valuation management function?

No, you either need an appraisal or an evaluation, unless you fall in one of the Appendix A exceptions. The guidelines have a full paragraph on the "property's actual physical condition." If the property is not inspected, you need to show how you determined its physical condition.

We have a similar situation in that our underwriters review appraisals and approve loans. But after reviewing the section below it seems they consider underwriters part of the credit administration function (despite the fact that they approve loans) Very confusing.

Paragraph 42(d)(5)(i)

1. Loan production function. One condition of the safe harbors under paragraphs (d)(2) and (d)(4)(i), involving transactions in which the creditor had assets of more than $250 million for both of the past two calendar years, is that the person who prepares a valuation or performs valuation management functions must report to a person who is not part of the creditor’s “loan production function.” A creditor’s “loan production function” includes retail sales staff, loan officers, and any other employee of the creditor with responsibility for taking a loan application, offering or negotiating loan terms or whose compensation is based on loan processing volume. A person is not considered part of a creditor’s loan production function solely because part of the person’s compensation includes a general bonus not tied to specific transactions or a specific percentage of transactions closing, or a profit sharing plan that benefits all employees. A person solely responsible for credit administration or risk management is also not considered part of a creditor’s loan production function. Credit administration and risk management includes, for example, loan underwriting, loan closing functions (e.g., loan documentation), disbursing funds, collecting mortgage payments and otherwise servicing the loan (e.g., escrow management and payment of taxes), monitoring loan performance, and foreclosure processing.

Our underwriters are the ones that decide whether a loan request requires an appraisal or just an AVM or TAV. If it needs only an AVM or TAV, the underwriter looks the property up online and reviews the document and then approves or counteroffers with the need for an appraisal.
Can this process stay the same or are they now considered loan production staff and someone else needs to be in the process for independence.
If someone else looks up the AVM/TAV and sends it to the UW for review - is that enough separation?

river girl - do your underwriters get paid more for closed loans?

If your underwriters aren't compensated differently on whether a loan closes or not then they really aren't "producers" for the purposes of this rule; they are admin. In a nutshell, you don't want to compensate your underwriters more for closed loans or give them incentives for approving loans.

Underwriters do not get any extra compensation for closed / approved loans and they underwriter all loan types - not just Real Estate secured loans.
But, they do report to the VP of Lending and some of his other employees - the mortgage loan officers get extra compensation for closed / approved loans.
Ultimately they all fall under the loan department umbrella so that would make them part of the "Real Estate" loan department.
For the new TIL rules April 1st is says "Over $250 Mill, no one in the real estate loan department can order or review the appraisal.
???

Rivergirl - what did you decide on this? We are in the same situation and with the exclusion for underwriters in one part, I am confused if the underwriter reporting to a Loan manager nullifies the exclusion.

SkiDoo
We are looking at moving to an AMC for all real estate loans that require an appraisal. That way, the underwriter can order an appraisal through the company. The underwriter will perform a data validation of the information included in the appriasal.
We found UPF offers a product that will be replacing our use of an AVM. It is an enhanced AVM with a physical inspection and a photo and a market value. We will stop using the TAV unless the LTV is 50% or less.
The management of the approved appraisers and the due diligence of the AMC will move to my area -Risk Mgmt and Loan QC review since I am completely separate and report directly the Audit Committee.
Not sure if this is the best but we are going to try and see what the examiners say this summer. We are making our best effort without actually adding to staff.

I hadn't heard of the company or product mentioned by River Girl, so I googled.

http://www.upfservices.com/AVM_ECV.html

Does anyone have experience with this product? Opinions on quality?

Thanks rivergirl. We are still trying to figure this one out. Sounds like you have it under control - as best as possible anyway!