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White House: In most
cases, when the property appraisal arrives, the lender
does not know what the collateral consists of. It is a
question mark. |
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Green House: Some collateral
is “good”. There are only low risk issues
and the report is well prepared. |
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Yellow House: Some
properties have risk issues and should be approached with
caution. These issues can usually be resolved with additional
data and/or with clarification from the appraiser and/or
conditions made on the loan that must be satisfied prior
to funding. |
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There are two areas of
focus when reviewing an appraisal: the collateral
itself and the manner in which the appraisal report
is prepared.
A good reviewer or underwriter who is not confirming
sales or verifying any data can complete the Risk
/ Issue Identification and Guideline
compliance in 5 to 30 minutes. This is very tedious.
It is subject to “human” factors including
training, knowledge, experience and likelihood
for interruption. There is also only so much information
that a human can process, particularly as it relates
to the consistency of the appraiser’s logic
from page to page.
Once the issues have been identified, the reviewer
must look at those issues in relation to their
specific Guidelines Compliance
- The guidelines tell the reviewer how to approach
the specific issues.
But the true value of the reviewer or underwriter
is the application of their “training, knowledge
and experience” and applying it to Issue
Resolution.
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Red House: Some properties
have high risk issues. These issues may in fact make the
property unacceptable as collateral for a loan. The sooner
these issues are identified, the lower the costs associated
with making loan-specific decisions. These issues may
or may not be able to be resolved, or may require that
the lender only consider the loan at a lower LTV, and/or
upon satisfaction of condition(s) made on the loan that
must be completed prior to funding. |
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Biter: Then there
are the really bad collateral issues. These are the highest
risk collateral types. If the issues are not caught in
underwriting and review, the loan is going to cost the
lender or the secondary market’s investor some money.
We call these “biters”. This collateral is
going to “bite” someone in the wallet sooner
or later. |
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