Closing the Gap

1
Closing the Gap

• Appraiser to Loan Decision with Secure, MISMO
  Compliant Methods

John Cirincione, SRA, CRE, FRICS Chief Appraiser
SecoLink Rob Frazier, SRA, MRICS, Chief Appraiser
First American CoreLogic Dick Taylor, Information
Security Officer, Fiserv Lending Solutions Jeff
Bradford, CEO, Bradford Technologies
2
Seminar and Speaker Outline

• John Cirincione and Rob Frazier
• Appraisal Review and Validation Process
• Dick Taylor
• Ensuring the Source and Security of the Appraisal
  Report
• Jeff Bradford
• AMC Case Study The Benefits of the MISMO
  Appraisal XML in Actual Practice

3

• Overview of
• Appraisal Review
• and
• Validation Process
• John Cirincione and Rob Frazier

4
Basic Flow Obtain Appraisal
5
Source of Valuation Requests

• Appraiser receives a request for services
• Direct from the lender
• Through a Vendor Management Service
• Through a centralized portal

6
Overview- Appraisal QC Workflow
7
Application of Business Rules

• The level of review required is based on various
  business rules
• LTV/CLTV decisions
• Findings within the appraisal itself
• Property type and similarity to the neighborhood
• Appropriateness of comparable sales provided
• Red flags (recent disaster declarations, high
  foreclosure rates, flip/fraud activity)
• Appraiser
• Is this a pre-approved vendor?
• Is the appraiser qualified to perform this
  assignment?

8
Automated Enhanced Review (AER)

• Deploy an automated smart process to
• Verify factual components
• Identify complex property issues
• Identify potential fraud risk
• Take better decisions in less time
• Referral to exception process as needed
• Set Review level based on findings
• Provide evidence of due diligence for client and
  regulators

9
Review Process Issues

• Initial quality check points
• Does the report match the loan in progress?
• Is the report complete?
• Have loan specific issues been addressed?
• Does the property and appraisal report comply
  with underwriting guidelines?
• Deployment of the AER adds
• Efficiency through automation
• Verification of factual data against loan
  information and public records
• Can provide instant communication with the vendor
  to ensure accurate submission.

10
IS THE APPRAISAL CREDIBLE?

• Credibility means worthy of belief. Does it
  include
• Factual data that is true and verifiable?
• A logical flow of information?
• Analysis and discussion of facts and issues?
• A conclusion that follows a reasonable path?
• Does the reader reach the same conclusion?
• Are there errors in facts or analysis?

11
Common Methods-Appraisal Review

• Pass it through
• Assign a low level processor
• Use a checklist
• Develop electronic review process
• Develop a review process that integrates
  technology and human intelligence (best practice)

12
MISMO and PVS Workgroup

• MISMO is the leading standards development body
  for the residential and commercial real estate
  finance industries. MISMO has working agreements
  with all the major data standards development
  organizations and has developed a language of
  industry data elements, stored in a common data
  dictionary used to create all MISMO transactions.
  
• Property and Valuation Services Workgroup
  (Formerly Real Estate Property Information- REPI)
  develops and maintains standardized data elements
  and structures used to report real property
  valuation, property data and communications with
  vendors.

13
Review enhanced with MISMO

• Currently available technology provides
• Use of MISMO XML
• Direct communication from appraiser to client
  without translation
• Automated verification of factual data
• Automated review of report for completeness
• Routing to workflow queues

14
Why use MISMO XML formats?

• Standardized Forms provide consistent format and
  data fields but
• Paper and PDF only allow someone to read it.
• OCR and post appraiser conversion of PDF or paper
  can cause errors
• Human translation, data input can vary from what
  the appraiser submitted
• Solution
• Appraiser provides MISMO format directly
• What you see, read and import into LOS is
  original product from appraiser
• Open standards limit transaction costs

15
Recent work of MISMO REPI

• 2.4 Valuation Response
• ALL of the data points for ALL common report
  forms.
• Major appraisal form software vendors
  participated
• Some large lenders and VMCs are already upgrading
  
• No serious burden to appraisers
• Review rules and fact checking services are
  integrating their systems
• What is needed
• Demand and deployment from the users of
  appraisals

16
Automated Enhanced Review
17
Advantages to Users of Appraisals

• Automated Enhanced Review process
• Provides better quality appraisals
• Reports are complete and credible
• Exception issues are identified and resolved
• Internal processing time is reduced
• Fewer rejections from secondary market
• More defensible against buy-backs
• More loans successfully processed
• Appraisers become more aware of quality

18
Checking Errors Inconsistencies

• A standardized data format enhances
• Easily developed underwriting validation rules
• Results of rule deployment programmed to
• Reject the report for correction
• Send to an exception queue for manual review
• Notify the client/underwriter of exception
• Reviewers are more productive
• Spend quality time in analysis, rather than
  marking up a checklist.
• Simple errors are cured before they get the file

19
Where to best deploy the rules?
20
Is this the right property?
21
Is this the same property?
22
Quick and Easy Check If the zoning is wrong, is
the Highest and Best Use estimate credible?
23
Is the factual data correct?
24
Subject sales history
25
Comparison of Market Trends
26
Sales History of Comparable Sales
27
Are any of these nearby sales potentially
comparable?
28
Appraiser said no adverse conditions apparent

• A reason to read the appraisal Do you see any
  potential appraiser bias?

29
Next Issue - Security Risk

• Is this the work of the appraiser whose name is
  on the form?
• Did someone
• adjust the report?
• exchange some pages?
• help the process?
• Was it performed by someone already found not
  worthy of trust?
• Did someone provide suggestions to the
  appraiser?

30
Closing the Gap

• Appraiser-to-Loan Decision withSecure, MISMO
  Compliant Methods
• Dick Taylor

31

• A White Paper in Draft Form
• Risk Identification And Risk Mitigation
  Recommendationsfor the Mortgage Industry
  Appraisal Community
• Prepared by the
• MISMO Information Security Work Group
• in cooperation with the
• MISMO Real Estate Property Information Work Group

32

• What were the Drivers?
• GSE mandate for appraisal authentication
• Increased fraud opportunities using automation
• Objectives
• Identify risks associated with appraisal process
• Understand Environment and Infrastructure
• Make recommendations based on common risk
  mitigation techniques
• Focus on Authentication and Integrity of the
  appraisal documents
• Avoid hardware or software specific
  recommendations

33

• Authentication
• Authentication (real or genuine, from
  authentes) is the act of establishing or
  confirming something (or someone) as authentic,
  that is, that claims made by or about the thing
  are true. Authenticating an object may mean
  confirming its provenance, whereas
  authenticating a person often consists of
  verifying their identity. Authentication depends
  upon one or more authentication factors. 1
• 1 From www.wikipedia.com

34

• Appraisal Industry Concerns
• Appraiser identity Fraud
• Lender identity fraud
• Appraisal information integrity
• Alteration of appraisal document
• Can be pre or post submission
• Collusion and coercion between appraisal entities
• Effort to misrepresent property value
• Uneducated or Incompetent Appraisers

35

• Mitigating Appraisal Information Risks
• Intentional or Unintentional Alteration of Data
• Implement automated, data integrity controls that
  can detect when appraisal information has been
  altered after it has been sent by the appraiser
  but before it has been received by the Ordering
  Party.
• Implement capabilities to lock or secure the
  appraisal information before being submitted by
  the appraiser to the Ordering Party.
• Implement workflows that allow only authorized
  personnel access to the appraisal information
  moving through the workflow.
• Implement a historical analysis capability that
  can detect potential fraud being performed.

36

• Mitigating Appraisal Information Risks
• Credential Risks
• Implement secure protocols and processes that
  protect the confidentiality of secret or
  sensitive information associated with identity
  credential or account access information (e.g.,
  PINs, Passwords).
• Implement strong authentication capabilities that
  1) define acceptable identity credentials to be
  used by appraisers, and 2) can be used by lenders
  to verify the identity of an appraiser.
• Implement strong authentication capabilities that
  1) define acceptable identity credentials to be
  used by lenders, and 2) can be used by appraisers
  to verify the identity of an lender.

37

• Mitigating Appraisal Information Risks
• Intentional or Unintentional Misrepresentation
• Educate appraisers on best practices for
  developing appraisals prior to submitting them to
  the Ordering Party.
• Implement data quality checking controls that can
  detect when appraisal information does not match
  up with other loan information.
• Implement data quality checking controls that
  help detect intentionally misrepresented data as
  well as honest mistakes before submitting the
  data to the Ordering Party.

38

• Mitigating Appraisal Information Risks
• Collusion and Coercion
• Randomly obtain an additional appraisal or
  another opinion of value from an unrelated
  source. Have the order placed, received, and
  reviewed without the knowledge or involvement of
  the parties to the original transaction.
• Protect the integrity of the original appraisal
  document in whatever form it exists (hardcopy or
  electronic).
• This can be difficult to uncover and even harder
  to prove. How do you identify the difference
  between a mistake and a planned incorrect
  valuation?

39

• Next Steps
• Build on recommendation
• Using the recommendations to develop best
  practices
• Create measures and practices the appraisers,
  vendors and lenders can use to build and evaluate
  services and tools.
• MISMO Information Security Workgroup (ISWG) and
  Property and Valuation Services (PVS) Workgroup
  to create phase 2 white paper.

40

• MISMO Information Security Workgroup (ISWG)
• Mission
• Support the information security concerns of
  other MISMO workgroups, provide industry security
  related recommendations, and general security
  educational material.
• How to Participate
• The ISWG bi-weekly calls on Wednesdays at 2PM EST
  (April 2nd).
• Phone Number [phone] / Access Code
  786194
• ISWG Listserv http//www.mismo.org/GettingStarted/
  ListservSignUp.htm)
• Published papers, research and guidance
• Identifying and Safeguarding Personal Information
  white paper
• State Security Breach Notification Matrix
• Snapshot of Sensitive Data Points in MISMO LDD
• Remote Authentication White Paper
• Risk Identification And Risk Mitigation
  Recommendations (pending)

41
How does it work?Sample Demonstration
42
A Case StudyAMC Adoption ofMISMO Appraisal XML

• By
• Jeffery J. Bradford, CEO
• Bradford Technologies, Inc

43
Current Practice
Compliance Checking at the Desktop
Desktop Reviewer
Yes
Errors
Appraisal Completed
No
Desktop Reviewer
Desktop Reviewer
44
Current Practice
Convert Report to Third Party Standard
Recreate Data PDF
Industry Converter
Convert Report
Appraisal Completed
Recreate Data PDF
Industry Converter
Send to Vendor
Recreate Data PDF
Industry Converter
True PDF
45
Current Practice
Convert to Internal XML, Run Compliance
Rules Return to Appraiser if Non-Compliant
46
Current Practice
For every return have to repeat compliance
checks
Desktop Reviewer
Yes
Errors
Appraisal Completed
No
Desktop Reviewer
Desktop Reviewer
47
Current Practice
For every return have to repeat third party
conversion process
Recreate Data PDF
Industry Converter
Convert Report
Appraisal Completed
Recreate Data PDF
Industry Converter
Send to Vendor
Recreate Data PDF
Industry Converter
Original PDF
48
Current Practice
Repeat checks until reports compliance is
validated
49
AMC MISMO Implementation
1. Reasons for adopting MISMO Appraisal XML

• Eliminate desktop report compliance checking.
  Check compliance server-side for greater
  flexibility and agility to respond to the market
  place.
• Adopt MISMO externally and internally.
• Currently, issues are encountered with desktop
  compliance software. It is expensive and time
  restrictive to deploy new rules or enhanced
  rules. Difficult to respond to clients needs.

50
AMC MISMO Implementation
2. Reasons for adopting MISMO Appraisal XML

• Eliminate conversion from vendor XML to internal
  XML format to run quality and compliance rules. 
• Adopt MISMO externally and internally.
• Currently, daily issues are encountered with
  existing software delivery files that require
  manual intervention to fix specific
  transactional problems in the conversion of the
  software XML to AMC Internal XML.

51
AMC MISMO Implementation
3. Reasons for adopting MISMO Appraisal XML
Currently, appraisal software vendors make
changes to applications thus resulting in changes
to their XML.  Adoption of MISMO Appraisal XML
eliminates problem. It is inefficient and AMC
cannot rely on software companies to maintain
accurate conversions. These ongoing changes
result in the converters creating corrupt files
that require manual intervention.
52
AMC MISMO Implementation
4. Reasons for adopting MISMO Appraisal XML
Eliminate data to PDF conversion application by
having appraisers create true PDF at their
desktop through the appraisal software and send
as embedded PDF in product response.  This
application is continually causing angst on a
daily basis.  Currently, production support is
required to manually watch this application daily
to ensure it does not fail.
53
AMC MISMO Implementation
5. Reasons for adopting MISMO Appraisal XML
Decrease turn times by creating universal
delivery process that can be pushed out to all
software vendors. Open marketplace to all
qualified appraisers regardless of current
software they may be using. Increase agility in
processing appraisals upon receipt from vendor.
54
AMC Implementation Overview
Accept Decline Order
Validate Appraisal Data
AMC Receives Appraisal
MISMO XML
MISMO XML
Receive Order
Complete Appraisal
Prepare To Sent
Validation Complete
Original PDF
55
AMC Implementation
56
AMC Implementation
57
A Data Matrix 2D Barcode
58
AMC Implementation
59
AMC Implementation
AMC Receives Report
MISMO XML
Complete Validated Appraisal
Original PDF
60
Benefits of MISMO Adoption
Eliminated inefficiency of having compliance
rules at the desktop
Desktop Reviewer
Yes
Errors
Appraisal Completed
No
Desktop Reviewer
Desktop Reviewer
61
Benefits of MISMO Adoption
Eliminated conversion errors by getting MISMO XML
direct
Recreate Data PDF
Industry Converter
Convert Report
Appraisal Completed
Recreate Data PDF
Industry Converter
Send to Vendor
Recreate Data PDF
Industry Converter
Original PDF
62
Benefits of MISMO Adoption
Returns completely eliminated
63
Benefits of MISMO Adoption

• Desktop Report Compliance Software Eliminated
• Conversion to Proprietary 3rd Party Formats
  Eliminated
• Original PDF of Report Received Not
  Reproductions
• Returns Due to Non-Compliance Completely
  Eliminated
• Total Turn Time Decreased Significantly
• Marketplace Opened Up to All Qualified Appraisers
• Processing Costs Significantly Reduced

64
MISMO Security
Current practices do not transmit original
PDF Security is defeated form the start!
Recreate Data PDF
Industry Converter
Convert Report
Appraisal Completed
Recreate Data PDF
Industry Converter
Send to Vendor
Recreate Data PDF
Industry Converter
Original PDF
65
MISMO Security Best Practice
AMC Receives Report
MISMO XML
Complete Validated Appraisal
MISMO Best Practice Security Starts with
Original PDF
Original PDF
66
On Document Verification
67
A current use of this technology
68
Uses of Data Matrix Technology
Fingerprints Encoded You can also encode digital
signature to encrypt data
69
Different Types of 2D Barcodes
What are 2D barcodes? 2D Barcodes are symbologies
that are capable of storing more information than
can normally be contained in a conventional
linear barcode.

70
Step 1. Combine Identity Data
Appraiser Identity Information
Data Matrix
Appraisal Report Salient Data
71
Step 2. On Document Verification
Affix Data Matrix to document
72
Step 3. Create Document Digest
12348723649234248..
512 Bit Document Digest
Store on Secure Server
73
To Authenticate Document

• Upload to Authentication Service
• New Digest is created
• New Digest is compared to stored Digest
• Data Matrix is decoded
• If digest matches
• Document Authenticated
• Decode Identity from Matrix
• Appraiser Identity Validated

Digest Server
Document in Question
74
Four Levels of Security
Identity Authentication Two Factor Certificate
PIN
Data Matrix Encrypted Information
Document Digest Report Integrity Validation
Optional Document Storage Complete Report
Replication
75
Conclusion

• Benefits MISMO Appraisal XML
• Improves Report Quality
• Reduces Costs
• Reduces Turn-Times
• Original Appraisal PDF and Data Maintained
• Opens Market to all Qualified Appraisers
• Benefits of MISMO Best Practices Security
• Two Factor Authentication
• Data Matrix Industry Standard Encryption
• On Document Verification of Data Identity
• Tamper Evident
• Document Integrity Maintained (secure audit trail)

76
(No Transcript)
77

• Addendum

78
Minimal Risk Process

• No elevation of Collateral Risk Score
• No obvious variances to underwriting guidelines
• No warnings based on
• Property type
• Geography
• Vendor
• Product type
• Client specific flags

79
Escalated/Complex Review

• Initial sorting identifies complex issues
• Property characteristics
• Appraisal issues
• Market area trends
• More human intervention required
• Second Look if lower level queue moves case to
  a reject loan status
• May be set to route directly to this level

80
Making It All Work Together

• Getting the most bang for your buck!
• Enhance results of collateral decisions produced
  by products already in your workflow
• Products work together for increased risk
  mitigation
• Data from the appraisal or other valuation
  services product is immediately available to be
  added to the loan file and/or database.

81
Review Capacity Sample Formula

• Daily production capacity (DPC)
• DPC Analysts x /hour x hours
• Example
• DPC 5 analysts x 3/hour x 8 hours 120
  loans/Day
• If daily loans 210, then 80 dont get done, or
  you have to hire 3.3 additional analysts.

82
Too many loans, too little time

• Choices
• Pump Dump
• Dont review 80 of the loans just close them
• Hire More Staff
• Work everybody overtime
• Enhanced review
• Spend most of your time on the loans with the
  highest risk.
• Spend less time on lower risk loans
• Increase efficiency of staff

83
MISMO provides a data standard

• Appraisal or other valuation service report in
  MISMO Format
• No translation, typing or scanning.
• Original appraiser makes the conversion and
  seals the report
• Live data elements in your system lend themselves
  to advanced level electronic comparison and
  review
• Straight through processing still includes
  checking and verification

84
Automated Review and Validation

• Checks the appraisal for consistency and
  compliance to underwriting guidelines.
• Employs third party tools for collateral risk
  scoring and value verification.
• Appraisal must be credible
• Check for bias or errors.
• Issues and exceptions are routed to analyst or
  underwriter for decision

85
(No Transcript)