Evaluating the Evaluation - PowerPoint Presentation

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Evaluating the Evaluation - PPT Presentation

Bank Evaluation Programs Doug Potts MAI VP Commerce Bank A Few Questions TrueFalse Most loan transactions require appraisals TrueFalse Evaluations are killing the appraisal profession ID: 710255

evaluation amp property data amp evaluation data property eval appraisal vendor cost loan information reg analysis collateral inspection risk

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Slide1
Slide2

Evaluating the EvaluationBank Evaluation Programs

Doug Potts, MAI, VP

Commerce BankSlide3

A Few Questions

True/False?

Most loan transactions require appraisals.

True/False?

Evaluations are killing the appraisal profession.

True/False?

Reg

B will eventually create more business for appraisers.

True/False?

Reg

B will - in time - increase available consumer credit.Slide4

A Primer on Bank Lending

Major Purposes

New Loans (new collateral)

Subsequent Transactions (existing collateral)

Problem Loan Management (“exiting” collateral)

Major Loan Categories

Consumer purpose lending (GSE / HELOC)

Commercial business lending (C & I)

Commercial investment lending (CRE)

Unclassified lending – the “junk drawer”Slide5

Bank Portfolios--Risks & Rewards

Where does most of a bank’s workload sit?

Do renewals generate new $ for added cost?

New loans generate growth in profits

80/20 rule with a vengeance

Loan profitability sits in the 20%

But the workload sits in the 80%

Renewed loans generate $0 added profit

But comprises the bulk of a bank portfolioSlide6

72% of

profit

% of

profit

50% of volume

0% of volumeSlide7

Evals

for 1 AppraisalSlide8

The Point Is ….When you combine the 80/20 rule with the $0 profit rule ……

You need a cost-effective solution to meet

Underwriting need

Regulatory requirements

The key is “adequacy”Slide9

The Purpose of Evaluations

Regulations require every loan get a value

Only some deals require an appraisal.

But they also provide for cost effectiveness

Spread thin but broadly

Load balance tool

Balance risk & reward

Risk sensitized

For loan size (e.g. <$250M de

minimis)

For repayment reliance (CRE v C&I v Consumer)For portfolio concentration & workload (new v renewal)Slide10

Program Basics

External Vendor Procured

Proliferating Options

Growing array of vendors

Growing array of evaluation styles & products

Coverage & Fulfillment

Internally Developed

Licensed or Unlicensed Team Members

Qualifications & Training

Data Sourcing & Inspections

QA / QC ControlsSlide11

Evaluation – Scope of Work

Interagency Appraisal & Evaluation Guidelines

Flexibility v rigidness

When & where to use

Defining the problem

Creating the solution

What will your regulator permit?Slide12

2010 IAG Requirements

Should contain sufficient information

Details analysis, assumptions, conclusions

Should be documented in the credit file or reproducible.

Identify the location of the property.

Provide a description of the property and its current and projected use.

Provide an estimate of the property’s market value in its actual physical condition, use and zoning designation as of the effective date of the evaluation (that is, the date that the analysis was completed), with any limiting conditions.

Describe the method(s) the institution used to confirm the property’s actual physical condition and the extent to which an inspection was performed. Slide13

2010 IAG Requirements #2

Describe the analysis that was performed and the supporting information that was used in valuing the property.

Describe the supplemental information that was considered when using an analytical method or technological tool.

Indicate all source(s) of information used in the analysis, as applicable, to value the property, including:

External data sources (such as market sales databases and public tax and land records);

Property-specific data (such as previous sales data for the subject property, tax assessment data, and comparable sales information);

Evidence of a property inspection;

Photos of the property;

Description of the neighborhood; or

Local market conditions. Slide14

2010 IAG Requirements #3

Include information on the preparer when an evaluation is performed by a person, such as the name and contact information, and signature (electronic or other legally permissible signature) of the preparer. Slide15

Let’s Re-Arrange the IAG Ideas

Evaluations have 5 major elements

Define the problem to be solved

Get needed research elements

Make needed inspections as appropriate

Selecting the right data

Doing the math & calculationsSlide16

Evaluation Scope -

Defining the Problem

Research

& Descriptions

Inspection & Descriptions