Bank of America reportedly opened a unit in India to review valuation reports in an effort to boost its share of the U.S. mortgage market at a lower cost, Bloomberg reported June 28.
Workers in the new Bangalore office use checklists to decide if appraisals are complete, according to people who talked to Bloomberg on the condition of anonymity. Bank of America also eliminated positions at its Plano, Texas-based LandSafe appraisal division, which made $78.8 billion in loans in 2012.
“One of the biggest problems in the mortgage business is all the paperwork involved, and how do you engineer it to reduce the bottlenecks,” Bert Ely, an independent banking consultant in Alexandria, Va., told Bloomberg. “With offshoring, the potential for problems is always there, but it’s hard to be critical for trying to minimize costs.”
Like many lenders, Bank of America needs to increase revenue and cut spending in order to compensate for sub-par loan growth and new government regulations. The bank spent in excess of $45 billion to settle disputes related to faulty mortgages and foreclosures and is among the most aggressive cost-cutters with Chief Executive Officer Brian T. Moynihan looking to save $8 billion per year, Bloomberg reported.
The bank was the fourth largest mortgage lender in 2012 — claiming roughly 4 percent of the market; in 2008 it made $315 billion and accounted for more than 20 percent of the market, Bloomberg reported.
According to LandSafe’s website, the company employs more than 2,000 U.S.-based associates. Along with appraisals for new home loans, the unit also conducts valuations of the bank’s portfolio of delinquent loans — 667,000 as of March 31. The lender eliminated nearly 5 percent of LandSafe employees February 25, saying they weren’t needed because the number of delinquent loans had dropped.
Bank of America spokesman Terry Francisco told Bloomberg that the lender’s program prevents paperwork errors from delaying loan applications and that the overseas completeness checks don’t replace in-depth reviews done by licensed U.S. staff.
“The overall consideration isn’t necessarily cost, although cost can be an element,” Francisco told Bloomberg. “What we’re looking for is if there are patterns in certain areas where it looks like the reviews aren’t necessarily needed anymore.”
The U.S.-based reviewers usually have at least five years of experience as appraisers and are required to verify accuracy by conducting independent reviews that align with industry standards, Bloomberg reported. The checklists in India cover a total of 17 items, including whether the appraiser signed the report and included photos.
Relying more heavily on checklists could increase the possibility that inaccurate reports will go unnoticed, according to Karen Mann, SRA, a Discovery Bay, Calif., appraiser who provided testimony in 2011 for the Financial Crisis Inquiry Commission’s report, which investigated the reasons behind the housing bubble and subsequent credit crunch.
“Experienced, licensed appraisers know the shortcuts people take, so those reviewers can be invaluable,” Mann testified, Bloomberg reported. “With the checkboxes, they’re looking for things that don’t really have anything to do with values.”
LandSafe workers complained last year about a reduction in review work and its impact on their compensation and job security, an individual with direct knowledge of the internal discussions told Bloomberg. At the time, LandSafe executive Tracy Sanderson said that management couldn’t expand the number of reviews due to cost; this time Sanderson didn’t return Bloomberg’s requests for comment.