I’ve discussed the curse of stadium naming. The new Citi Field stadium name is in danger of going Enron on us. After all, the naming rights are only a paltry $400M and the Sunday’s Citi bailout was $326B.
For the past few years (for security reasons?) appraisers have been required to provide private financial information to Citi in order to consider whether the appraiser was solvent enough to work for them. Appraisers I know fought tooth and nail against this. In our case, we had been working for them for more than 20 years and now they want to know how much money we make? In other words, they wouldn’t want an appraiser to go under during the middle of a $400 appraisal assignment. It would be (apply sarcastic tone here) devastating to the entire financial system I would think.
The irony here is amazing given Citi’s need for a bailout.
Don’t get me wrong, we work for other areas of Citi which are sophisticated and professional. I am simply fed up with the “efficiency” theory of banking as it applies to backroom operations of large retail banks. They have lost their way. Incidentally, nothing has changed in this regard since the credit crunch began in the summer of 2007.
A few months ago, Citigroup’s retail banking appraisal group based in Missouri put my appraisal firm out to pasture (demoted to backup) in favor of appraisal management companies (those big national companies known for high speed, low costs and virtually zero quality (aka “army of form fillers”) aka AMCs and high volume appraisal shops/factories.
Of course, Citigroup gets a bailout.
Here’s a sampling of our former clients who are national banks that went with appraisal management company factories and ended up getting into financial trouble.
- Citigroup – went with AMCs
- Washington Mutual – Residential mortgage lending gone – went with AMCs – NY AG tried to sue them for collusion with eAppraisIT to pressure appraisers (an AMC)
- Countrywide – absorbed by Bank of America – lots of litigation in the future
- US Trust Company – went with AMCs – such a disaster they actually came back to their appraisers only to be purchased by Bank of America and then we were dumped again
- Bank of America – went with AMCs – rumors that it was such a bad experience, returning to appraisers
- Wachovia – created their own AMC, Bought by PNC.
Not really. Like the stadium naming deal, the shift to an AMC symbolizes the point when a mortgage lender goes too far and loses touch with it’s understanding of risk. The corporate culture loses the ability to understand the importance of assessing the value of the collateral to which they are lending. Common sense evaporates.
For the most part, the individual review appraisers that worked at these lenders were professional and competent and could see the issue at hand, but they just didn’t have the political weight, so to speak.
Hopefully those institutional politics will be crushed by the time we reach seventh inning stretch (at US Treasury Field).
This just in: Tiger Woods now needs to rustle up lunch money.
Tags: Appraisal Management Companies, Bailout, AMC, Bailout Nation
Jonathan, I can’t quite decipher from your post why you think the mortgage industry will return to risk management that includes honest collateral values. As far as I can see there is no incentive for them to do so except for maybe two or three sacrificial lambs that will not be bailed out. If I read you correctly, it might be that the losses they suffered will be the deterent, but did they actually suffer them or was that traded off to some other sector? I prefer the lofty goal of the greater good, but I don’t think there is much of a demand for that anymore. You may be able to learn from your mistakes, such as concocting unsavory pudding, but that is because you hold yourself accountable in that case to your kids. There is no such parallel in mortgage lending that I can find. I’ve been pondering this for ten years, back to the day when I, as mortgage appraisers, used to pride myself, often at the risk of abuse, for protecting the banks by being their reliable eyes and ears, which protection function disappeared completely with the growth of the AMCs.
Did I miss something? Why will that ever be a mortgage appraiser’s function again? If so, why? Even your AG, Cuomo, thinks AMCs are the way, the truth and the life, which I understand has them acting like they got a free lifetime supply of Viagra. Back in the mortgage broker swarm, they were a pain, but AMCs seem dedicated to erradicating what is left of appraising in mortgage work-and appraisers are accommodating them.
Oh I think shareholders are already suffering in a big way. But you’re right – unless there is an economic incentive to change behavior, lending practice will continue unabated. The removal of exotic loan products from the mix doesn’t change lending practice on the existing products. I think you have Cuomo wrong on his intention. The residual impact of his actions ended up empowering AMCs but that wasn’t the intent, nor was there a way for him on a state level to regulate their practices. You can’t really mandate fee thresholds and general business practices as an AG. Something has to happen on a federal level to reign in the lack of quality.
As far as every day life of appraisers, nothing has changed since the credit crunch began other than less business in general.