Did a lot of painting inside my house this weekend so I apologize if some of the paint ended up on this post.
The comment period has ended but the debate rages on within the appraisal profession: the new mortgage process that does not allow appraisals to be ordered by mortgage brokers will have the effect of enabling appraisal management companies and end up with an unreliable appraisal product. Two different paths taken to the same end: crummy collateral asset quality.
I am guessing the OCC is going to get busy, gaining back the limelight on the mortgage lending process from the NY AG’s office.
James Hagarty wrote a nice piece in the Wall Street Journal called Who Should Profit From Home Appraisals? about the political storm that has only just begun. What I find disappointing is how self-serving the players have become. Nothing wrong with advocating for your constituents, that is their job. The part that rubs me wrong is that it has become so predictable. The trade groups seem to be saying the old system worked just fine. Of course that is a complete disconnect from reality.
How does one explain how we got here? And are we going in the right direction?
- Appraisal Management Companies (Title/Appraisal Vendor Management Association) – banks pay them about the same fee as the appraiser would get but they keep 30% to 60% of the fee and work hard to find appraiser (form-fillers) who will work at fees that don”t allow them to do research in the appraisal process. It’s laughable that the trade group contends they pay market rate to appraisers. Market rate for AMCs, I think is what he means. The AMC model doesn’t work paying market rates. It has been my experience that most appraisals I have seen done for AMCs are usually not worth the paper they are written on. The lower caliber appraisers they are forced to use experienced a flood of business during the housing boom. It is going to be interesting to see how that caliber of appraiser fares in a tighter underwriting environment.
The AMCs keep a big share of the fees consumers pay, typically at least 30% and sometimes more than half, appraisers and AMC executives say. The AMCs say they provide a valuable service by maintaining networks of local appraisers and controlling quality. “The AMCs pay market rate” to local appraisers, says Jeff Schurman, executive director of the Title/Appraisal Vendor Management Association, a trade group.
Mortgage Brokers (National Association of Mortgage Brokers) – they want the appraisal industry to self-police and get rid of appraisers who turned in falsified work. Yes that has worked so well already (sarcastic emphasis). While we are at it, let’s tell mortgage brokers not to press appraisers for a higher value than they know is right or withhold payment from an appraiser for not making the number. Unbelievable. This mortgage brokerage group should be ashamed of themselves for taking the scare tactic approach that consumers will be forced to pay much higher fees. How much has the current mess already cost consumers?
Appraisers (Appraisal Institute) – Appraisers have flip-flopped on this issue. Initially they applauded the Cuomo agreement but were disconnected from what the industry wanted. The industry has been roiling for the past month over the empowerment of AMCs. I think this trade group, which is inherently commercial appraiser centric rather than focused on the plight of residential appraisers, is so worried about AMCs that they are willing to accept the lesser evil of allowing mortgage brokers to control the appraisal (bingo!). Loss of competent appraisers versus standing up to intense pressure to play ball. Not much of a choice.
OFHEO (HUD) – They seem to be detached from this whole situation yet they are the oversight agency for the GSEs. Amazing.
FDIC – No comments submitted (yet they insure lenders and provide bank oversight).
Federal Reserve – No comments submitted (yet they manage the health of the banking system).
Congress – proposing lots of ideas but most of them of no real help or will provide a benefit after it is too late. Hard to parse out grandstanding from heartfelt concern. I’d like to think they are really trying to fix it.
OCC (Treasury Department) – No comments submitted and boy are they pissed off. Their turf has been stepped on. Actually, it has been stomped on. I’d expect a lot more statements from the OCC in the near future.
Bottom line: If we want the lending system to have the collateral value estimate free from corruption and influence, then appraisal management companies, bank loan officers and mortgage brokers have no business whatsoever, ordering appraisals directly because they have a vested in their outcome. I believe it is called commingling interests.
Comments or no comments, I find it hard to believe that OCC will allow this to happen without making their own agreement. Otherwise, they will become as non-existent as OFHEO was during the housing boom.
Also check out: The Housing Crisis & The Plague of Potomac Fever