In other words, the institutional entities that are responsible for ordering, reviewing, approving and managing licensed appraisers, aren’t held to the same or similar standard – Appraisal Management Companies (AMCs).
One of the byproducts of New York State Attorney General Cuomo’s agreement with Fannie Mae (HVCC), was to prevent mortgage brokers from ordering appraisals for conforming mortgages that would be purchased by Fannie Mae. That’s a good idea in general. But by doing that, most national retail banks and many regional banks, are forced by necessity to manage the appraisal process directly. Few have the overhead to do this and therefore resort to appraisal management companies. Call an 800 number and order a report anywhere in the country.
Appraisal management companies are generally paid the same fee as an independent appraiser would be, so they have to find appraisers who will work for 1/3 to 1/2 the market rate (or 2/3 the rate as their trade group claims). To differentiate, they generally require 24 to 48 turn time per assignment, yet an appraisal is not a commodity like a flood certification – it’s a professional analysis by an expert.
Here’s a classic example of the new breed of unregulated appraisal oversight. It’s worth the read. Same problem as the mortgage boom days – pressure, sloppy work, crank it out – just a different type of institution doing the ordering.
And AMCs have a trade group called TVMA (The NAR of AMCs), which does all it can to further their mission. Here’s their recent blog post saying their fees are 60% of the market rate rather than 50% as has been my experience as well as the appraisal organizations who testified in front of Congress.
Think about it – their argument is essentially this: Taking a 40% pay cut is a whole lot better than a 50% pay cut.
Whether it’s 40-20-10 [yet even more spin] or whatever percent the fee reflects what willing sellers (appraisers) and willing buyers (AMCs) in the local marketplace are willing to accept based upon their own self-interests. To try and draw a cause-effect relationship between fee and quality before congress is a little bit disingenuous, absent hard data.
Here’s the AMC fee logic in a nutshell:
If an employer posted a job listing with a starting salary 40% below the last hire’s salary – this will result in no measurable differences in the quality of job applications received? Forget the correlation/causation argument, what about common sense?
For once, I agree with NAR.
Appraisal management companies are not currently regulated at the federal level and regulation at the state level varies. Regulation would ensure that AMCs operate within the same basic guidelines and standards as independent appraisers. Further, this allows AMCs to be regulated within the existing appraisal regulatory structure, which avoids the need to create additional layers of government bureaucracy.
The Appraisal Institute announced the House version of bill 1728:
Furthermore, the bill requires separation and clear disclosure of fees paid to appraisers and fees paid for appraisal administration (i.e., fees paid to appraisal management companies); prohibits the use of broker price opinions in loan origination; and requires registration, and a regulatory framework, for Appraisal Management Companies, with mechanisms to prohibit infiltration by appraisers sanctioned by state regulatory agencies.
That specific wording “and a regulatory framework, for Appraisal Management Companies, with mechanisms to prohibit infiltration by appraisers sanctioned by state regulatory agencies” reflects the situation discussed in the St. Petersburg Times article.
Here’s usually the way the process works:
- To be approved, the appraiser submits a state license and in some cases, submits a couple of sample reports.
- The appraiser agrees to the half market rate fee structure and 24-48 hour turn time requirements (market rate is 5-7 days).
- The appraiser is placed in a computerized queue and is given an assignment
- The appraiser gets 1-2 calls by young kids out of high school making sure the appraiser will turn around the assignment in 24-48 hours
- The appraiser has to be very pushy to be able to get into the property in order to turn the assignment around in time.
- If there is a valuation problem or issue that needs interpretation by the AMC, the solution is often to just disclaim the problem in the addendum somewhere.
- Little if any interaction available from qualified appraisal professionals on AMC staff
- The appraiser gets more work if the jobs are turned around faster because the queue is set to have maximum amounts allowed by an appraiser at any one time.
- Remember, the fees are half market rate. In higher cost housing markets, the fees can be as low as 1/3 the market rate because the AMC appraisal fees are often set at national rates. In other words, appraisers in Manhattan would be paid the same as North Dakota even though the cost of doing business is 4x higher in Manhattan.
Now imagine the quality and reliability of this product, which is not a commodity, but an expert opinion prepared by a professional. It’s hard imagine much professionalism squeezed in this process, isn’t it?
HR 1728 H.R. 1728: Mortgage Reform and Anti-Predatory Lending Act was just passed by the House and Senate and is ready to be signed by POTUS. Here’s the appraisal portion.
It looks as though AMCs will be licensed just like appraisers will:
‘(7) maintain a national registry of appraisal management companies that either are registered with and subject to supervision of a State appraiser certifying and licensing agency or are operating subsidiaries of a Federally regulated financial institution.’
However, this will be more of a revenue opportunity by the states – licensing doesn’t have much to do with competence. Plus, I don’t see how states will have the manpower to provide meaningful oversight other than clerical aspects.
Mark my words here – this is an accident waiting to happen.
Tags: Conforming Mortgage, Fannie Mae, Appraisal Management Companies, HVCC, Appraisal Institute, AMC, NAR, National Association of Realtors