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 TAVMA (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, TAVMA, REVAA, NAR, National Association of Realtors
Jonathan, As usual, on the money.
Very well written, Jonathan!
I am working with a large law firm that is preparing to take this to court – because our various State and Federal Regulators and Law Enforcement agencies would rather bury their heads in the sand and pretend no problem exists.
The http://www.AppraisersPetition.com was started in 1999 and many appraisers from all across this nation have sent it many times to legislators, regulators, the media, since 1999, with NO response.
The mortgage brokers had to be removed from appraiser selection and the appraisal process, but the HVCC and the way it put AMCs in the drivers seat should be criminal.
Anybody that has or does work for an AMC, a lender that uses an AMC, or is in one of the GSEs, that is sick of what they know and would like to confidentially tell what they know is welcome to a private chat under attorney protections. Just email me and I will put you in touch with the law firm.
My email: pec514 @ yahoo. com (remove the spaces)
I marked your words Jonathan and I’m glad Pam got on here too.
If I recall correctly, Pam fed info out of her files and from what was gathered up when eAppraiseIt sued her to Cuomo to help his suit, which had to do with fraud at some level (little did any of us know then that fraud was as entrenched as it is). Cuomo wanted Fannie’s files to further his prosecution and Fannie stonewalled him. As an alternative to lending practice transparency, Fannie came up with HVCC. In marking your words Jonathan, I must emphasize this accident is not waiting, it has already happened. The AMCs have been exactly the problem they are since LSI was the only one and we didn’t know to call it an AMC. As I recall, Transunion jumped on next, although it was sort of a gang bang beginning in 2004. Rels (Wells Fargo) tried to recruit appraisers by admitting to that their fees were low, but at least we would be paid! My god. The HVCC is nothing so much as activity masquerading as progress. As you observe, appraiser political power is not so strong as that as of the AMCs. ‘course, scratch just about any AMC and you’ll find a bank or title company just below the surface sucking in the profits and pushing overnight values. Thanks for clarifying that AMCs are ordering commodity appraisals. Those are not what any appraiser anywhere in the US should do regardless of what any client wants, nor would any be doing them if our ranks were manned by people who demanded more of themselves before they offered their consulting opinions.
HVCC = Mortgage Crisis II
I believe that once we get this mortgage crisis behind us and on to the next one Congress will be more interested in listening to what appraisers have to say about HVCC.
I hope you’re right David.
Faster and Cheaper is not the answer folks. Last week an article I wrote regarding appraisal pressure from AMC’s was posted on Appraisal Scoop. I was specifically looking for examples of AMC’s attempting to get appraisers to reconsider values – of course all of these reconsiderations are looking for a higher value. I was amazed to find that nearly every national AMC is working this angle. Many have special forms that are sent back to the appraiser with additional sales data (they call them comparables – isn’t that our job to determine when a sale becomes a comparable). This information appears to be coming from the lender and in most cases the homeowner. So how is this any different than when Mortgage Brokers pushed appraisers for higher values. It’s the same problem and the AMC’s want this all done in 24 hours. If you refuse to bend to the pressure and use their sales then they punish you by making you write a lengthy explanation for each sale they sent you to consider. This practice must be stopped. If Illinois eventually licenses AMC’s I will fight to stop this practice. We will look back at the HVCC years from now and realize the damage it caused to the lending industry and more importantly to the appraisal profession. Since January 1, 2008 appraisers are now required to have college degrees. In Illinois we would average 300 to 400 new Certified Appraisers in a year before January 1, 2008. Since January 1, 2008 we have licensed less than 15 new Certified appraisers. What does that tell you. No one is going to go to college to become an appraiser and then go to work for an AMC and make $30,000.00. The system is still broken.
Great insight TJ. I concur completely. Please share the link in to your article on AppraisalScoop.com (for the uninitiated, one of the best appraisal sites out there).
TJ, Why not, in the interim of time it takes to return sanity to mortgage appraising, just refuse to work for them on their terms? That is what I have done and I have no mortgage work and the wolves are howling closer to my door. My extraordinary assumption is the AMCs are doing fine because appraisers are doing exactly what they are told to do, when they are told to do it, in the way they are told to do it and in the alloted amount of time. Many appraisers seem proud of their abilities to do all of that. Is that an AMC problem or an appraiser problem? Or is it a problem at all? Many appraiser leaders I talk to about this stuff just brush it off with, “It’s a business decision.”
It seems the real estate and appraisal situation just keeps getting worse. I’m ready to see the housing market heal and be able to make a living again!
I had another thought to add. We are seeing home appraisers coming from out of the area much more frequently these days. They come from a different market, and it’s hard to have confidence in their work.
More support for my conviction that the problems we complain of have only appraisers to thank for their persistence. I guess we can hope those commuter appraisers are good for the profession, but it is sort of counter-intuitive. I’m not so sure that out-of-area is as dangerous as cheap & fast, but I do wonder how those transients justify their bottom line if they are working for AMCs. Can’t be much to brag about I’m sure.
TJ, You said, “No one is going to go to college to become an appraiser and then go to work for an AMC and make $30,000.00.” Correct, and I applaud the states for following the Foundation in requiring appraisers to be better educated. Hopefully, with that education and some “skin in the game” appraisers will consider themselves a professional with responsibilities and have the backbone to say no. The country doesn’t need so much as one more uneducated, inexperienced, hungry appraiser to do mortgage work, period.
The banks have a long track record of needing scrutiny, but that is not and never should have been the job of an appraiser. As it is, many clients see us mostly as a tax at best, but useful to make it happen, and if the appraiser doesn’t, he/she will not get the business and another appraiser will. As a general rule mortgage clients have abandoned appraisals for a rubber stamps and appraisers have happily enabled the abandonment. The momentum these lenders have generated to line their pockets at the expense of consumers and each other is shameful and overwhelming and I think raising the bar for entry appraisers is a stroke of genius. That was done when the lenders were blaming crappy appraisals for over-valuing properties. Timely, very timely, and a beautiful finesse. I guess there are appraisers who don’t want or can’t get education. My empathy wants to help them, but the profession has got to advance out of this mess and it can’t given the current levels of expertise. Why fight the biggest bully mano-a-mano when the outcome is inevitable?
TJ and Jonathan, I am interested why you guys approach the pressure problem by applying appraiser ethics to the AMCs. Those guys, like the mortgage broker crowd before them, are doing their jobs by making the loan happen, with respect to the appraisal anyway and getting it done as cheaply and as fast as possible while making a living at it. If the lenders wanted the appraisal to effect the outcome they would insist that it be ordered much earlier in the process. Resisting pressure and remaining independent and ethical is an important part of the appraiser’s job, at least as important as knowing what you are doing. If the appraisal industry restricts the supply of cheaper/faster hit-the-number appraisals then the AMCs will have to go elsewhere or accept what appraisers are supposed to be doing. So by limiting the supply of certified appraisers, the industry is to an extent placing pressure on the lenders to get credible appraisals. The problem of flimsy appraisals is one the appraisal industry encouraged and enabled.
It is just a matter of time. Appraisers who want to do better can either refuse now to do this kind of junk work or wait until later. To me that begs the question, “Why prolong it?” Nobody is going to level this field for our benefit or in order to ensure that appraisals are credible and not misleading. Those are appraiser goals, and I hope they are, so appraisers have to make them happen. Or we can just wait for HVCC and the stiffer licensing rules to play out and see if things get cleaned up. So again, why is it you want to apply appraiser ethics to AMCs or for that matter mortgage brokers or lenders? Is it to make it more comfortable for us?
So, TAVMA says appraisers should present evidence to Congress in support of an intuitive conclusion. i.e., You get what you pay for. Maybe they are right. So why don’t we? And while we are at it, let’s challenge them to present evidence to support the counter-intuitive conclusion that you can get good quality appraisals cheap and fast.
Again. I am concerned that the quality of appraising real estate will deteriorate even further with the advent of HVCC and I think that is a fairly common concern among us. I went on line looking for statistics or studies that relate the quality of appraising to the fee paid. Not too surprisingly, I found none. But, I did find an article that had as its thesis the relationship between the cost of health care and its quality. i.e., if you pay more do you get better care?
The study stated the following in its definitions:
“QUALITY There is no right or wrong definition of quality. There are really multiple dimensions of quality, depending on the variety of perspectives on quality (for example, the perspective of the client/family, the community, the provider or the organization/healthcare administration). It is also important to acknowledge that the differences and seemingly opposite definitions of quality can operate at once and may need to be reconciled (e.g., a provider’s technical accuracy of not giving injections conflicts with a parent’s expectations of a shot as the best available treatment). Still, compliance with standards (technical accuracy) is a major underpinning of quality.”
Center for Human Services • 7200 Wisconsin Avenue, Suite 600 • Bethesda, MD 20814-4811 • USA 9/2001
I submit that the appraisal profession must define quality before we can correlate quality with cost or time. USPAP requires credible, not-misleading appraisal reports that meet certain standards, but leaves the determination of appraisal quality ultimately up to the intended user. Unfortunately, the appraisal review process does not have consistency in the standards it uses. The medical article quoted above focuses on differences in perspective, but it is obvious at this juncture that there is no consensus within the appraisal profession about what constitutes quality in a real estate appraisal. Therefore, how much time and expense it takes to produce appraisal quality cannot possibly be calculated.
Until we establish what quality is, appraisers simply cannot meet the TVMA challenge to produce empirical evidence in Congress that the cost or speed of production in appraising is related at all to quality. Indeed, the appraisal industry has blessed the AMCs with a great deal, if not almost total control. It seems we have very little political influence and our leadership is in disarray. Once again it boils down to individual appraisers saying NO.