Monday, January 26, 2009

It's time to Regulate Appraisal Management Companies

Appraisal Management Companies typically administer a network of certified and licensed appraisers to fulfill real estate appraisal assignments on behalf of mortgage lending institutions. They often recruit, qualify and verify licensure for their panel of appraisers.

One major problem with Appraisal Management Companies is they are completely outside the regulatory loop controlling real estate appraisers and protecting the public. No state or Federal agency is tasked with the regulation of Appraisal Management Companies. In fact, there is a documented case of Florida Appraisal Management Company owned and operated by an individual that surrendered his Certified Residential Appraiser credential for permanent revocation to avoid prosecution for several complaints. This individual, in fact, was the subject of at least 10 complaints by consumers, lending institutions and other appraisers. His discipline prior to the surrender for permanent revocation included fines, probation, completion of education and a period of suspension.

Appraisers, appraisal associations, the Florida Real Estate Appraisal Board and the Florida Association of Realtors believes the failure to regulate Appraisal Management Companies is a danger to the public. Their concern is heightened by the pending implementation of the Home Valuation Code of Conduct discussed in a prior post.

Thankfully, the Florida Association of Realtors has stepped up to the plate and stated their support of an effort to establish regulations for Appraisal Management Companies. During their January 26, 2009 meeting, the Board of Directors of the Florida Association of Realtors passed a motion to support the registration and regulation of Appraisal Management Companies operating in Florida. Draft legislation has been written by a concerned group of appraisers consisting of members of the Appraisal Institute, the National Association of Independent Fee Appraisers and the Florida Association of Realtors. The Florida Real Estate Appraisal Board supports the concept as well.

The Florida Chapters of the Appraisal Institute will take the lead in securing sponsors in the Florida House and Senate. We will do our best to keep you apprised of the progress.


Anonymous said...

Frank --
Richard Hagar just forwarded your comments on regulating AMC's and I am in full agreement!

If your bill has been dropped, please send me the bill number so I can access it on the Florida legislature web. If it has not been dropped, I would appreciate a copy of the draft.

I am on the board of the Appraiser's Coalition of Washington and we want to do the same thing here. I don't believe the HVCC is going to be the answer that some seem to think.

Barry Wilson
Seattle, WA

Anonymous said...

This seems to be a protectionist movement at the very least. AMC's have notably helped to keep pricing stable and brought more business to appraisers than they may have seen in the past.

An AMC does not care who you know in a market, they are only concerned with quick, efficient and accurate reporting of the facts related to a piece of property. Truly, an impartial group.

I am glad to hear that you at least have one company that is bringing the wrath of the industry within Florida! Should we look across the country and see how many independent appraisers have colluded with lenders and real estate agents to cause actual fraud?

With nearly 30 years in the financial services industry I can tell you the instances of appraiser fraud have been at an all time high. While I do not have the data to support it, my gut instinct tells me that the fraud is perpetrated only when there has not been an AMC involved.

It was independent appraisers in NY that brought on the Code of Conduct, not the AMC's. Now Florida wants to legislate AMC's instead of putting their legislative power where it really needs to be - better oversight of the appraisers in Florida. This is like holding the Carnival balloon vendor responsible for a bad design in the ballon! One has nothing to do with the other accept in this case, the AMC is acting as an outsourced review service for the lender.

Perhaps the Florida body that regulates appraisers needs additional powers instead of regulating something totally different! Wouldn't it seem natural to have prohibited the appraiser from becoming involved with any business related to the appraisal industry? Funny, other regulated industries seem to be able to bar people in this manner!

Unknown said...

Dear Frank,
I represent an "in development" AMC located on the West coast based in Seattle. For months now I have heard appraisers moaning and groaning about AMC's, specifically how they are ruining their livelihoods. I myself know that the glory days for AMC's are coming to an end. More importantly, I understand that appraisers and AMC share a symbiotic relationship where one cannot survive without the other. Currently we are in the process of structuring our whole revenue model to remain competitive in the AMC industry and MOST IMPORTANTLY we want to keep our appraisers happy however there has never been any talk about what is "fair." While I do not believe it is "fair" when AMC's take 50% of the appraisal fee, I do believe AMC's are an essential role in the loan process. We are preparing a incentive package which we believe appraisers will love but what are your thoughts?

Anonymous said...

I must say that you are wrong about the symbiotic relationship that appraisers have with AMC's and that one could not survive without the other. Appraisers do not need AMC's in the least bit to survive and thrive. AMC's say you get more orders through an AMC. That's a great solution! Except for one thing...that getting orders was never a problem before AMC's came along. The orders somehow managed to get placed with local appraisal companies anyway and everything was fine. The orders we get now through AMC's were taken from us in the first place and handed back to us at a half fee rate...gee thanks AMC's! You have found the solution! The AMC’s want us to use their proprietary web based platforms updating and uploading reports, so we have to have an extra office staff member now to manage our jobs on your websites, usernames, and passwords all day….extra person on the payroll for half the money! Two industries split the appraisal fee and the appraisers have to hire staff to manage the AMC’s! Is that fair? Symbiotic? If I had to choose my half of the fee, I would choose the one where I didn’t have to go out to inspect the property, do the report, or even have a license too! AMC’s are currently freeloading and interfering with a perfectly good industry that had it’s prices set naturally by market forces prior to the mass influx of AMC’s. I’ve got news for you AMC’s, there is a great system out there that works for everyone to keep communication lines open and deliver reports…its called email! It works like a champ! In my opinion, if you really are providing your clients with a value added service, you should be forced to add your fee on top of the normal market price of appraisals as set by appraisers instead of thinking there was enough profit margin in the appraisal industry for two industries to share without a fee increase. As it stands, AMC's use the stolen money from appraiser's profit margins to subsidize the sale of their services to the lenders. Considering that the job of appraiser is federally mandated to exist to assist in the underwriting federally related transactions, it would seem to be only fair that one should be able to make an undisturbed living by being a practicing professional appraiser. If necessary, the AMC's need to be mandated out of their current postion of being able to set appraisal prices lower and lower while increasing workload and content in reports, requiring faster and faster turntimes, and controlling the entire money flow and payment terms for all appraisers, as is currently the raquet. Appraisers should be paid directly from the homeowners, so as to not be truly biased in their opinion, like home inspectors get paid. The homeowner should automatically become an intended user and be entitled to a copy of the appraisal if they pay for it. What's going to be next? Home Inspector Management companies? I do agree with the other poster in one regard, that if appraisers were more effectively regulated by the existing laws, there would be less appraisal fraud, but I think if that were done, there would be no reason whatsoever to have a need for a middlemen and AMC's should not be allowed to exist, as they in the long run are only going to serve to increase the overall cost of an appraisal to lenders and homeowners, as the fees will be corrected eventually and there will simply be an extra layer of profit margin in the appraisal fees for those people who "answer the phone and get the order to us" for 50-60% of the fee. I've heard of a referral fee, but the price fixing that is going on right now is highway robbery and must be corrected for appraisers, who are required participants of loans, to be able to make a reasonable living commensurate with the massive educational and experience requirements set forth to become a professional appraiser. Hey, how about opening attorney management companies? They need us too...we will make it a symbiotic relationship and not even raise their rates...heheeheee...they will learn to love us....

Unknown said...

Mr. Axt:

Yes, I am concerned about protecting my livelihood. I went from 8 - 12 appraisal assignments a week from various lender clients down to an average of 2 (yes, interest rates increasing recently have an impact, but not entirely). And I now have to support the management companies digging into my pocket. Thanks, but no thanks.

rich bonn said...

Mr. Axt:
I believe that you are mistaken when it comes to the genesis of the HVCC. The HVCC is the result of a settlement between the GSE's and FHFA for allowing the purchase of mortgages originated by a major (now defunct) retail lender that were appraised by a large and still operating AMC. In fact, it was stated in the intitial suit that the lender placed pressure on the AMC to make value otherwise it would move its business elsewhere.

Here is a blogger who can back up the facts that I stated. Please do a little more research before slamming an entire industry of good independent appraisers.

Jack said...

Hey Frank..

It seems me you have a lot of experience of Appraisal Management Services & Company. Thank You so much for sharing your precious experience with us.