Monday, April 13, 2009

Florida's Effort to Regulate Appraisal Managment Companies

UPDATE 4-16-2009: It's not looking too good for the effort to regulate Appraisal Management Companies in Florida this year. Neither bill identified as a candidate to attach the AMC Regulation language as an amendment has been heard in committee. At this stage of the session, if a bill has not advanced, it ain't gonna.

Over the next two days several hundred Florida Realtors will visit Tallahassee, the state capital, to meet with our elected representatives. Florida Realtors have a number of legislative priorities, among them, the regulation of Appraisal Management Companies (AMCs).

Although we were able to get quite a bit of support lined up, the drafting of the appropriate bill took a little longer than we expected. Nevertheless, we have the bill ready, an amendment prepared, and bills in the Florida House and Senate identified as ready for amendment. We're not fooling ourselves, however. It will take some incredibly hard work and amazing luck to get this important task completed.

Watch HB 653 and SB 2524 and keep your fingers crossed that the AMC Regulation Amendment is attached and the bills are heard.

Updates will be made to this post as events warrant and time permits.


Rita Bradley said...

Recently I learned that it might not be such a great thing for us to insist on regulation of AMCs. Apparently it will cost a lot and only the large amcs will be able to afford it. That may not be such a good thing as they will create more of a monopoly situation than already exists.

Frank Gregoire said...

Jeff Schurman, over at the TAVMA Blog, has posted a bit about increased fees to AMCs and his belief it will drive the smaller ones out of business. That may be true if the fees are in the $5,000 range. I've only heard of one state on that bandwagon, and their legislation has not become law.

I believe AMCs need regulation for the protection of the public, plain and simple. Whay shouldn't an AMC be required to comply with the applicable sections of the USPAP? why shouldn't the officers and directors be required to submit to a criminal background check?

Jeff Schurman said...

Small AMCs will be challenged to compete no matter what. Today, there are around 200 AMCs. Of those, about a dozen are very big national firms. At the next level are another dozen or so midsize nationals. Then there is a tier of firms that claim national coverage but actually handle something less than the 3400 +/- counties nationwide. The rest are regional, single-state, and in some cases county-specific AMCs. However, the perception seems to be that AMCs come in only one size and large registration fees can be sustained.

States like Missouri and North Carolina are proposing $5,000 registration fees and $1,000 to $2,500 annual renewal fees. More and more states seem to be following this model, thinking they'll make a lot of money to support the bureaucracy. Certainly, the big AMCs can pay the registration fees and manage the administrative burden. But large fees combined with a variety of different regulatory demands will crush small competitors.

Let's say the nationwide average works out to be the equivalent of $1,000 per AMC per state per year. That’s $51,000 per AMC. At that rate it wouldn’t make business sense for the small AMC managing a couple dozen transactions in a state to register. It’d make more sense to just go to the states without such fees. Coupled with the recent federal proposal to assess a per-appraiser-on-the-panel fee for AMCs, which the big companies would pay (after culling the fee panel flock), small ones are unlikely to justify the cost. Even if Florida isn’t among the states to assess large registration fees, others will, making it very difficult for smaller competitors to survive.

Another challenge to appraisers and local AMCs is that the GSEs (Fannie and Freddie) won't allow brokers to direct-place orders with an AMC. My initial thought on the HVCC was that local brokers would order appraisals with local AMCs or some kind of hybrid cooperative of local appraisers. However, the GSEs interpreted the HVCC as cutting brokers out of the ordering business. So rather than going directly to an AMC, the broker must rely on the lender to place the order. But looking around, the Top 20 lenders originate over 73% of all mortgage loans. These are the lenders that use the large national AMCs.

Finally, as for regulation, Frank is right. AMCs need and deserve regulation. Our problem at TAVMA is that 51 different jurisdictions with 51 different sets of rules will become a bureaucratic mess. Therefore, we’ve been advocating for a single federal regulator to oversee AMCs. We’ve also been advocating for prosecuting bad actors under state and federal laws already on the books dealing with actions at the very heart of client pressure: Bribery, coercion, extortion, and collusion.