Tuesday, August 23, 2011

American Banker: Appraisal Management Companies Create More Problems

Here'a an opinion piece from American Banker - Appraisal Management Companies Create More Problems Than They Solve. Sure, a couple of the details about the Home Valuation Code of Conduct (HVCC), and lenders being required to place their appraisal orders with Appraisal Management Companies are not quite right, but it's hard to argue with this comment:

When the final chapter on this housing crisis is written, I hope that I am still around to see those who were responsible for its cause and the feeble attempts to fix it held responsible.

One of the worst fixes is the Home Valuation Code of Conduct. Enacted in 2009, HVCC was spearheaded by then New York Attorney General Andrew Cuomo. His objective was to rein in appraisal abuses by the lenders sending loans to Fannie Mae or Freddie Mac.
The author, Richard Booth, fails to point out the HVCC was negated by Dodd-Frank, but let's face it, the replacement has the same effect on appraisers and consumers.

Today many of these AMCs are directly or partially owned by mortgage wholesalers and large national banks. They hide behind the firewall of an independent company, but if they own that company, either in whole or a piece, who are they kidding?

Imagine needing a medical doctor and having to go through an intermediary who will decide which doctor you may visit, and that doctor is chosen primarily on his fee charged, not expertise.

Consumers are paying more for residential appraisals. The appraisers who are doing the work are receiving a fraction of what they once earned. Unfortunately this structure has chased away many good appraisers who are unwilling to do more work for much less money

Since the HVCC was enacted I have seen a steady decline in the quality of residential appraisal reports. I have witnessed appraisers who are traveling from out-of-state and without any basic knowledge of the subject community. Understanding the area in which you have accepted an assignment is a basic rule of appraising.
Appraisers are under pressure from their new bosses at the AMCs. An extremely knowledgeable appraiser confided in me that he is forced to produce more comparables within a specific time period, judge the future value of a home in a declining market and most recently provide aerial photographs for the subject property.

Read the entire article HERE.

Sunday, August 21, 2011

Indemnification Clauses - UPDATE

A few days ago Appraiser Active posted about a from NAR President, Ron Phipps, to federal agency heads encouraging the bar of indemnification clauses used by Appraisal Management Companies (AMCs). Brian Davis, from Appraisal Scoop, was kind enough to spread the word, and many others read the letter on the NAR Appraisal Insight blog.

Now, Peter Christensen, from the Appraiser Law blog, has a very informative new post: "What's Wrong with Most Indemnification Clauses in AMC Contractor Agreements?"

Peter echos several points that were expressed as concerns in the NAR letter. For example:

5. The clauses negatively affect the quality of an AMC's appraiser panel. All things being equal, a rational lender should have less interest in retaining an AMC that uses an unreasonable vendor agreement. I believe that unreasonable contract language results in an overall lowering of the quality of an AMC's appraiser panel because, on average, fewer appraisers who are better trained, economically stable, and careful about reading legal verbiage choose to work for AMCs with the worst agreements.

7.  The bottom line.  Perhaps the bottom line is that a $200-$400 appraisal can't and shouldn’t be relied on to guaranty repayment of a $1 million loan if someone later deems the appraisal “faulty.”  Every appraiser performing valuations will have appraisals that can be deemed "faulty."  Good appraisers should be selected and used because they are trusted as competent, reliable and honest and render opinions of value that are on average accurate and reliable and within a range of acceptable errors.  They should not be employed as financial guarantors of value -- unless AMCs or lenders are willing to pay for the price of shifting that risk.
 Head on over to the Appraiser Law blog to read the full post. Spread the word!

Appraisal Events - Florida Realtors® 2011 Convention

From August 24 - 28, 2011, Florida Realtors host their Annual Convention & Trade Expo in Orlando. The event will be held at the Rosen Shingle Creek, 9939 Universal Boulevard, Orlando, Florida.

In addition to the regular business meetings for committees and the Florida Realtors Board of Directors, a number of education sessions will be offered on a variety of topics. There are two specific offerings available for attendees:

On Friday, August 26, 2011, the Florida Appraisal Council will meet from 1:00 - 2:30 P.M. If you are an appraiser and belong to a local association of Realtors, you are welcome to attend. The new AMC Registration laws and rules will be discussed, along with the Fast Track Application for NAR Appraisal Designations. Educational opportunities to assist in completing 2012 Continuing Education will also be planned. Your thoughts, ideas and suggestions are welcomed.

On Saturday, August 27, 2011, Rick Baumgardner, Chairman of the Appraisal Foundation Appraiser Qualifications Board, will present "What's Happening With Appraiser Qualifications?" This will be a discussion of the 4th Exposure Draft of Proposed Revisions to the Real Property Appraiser Qualification Criteria. Among other things, Rick will discuss trainee and supervisor qualifications, background checks and education.

Take a ride over to Orlando and stop by!

Thursday, August 11, 2011

NAR Encourages Bar of AMC Indemnification Clauses - UPDATED

UPDATED - August 15, 2011

In a letter to the heads of the Department of Housing and Urban Development, Federal Financial Institutions Examination Council, Veteran's Administration and the Federal Housing Finance Agency, NAR President, Ron Phipps, encourages the bar of indemnification clauses used by Appraisal Management Companies (AMCs).

Appraiser Active last mentioned indemnification clauses in a post about the LandSafe Appraisal Services Agreement. The folks over at the Appraiser Law Blog have written extensively about the danger to appraisers stemming from agreeing to indemnification.

A pdf of the full NAR letter is posted after the jump, but here's a preview:

Appraisers provide an independent and impartial analysis of the market, and acredible opinion of the value of real property. This analysis is a critical component of the mortgage transaction and, in recent months, has become thesubject of unnecessary pressure. The mounting use of indemnification clauses by AMCs may be interfering with the appraiser’s independence and objectivity. In many cases, appraisers are asked to sign contracts that include language to indemnify and hold harmless the AMC against any suit, threat, or claim on any work product or service provided as part of the contract agreement. In some instances, the appraiser is even required to indemnify the lender and the AMC for amounts equal to their costs in repurchasing a mortgage loan, regardless of any proof of culpability on the part of the appraiser.
Let's see if these government agencies respond to the challenge.

UPDATE - August 15, 2011: The Appraiser Law Blog has a review of the LSI Appraisal Independent Contractor Agreement. Here's an excerpt.

"LSI’s agreement itself is only three pages and does not contain many of the unreasonable provisions found in other AMC contractor agreements. However, like most AMC agreements, it does contain an indemnification provision. While the indemnification clause is not as extreme as found in some other AMC agreements, the provision in LSI’s agreement is still. . ."

"Also, we do have concerns stemming from the FDIC’s civil complaint for negligence and breach contract against LSI Appraisal relating to appraisals performed for WaMu in 2006-2008. The FDIC has specifically alleged in that case that appraisals supplied by LSI from approximately 200 of its panel appraisers were deficient and has suggested that many additional appraisals beyond the ones specifically identified may become part of the lawsuit. We will update our appraisers here on readimember.org if we begin to see LSI attempt to shift liability to individual appraisers in that case."