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BREAKING The New York State AMC Law Is Now In Effect

April 27, 2019 | 10:38 pm | | Milestones |

Back on April 19th, I wrote about the New York AMC law in my Housing Notes newsletter. After years of AMCs chipping away at the public trust, the New York AMC law was designed to protect the consumer.

The bill summary was:

Relates to the registration of real estate appraisal management companies or an individual or business entity that provides appraisal management services to creditors or to secondary mortgage market participants including affiliates by the department of state.

Yesterday Appraisersblogs ran it as a standalone post and I got a lot of feedback. To be clear, the bill was signed into law by Governor Andrew Cuomo at the end of last year and became effective 120 days later which is today.


Here is the NYS “AMC Law” as a PDF or in plain text on the landing page of the law.


The NY State Coalition of Appraisers (NYCAP), led by my friend and appraiser Becky Jones who along with other unnamed heroes worked hard to help make this possible, wants you to know that this law was not a last-second, fly by night effort as being characterized by The Real Estate Valuation Advocacy Association (REVAA) – the trade group that represents the bulk of the AMC industry in the U.S. – inferring this law was flimsy and easily overturnable.

No, it isn’t. Its been a long road and achieved unanimous consensus during the process.

When the draft of the bill was approved by the NYS Board of Real Estate Appraisal, Carol DiSanto who is the Vice Chair, walked it across the street to The New York State Association of REALTORS (NYSAR). In effect, REALTORS of New York State were made fully aware as the “draft” became part of NYSAR record at their next business meeting. Becky Jones sat on the Legislative steering committee at NYSAR and informed them about the bill. They had no objections to the bill before submission to the state legislature.

A similar proposal was introduced by the New York Department of State in 2015. Senate Bill S9080 was introduced two years ago during the 2017-2018 legislative session, signed into law on December 27, 2018 and became effective today. The voting was unanimous in favor by the rules committee of both houses and the body of both houses.

Here are the vote tallies (the same in both the NYS Senate and Assembly):

And here was the timeline:

A couple of AMCs we work with for some private banking groups sent emails to us yesterday:

Some thoughts

  • If you’re not an appraiser, then you want to read this. It is a 2011 take that still holds up on the AMC industry from American Banker’s Bankthink column (I’ve written a column there before on another subject): Appraisal Management Companies Create More Problems Than They Solve

  • When the realization sunk in that this was a new law, not a proposed bill, attendees began to text me from the joint committee meeting of The Appraisal Foundation. I got the play by play when the news was shared. It sent shockwaves through the AMC-types because, in my view, it effectively destroyed their ability to hide how much they are gouging the consumer and how little the appraiser gets from the actual “appraisal fee” (typically less than half). Seriously, the value-add provided by AMCs to the appraisal process in the delivery of actual appraisals might be 5%, but no chance in hell it is 75%. This is why we need consumer protection in the mortgage business.

  • I’ve been told by several colleagues that they’ve heard one of the main AMC concerns is whether New York interpreted the original law correctly to arrive at this form of law regarding AMCs. From my perspective, it’s like not buying a house because one of the gutters is missing a few screws to hold it in place. The criticism seems like a weird attempt at fogging since this law is protective of USPAP and the public trust, something that has been forgotten in the attempt to “modernize” the appraisal industry. But I’m no lawyer so I’ll look for clarification on their logic. But consider this:

  • REVAA’s biggest concern about the law was specifically the disclosure to the consumer as to what part of the fee goes to the appraiser. Not only does the appraiser get to state the fee, but the AMC fee must also be disclosed. This was upsetting to REVAA director Mark Shiffman presumably because the consumer would finally see that most appraisers get half or less than half of the appraisal fee the consumer thinks they are paying for the appraiser. REVAA has fought hard to hide this from the consumer, pushing back on prior attempts to disclose the breakdown, and finally, New York State has effectively brought to light this predatory practice. Transparency is good for the consumer and for the appraiser. Should a consumer be aware that the check they wrote at the time of mortgage application specifically for an “Appraisal Fee” be used to pay the appraiser less than half of it with the remainder to a wildly inefficient third-party institutional middleman they know nothing about?

  • The NYC AMC law will likely damage the evaluation platform that the Appraisal Institute has been advocating so intensely in state legislatures without disclosure to their own members yet diminishes the meaning of an appraisal certification to the consumer. It is interesting to see that AI National hasn’t taken a position on this new groundbreaking law, like yesterday. They’ve been progressive in their quick denouncement of other important issues, like appraisal waivers, so the lack of denouncement against AMCs is curious.

  • This new law only applies to appraisals ordered through AMCs (which control an estimated 80% of U.S. mortgage appraisal volume) for properties in New York State. (note: this why the law is described as “AN ACT to amend the executive law, in relation to registration of real estate appraisal management companies by the department of state”) New York is one of the few “voluntary” licensing states. There is no mandatory licensing so agents and brokers can perform appraisals and BPOs all day long. This was a key point that REVAA was trying to convey to NYSAR (I hold the CRE designation and all CREs in New York are automatically members of NYSAR) a few weeks ago when REVAA was on a mission to stop the law going into effect. REVAA reached out to NYSAR to claim how bad the law was for their agents and brokers but NYSAR wasn’t buying it because they could still perform BPOs and evaluations for local banks – just not for AMCs. Becky Jones shared a story about this situation from one of the CE classes she teaches: I had an agent work the whole thing in her head out loud during the class and at the end…the agent deduced on her own that she will contact local banks for the BPO work and she was especially thrilled because she realized that she will probably get the listing and therefore an opportunity to make more income. She was so thrilled she “high-fived me during class.”

  • A concern shared with me by a friend and appraiser colleague in Virginia was that most of the large AMC platforms, such as CoreLogic, Appraisal Port and Xome, use a portal that strips the report and the appraiser’s invoice is one of the forms that does not get uploaded (because they don’t want the consumer (i.e. mortgage applicant) to see how much the actual cost goes to the person providing a value opinion of their home. If AMCs continue this practice in New York State and are caught, they will lose their ability to do business in the state. They can risk it, but the stakes are high. There is always a concern that oversight of this will be lost in the shuffle so it is imperative that appraisers keep the pressure on.

  • Another appraiser colleague and friend I know in Illinois said: “So if you are curious what is happening in Illinois, here’s how we must report our fees. When discussing this issue 10 years ago, we were of the opinion that the invoice could get lost, but pages in the appraisal report don’t get lost. That’s why it must be in the body of the report.” Here’s the Illinois AMC law.

And finally…

It is ironic that the New York Governor, who was the creator of HVCC when he was NYS Attorney General and was a board member of a former Ohio-based AMC owned by a friend that eventually collapsed, leaving many appraisers unpaid for their work, was the signer of this law. Despite the irony, his concern for the consumer is incredibly appreciated by the appraisal community who have been beaten up by the AMC industry since 2009 under the false narrative that they are embedded in the process to protect the system. In reality, AMCs gave the mortgage system an empty promise that left the consumer and the taxpayer exposed to excessive costs, bureaucracy and a systematic deletion of quality. Even worse, they stole the economic livelihood of the actual market valuation experts and replaced them with form-fillers.

It is nice to see a state pay more than lip service to consumers within the mortgage business.

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Infographic: 25 Year Demise of the Bank Appraisal Industry and the Rise of AMCs

May 31, 2015 | 8:05 pm | | Infographics |

appraisalslipperyslopebanner
[click to expand]

I thought I’d build a visual representation of the decline of the appraisal industry – sort a flow chart, but really an excuse to use different colored shapes and sizes. This is a work in progress so please feel free to let me know what I’ve missed, which presumably is an infinite amount of detail.

Open the timeline as pdf.

UPDATE – Fixed a few typos and grammar weirdness in graphic.

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Bad Actors: AMC Appraisal Perspective Through Rhetorical Misdirection

October 20, 2014 | 4:45 pm | | Public |

I was invited to speak at the Great Lakes Chapter of the Appraisal Institute last week and met a lot of great appraisers who cover the state of Michigan.

Summit2014Brochure

I spoke about the housing market and the misinterpretation of residential housing metrics, inspired by this article and the following infographic from the Detroit Free Press.

Inkster +106.4% !!!!! a largely distressed market with what I was told only has a handful of rock bottom sales ie $10K in 2009 becomes to $30k in 2014 – a perfect example. Hot? Hardly.

dfp-real-estate-hot-spots-2014-MAP

As much as I think I held their attention for the entire hour allotted, my presentation fell short of getting audience adrenaline pumping like the Jordan Petkovsky, the Chief Appraiser of a TSI Appraisal, a large national AMC and affiliated with Quicken Loans. I still wonder how beneficial this public relations could be by talking to the industry like a politician – as if residential appraisers were clueless to the “incredible benefit” that AMCs provide our industry.

Here are a few of the questions (paraphrased) posed to an audience comprised of heavily experienced residential and commercial appraisers:

Q: “I realize there is friction between AMCs and appraisers. What has to happen to solve this problem?”
A: Someone in audience: “Someone has to die” followed by a burst of laughter from the entire room.

Q: “We spend millions on powerful analytics. Wouldn’t it be great for appraisers to get their hands on this technology?” (repeated 2 more times slowly for effect).”
A: Someone answered: “You have to spend millions on technology because the appraisal quality is so poor you need to analyze the markets yourself.”

Q: “How do we attract new appraisers into the business?”
A: My answer “Until appraisers are fairly compensated when banks are made to be financially incentivized to require credible reports, nothing will change.”

Q: “How do you think banks feel about the reliability of appraisals today? They don’t feel the values are reliable.”
A: My answer “Because AMCs pay ±half the market rate, they can only mostly attract form-fillers (aka “corner-cutters”). They don’t represent the good appraisers in the appraisal industry.”

Q: “We focus a tremendous amount of effort on regulatory compliance on behalf of banks and boy are they demanding! We even have a full time position that handles the compliance issues.”
A: My comment – that’s a recurring mantra from the AMC industry as a scare tactic to keep banks from returning to in-house appraisal departments. Prior to 2006 boom and bust cycle and the explosion of mortgage brokers with an inherent conflict of interest as orderers of appraisals, the profession was pretty good at providing reliable value estimates. The unusually large demands by regulators (if this is really true and I have serious doubts) is because the AMC appraisal quality is generally poor. If bank appraisal quality was excellent, I don’t believe there would be a lot of regulatory inquiries besides periodic audits.

What I found troubling with his presentation – and I have to give him credit for walking into the lion’s den – is how the conversation was framed in such an AMC-centric, self-absorbed way. I keep hearing this story pushed by the AMC industry: The destruction of the modern appraisal industry was the fault of a few “bad actors” during the boom that used appraisal trainees to crank out their reports. That’s incredibly out of context and a few “bad actors” isn’t the only reason HVCC was created – which was clearly inferred.

Back during the boom, banks closed their in-house appraisal centers because they came to view them as “cost centers” since risk was eliminated through financial engineering – plus mortgage brokers accounted for 2/3 of the mortgage volume. Mortgage brokers only got paid when the loan closed, so guess what kind of appraisers were selected? Those who were more likely to hit the number – they were usually not selected on the basis of quality unless the bank mandated their use. Banks were forced to expand their reliance on AMCs after the financial crisis because the majority of their relationships with appraisers had been removed during the bubble – the mortgage brokerage industry imploded and banks weren’t interested in re-opening appraisal departments because they don’t generate short term revenue.

The speaker spent a lot of time talking like a politician – “we all have to work together to solve this problem” “appraisers have to invest in technology.” When asked whether his firm had an “AVM”, he responded almost too quickly with “No” and then added “but you should see our analytics!”

The residential appraisers in the audience were largely seething after the presentation based on the conversations I heard or joined with afterwords.

It’s really sad that appraisers don’t have a real voice in our future. We’ve never had the money to sway policy creation and we can’t prevent the re-write of history.

But we’re clearly not the “bad actor.”

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AMC Structure Systematically Pushes Good Appraisers Out of Business

June 13, 2014 | 2:25 pm | |

dangerhighpressure

Good appraisers are unable to compete with the fly-by-night form fillers that proliferate the AMC industry.

We have done some work for the AMC of a global bank who provides mortgages in Manhattan when they are willing to pay the market rate for appraisal services. They send us requests to appraise a variety of co-op apartments in Manhattan. We recently received an appraisal request for a very large co-op apartment in a unique building (property probably worth well over $10M). The AMC offered a generic fee which is roughly 1/3 the local market rate for this type of property.

We sent them a request to be paid the market rate and was then asked to make an “exception request” and explain the reason for the higher fee so they can go back to the borrower to get approval. We are nearly always rejected.

Problem 1: Conflict of Interest Unbelievably the AMC is aligned with the borrower’s interest in cost savings without concern for quality. The AMC is in business to manage the appraisal process and therefore help protect the bank’s exposure to risk. When you get right down to it, the only value-add an AMC provides to a bank is cost containment (and they are not cheaper than banks doing it themselves) so why would an AMC be incentivized to allow the appraiser to collect a fair fee? It makes them look ineffective at cost containment.

Problem 2: Paying Lip Service to Quality The reason an appraiser is requesting a higher fee is the complexity of the assignment. What else would it be? Yet we have to write a specific request to this property which we haven’t inspected yet. In reality, the next appraiser on the conveyor belt will be selected and given a higher rating for being cooperative. This is a sham process – it is merely a way to document the appraisal process in case the regulators show up.

Here’s the standard BS response that this AMC gave to our request – this AMC is located in a rural location in the upper reaches of the northeastern US – they are concerned whether the borrower would feel comfortable paying a higher fee on a 50% cash co-op building on Park Avenue. The sender is a clerical (non-appraiser) individual who is giving the appraiser the following boilerplates response and doesn’t really understand what they are saying:

When you became an approved appraiser, you agreed to follow the processes and procedures required by [XXXXXX] by signing our Engagement Letter. We require all vendors to submit a fee exception form when they feel the work is outside of the norm. We need that information to justify your fee request to our borrowers. We are not looking to force an appraiser to complete work at low fees, we are looking to provide the best possible work at the best possible price for our borrowers. We expect that you are the expert in your market and we are looking for your expertise and explanation to make our borrowers understand why the fee may be warranted. However, we also expect the fee to accurately reflect the work involved and borrowers have the right to refuse to pay that fee and request that another appraiser be assigned. While, it may be frustrating for our appraisers, it is our current system and all of our vendors are required to follow the process.

No, it’s insanity.

Question How much do you think this clerical person understands about our specific submarket and whether they understand how much another appraiser who will work for a lowball fee does understand about our specific market?

Answer Nothing. This is merely canned comment process designed to blunt the impact of an investigation by a regulator in the future.

Here are a few other thoughts on this whole sham process:

Why Appraiser Robots Rule The World of AMCs
– In a market like Manhattan, especially for a substantial property, you could say that there is no such thing as a standard property and fees are based things like time spent on the assignment and the experience needed to handle the complexity….unless you see appraisers as robots and every assignment is the same.
– Beyond saying things like this is a unique property with limited data and would take a longer time to work on to provide a credible result aren’t enough to justify a higher fee to a borrower who wants to keep the fee low. Does the bank (AMCs client) even understand that this is happening?

So what would help an appraiser get a fee approval of any kind from this AMC? Here are a few reasons I might use next time when I have to substantiate a higher than generic appraisal fee:
-There are attack dogs in the building lobby that we have to run from and I am expecting them to tear at my clothes and force me to seek out significant medical attention.
-The flooring of the co-op apartment is believed to be covered with shards of glass and we therefore have to buy steel toed work boots to do the inspection.
-The occupant is known to carry a weapon, having assaulted visitors and did jail time as a result – so we need to buy a Kevlar vest

You get the idea. Good grief.

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Regulators Turn Focus on AMCs, Proposals Include Hiring “Competent” Appraisers

March 26, 2014 | 12:43 am | | Milestones |

occheader

The OCC and an alphabet soup of 5 additional regulators: FDIC, CFPB, FHFA, NCUA and the Federal Reserve issued a joint press release that if adopted, takes a small step forward in the regulation of appraisal management companies, who are largely responsible for the collapse of valuation quality since the credit crunch began.

To many, this action is long overdue. Appraisal management companies control the vast majority all mortgage appraisals in the US, having been legitimized by HVCC back in May 2009. I’ve burned a lot of calories over the past several years pointing out the problems with the AMC industry so admittedly it is nice to see them getting attention. The fact that these institutions are not licensed to do business at a statewide level but the appraisers who provide the valuation expertise they manage is inconsistent at best.

Still, the recognition of this regulatory glitch probably won’t have a significant impact on appraisal quality provided by AMCs. As my friend Joe Palumbo maintains, is like fool’s gold.

I think proposal is at least a starting point.

A couple of highlights – regulators would:

  • Require that appraisals comply with the Uniform Standards of Professional Appraisal Practice (today we had a clerical AMC staffer tell us that writing out the math calculations on the floor plan was a requirement of USPAP).
  • Ensure selection of a competent and independent appraiser. (It is unbelievable to think this is necessary but it does make the legal exposure a little larger for AMCs.)

Housingwire has a good recap of the proposed regulations and so does the Wall Street Journal provides a nice overview (I gave them background for the piece).

The proposal by the Office of the Comptroller of the Currency, Federal Reserve and other regulators mandates that appraisal-management companies hired by federally regulated banks use only state-licensed appraisers with “the requisite education, expertise, and experience necessary” to complete appraisals competently.

Moral hazard There is no significant financial incentive for lenders to stop accepting the generally poor quality appraisals the AMC industry presents them daily. The hope is that the additional regulatory largess the AMCs have to confront will force the issue with lenders simply because the AMCs will have to raise their fees. Without a real “value-add” to the banks other than cost control and fast turn times, the lack of quality for a large swath of AMCs may no longer be overlooked by banks. Yes I can dream.

Residential appraisers, mostly 1-2 person shops, have largely been left without a voice and the bigger financial institutions have lobbied financial reform overtop of us without the regulators truly understanding what our role should to be to protect the taxpayer from excessive risk.

Anumber of smart appraisers I know have created a petition whose sole purpose is the get the attention of the CSFB to address the issue of “customary and reasonable” fees. Our industry has no other way to reach the regulators or the ability to lobby our views in Washington. I hope they are listening.

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It’s time to debunk the debunking of the 3 biggest myths about your AMC

March 9, 2014 | 10:00 pm | | Favorites |

aeron-chair

I saw an opinion piece written about appraisal management companies over at HousingWire that made me just about fall out of my chair – and my office chair is a sturdy Herman Miller Aeron so it was quite an unsettling piece. I’ve written about AMCs quite a bit since HVCC came into effect on May 1, 2009 and my last big piece: “Appraising for AMCs Can Be Like Delivering Pizza” prompted a senior executive at one of the largest US AMCs – who we don’t work for – to call me after he read it and say, “all of what you wrote is true – how do we change it?” He sounded very reasonable and earnest and got his Chief Appraiser to reach out to me to explore what to do. That person ended up providing me with robotic and defensive feedback before I even asked any questions – making it clear it was all about keeping his job, not improving the industry. Sad.

Make no mistake – I am not against the concept of AMCs and there are some reasonable ones to deal with – but the majority of them are poorly managed and therefore can only attract appraisers with the “form-filler” mentality.

This HousingWire editorial was called “It’s time to debunk the 3 biggest myths about your AMC” by the CEO of an appraisal management company. We don’t work with them and I don’t know of them or the author. It’s a corporate sounding piece so I’m guessing that it was pitched and written by their PR firm as a way to sell the virtues of a good appraisal management company.

What threw me for a loop was the omission of any discussion about the actual providers of valuation expertise. AMCs do not provide value opinions to banks. AMCs manage appraisers who provide value opinions to banks. My guess is they or the AMC industry in general are receiving more pressure from banks for the rising cost of the appraisal process – not because the appraisal fees are rising – but because the AMC appraisal quality is so poor that relative to the cost, the value-add of an AMC really isn’t really there.

We have started to observe national lenders push back against the poor quality of AMC appraisals and some lender personnel are now bypassing AMCs on complex or luxury properties because they don’t trust the expertise coming out of the AMC. Amazing.

Here are the 3 “myths” presented in this AMC PR piece. I restate each point being made to reflect the reality of the appraisal process:

From the Housingwire guest editorial:

THEIR Myth 1: Appraisal Management Companies add costs to the lender’s business.

So, yes, the costs of putting a solid value on a piece of real estate have gone up. But this is not due to the fact that an AMC has been added to the equation. It’s due to the fact that it costs more to do it right, to employ the technology, to manage the fee panels, to quality-check the results. Like most myths, this one has at its core the ugly truth that the price of an appraisal has gone up between $80 and $200, depending upon the circumstances.

MY Opinion of Myth 1: The rise in costs is NOT because appraisers are arbitrarily raising their fees. It is because the appraisal management industry takes half of the appraisers fee paid by the borrower at application to cover their costs and ended up driving most good appraisers out of retail bank appraisal work – now dominated by AMCs. The rising costs are being born by the AMCs who try to checklist away the poor quality. Here’s how: Imagine making a modest salary for a job well done and then one day (May 1, 2009) you get your pay cut in half. The middleman between the bank and the appraisers (the AMCs) got to keep the other half of the appraiser’s fee/salary. In reality, this 50% pay cut was the appraiser paying for bank compliance with HVCC by hiring the AMC. Would you quit your job if you got a 50% pay cut? Most would say yes. Who would replace you at 50% of an already modest wage? A lower caliber, lesser experienced person who was able to cut corners – like eliminate research – and essentially be willing to be a form filler rather than a valuation expert – quality evaporates not matter how much “review” is put in place. AMCs have been grappling with poor quality and probably have had to increase oversight as more banks push back against the poor quality. I think the additional compliance issues being touted throughout this opinion piece in this “Myth” are probably more of a scare or fogging tactic than a real reason for higher costs. The higher cost that is being represented by the AMC is more likely from the fact that AMCs are being forced to find better appraisers in certain markets and those appraisers are less willing to subsidize bank compliance with HVCC out of their own hide. We doing more and more AMC work now and we are paid a full fee and are given a fairly reasonable turnaround time. Why? Because that AMC’s panel quality was poor and their bank clients basically told the AMC to use firms like mine or the bank will go to another AMC who will use a higher caliber of appraiser.

THEIR Myth 2: AMCs deliver poor turnaround times that can’t compare to internal teams

Anyone who buys into this myth must live in a world without Service Level Agreements (SLAs) that spell out exactly what a vendor will provide to a lender. It sets the terms of the engagement and specifies penalties that the vendor will suffer should it fail to live up to the promises the document holds. Turnaround times are always part of the SLA between an AMC and a lender…Now, here’s the grain of truth at the center of this ridiculous myth: lenders are working to incorporate so many new compliance rules into their processes that the collateral valuation process is simply taking longer for many of them than it has in the past. Part of this comes from the fact that compliance checking takes time. Part of this comes from unnecessary processes within the lender’s shop that exist out of some executive’s fear of possible compliance problems. The appraisal process is taking longer in many cases, but it’s not due to the AMC. It’s just part of the new business environment we’re working in.

MY Opinion of Myth 2: This is simply a reframing of the conversation between lenders and AMCs. The biggest problem with most AMCs today is they demand an unreasonable turn around time – some require 48 hours (more with complex properties), about 1/3 the minimum average time needed to do a reasonably competent job. Because the AMC bank appraisal quality is generally poor, AMCs have to insert more and more checklists into the QC process to appease their lender clients. The lender clients require more service level agreements BECAUSE THEY DON’T TRUST THE QUALITY OF THE PRODUCT, NOT BECAUSE OF MORE FEDERAL COMPLIANCE ISSUES. In turn, the appraiser gets a gum chewing 19 year old who calls them every day to fill out a checklist. Banks were fine, pre-HVCC, with the turn times of their in-house and outside fee panel staff and it NEVER was as fast as the typical AMC requires today. Today, most AMCs have to differentiate themselves from other AMCs by cost and turn around standards. With the poor quality of the typical AMC bank appraisal, the AMC gets squeezed financially as banks and appraisers are beginning to push back with more requirements and costs. An appraisal is NOT a commodity – it is a professional service. If the AMC doesn’t respect the bank appraisal industry and pays them poorly, all the AMC can ever hope to receive in return is a poor quality product that can’t be check listed away.

THEIR Myth 3: The lender relinquishes control when they outsource to an AMC

The lender is in complete control at all times and federal regulators have made it crystal clear that the lender is the responsible party anytime they outsource to a third-party vendor. No lender will relinquish control to a third party when it knows the CFPB will come back to its front door in the event of a problem. There are some aspects of the collateral valuation process that the government has said must be removed from the control of the loan officers originating the loan and the managers who oversee them. Federal regulators do not want the lender to control the outcome of the appraisal process and so they have made it clear in the regulations that it must be moved away from the origination department. The uncomfortable truth is that the federal government wants the lending institution to lose a bit of control here, for the good of the consumer and the financial institution. But handing responsibility for a few aspects of one process to a third-party outsourcer is not the same thing as giving away control. No lender we know and no good AMC executive would equate these two.

MY Opinion of Myth 3: One of the biggest myths furthered by many AMCs is to fog lenders with the idea that HVCC requires banks to use them to be compliant. The statement “The uncomfortable truth is that the federal government wants the lending institution to lose a bit of control here” is very misleading. All the government wants is a separation between the sales function and the quality function of a bank – a firewall – which is an AMCs major selling point. The irony here is that large AMCs are just as susceptible to lender pressure as the individual appraisers, but on a much larger scale.

I am not anti-AMC. However I am against bank appraisers paying for a bank’s compliance with HVCC and being marginalized as a result. The appraiser is the expert developing the value opinion for the bank, not the AMC.

In my experience to date, the majority of AMC bank appraisals that I have seen are very poor. But it doesn’t have to be that way. If the lender paid the market rate for an appraisal and an additional fee for the AMC to administer the process, the quality would improve. Borrowers today generally don’t realize that the bank appraisers is paid a fraction of the “appraisal fee.” Today’s bank appraiser is paying for the bank’s compliance with HVCC and this has largely destroyed many of the quality firms in the appraisal industry. It doesn’t help that the residential appraisal industry has no real representation in Washington.

But I do like my chair.

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Why AMC Addendums Are Bane of an Appraiser’s Existence

February 27, 2014 | 5:54 pm | |

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One of our appraisers just got an addendum request for an appraisal we recently delivered to an appraisal management company. If you know my history, relax, it’s an AMC that accepts our reasonable fee and turnaround times rather accepting the typical AMC terms dictated to most appraisers (we won’t work for that type of AMC). But as reasonable as this AMC is to deal with, we do receive maddening addenda requests (asking the appraiser for written clarifications on the report originally submitted).

Here’s the latest:

Reporting discrepancies noted regarding subjects site size (pg 1, addendum comments, survey). Appraisers to comment and revise as appropriate, including applicable site adjustments.

Translation: we needed to reconcile the following:

  • Lot size per town records (and used in our report): 0.365 acres or 15,529 square feet.
  • Lot size per survey: 0.3655 acres or 15,530 square feet.

That’s a 1 foot difference in the amount of land under the house or a 0.006439565% difference in the amount of land reported in public record and the survey (aside from the fact that the town drops the 4th digit from the acreage measurement in their public record listing).

As a result of using public record for the acreage information, we got dinged on our “appraiser rating” which impacts our volume flow (appraisal requests from a client)

This is just the tip of the iceberg as to the types of addendum requests we receive. Curiously, we NEVER receive requests questioning the value or how we arrived at it – the questions are always clerical minutia, reflecting the 19 year clerk chewing gum who doesn’t really know what an appraisal is.

Sigh.

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Appraising for AMCs Can Be Like Delivering Pizza

December 27, 2012 | 10:00 am | | Favorites |

I recently appraised a property that was well into the 8-digit value variety – not to sound cavalier but when you are in a market like Manhattan, it’s not uncommon.

What made this assignment different was that I was contacted to appraise this property because an appraisal management company (AMC) was not comfortable using their regular panel of appraisers that do nearly all of their volume (for half the market rate and 48 hours). Although I was leery to accept the request as an exception, I had history with an exec there, they were paying our quoted fee and accepting our turn time requirements so why not?

Here’s how it went:

Day 0 – I am interviewed by the AMC representative to see whether we are experienced in this property type. The AMC rep stresses they want to be “in the loop” at all times.
Day 1 – We are engaged by the AMC to provide the report – we place a call to the property rep.
Day 2 – Property rep calls back and say they want us to inspect 3 days from now. My office informs the AMC rep the appointment via email is set for Day 5. I get a call from the AMC rep asking if a I need any help and I say “no, not at this point since we haven’t seen the property yet.” They follow with “I’ll be calling you every day of this assignment to ensure you have what you need.” I politely ask why they need to call me over the next 3 days before the inspection. The AMC rep says “yes, in case you need help.” I respond that I won’t be doing anything further until I see the property. The AMC rep said something to the effect of “Ok, I’ll wait until you inspect.”
Day 3 – The AMC representative apparently emailed me (instead of calling) but I never received it (gotta love spam).
Day 4 – The AMC representative left me a voicemail on my mobile phone and office phone chiding me because I didn’t respond to the previous day’s email (technically the AMC rep didn’t call me) and they had been forthright in saying they would contact me every day to help me and they needed to speak to me every day. I got the voicemail on my mobile during a different inspection and emailed my office asking them to let the AMC rep know I am inspecting the property the next day.
Day 5 – The AMC rep called to see how we were doing with the assignment. My assistant reminded them we were inspecting the property toward the end of the day and that they had been kept up to date. Near the end of the day I inspected the property and my office let the AMC rep know via email we had inspected the property.
Day 6 – First thing in the morning and my first chance to sit down and work on the appraisal. My office sent them an email telling them I had what I needed and confirmed the delivery date. The AMC rep called my office that afternoon to see if there was anything we needed…

This is how nearly all interaction between AMC and appraisers go. The appraiser is bombarded with meaningless status requests as the AMC industry attempts to commoditize a professional occupation. I assume the AMC rep in my case had a checklist – akin to those dated checklists with initials you see on the back of doors in highway rest stop bathrooms assuring you the bathroom was cleaned each day of the week.

The result has been the crushing of appraisal quality because trained, experienced professionals are opting out of this madness because time = money. Cut the fees 50% and then waste another 30% of an appraiser’s time with this meaningless activity and you don’t end up with a more reliable valuation opinion.

In all sincerity, I take my hat off to those professional appraisers who need to work with AMCs out of necessity that are able to put up with being treated like a teenager on their first job.

It reminds me of the canned customer service interaction we are all forced to do when we interact with a company on the phone. The call ALWAYS ends with the canned “Is there anything else I can help you with?” Yet the relationship was already established and fine up until that point and the authentic nature of the conversation is suddenly over. I pause for a second and say “Yeah, I could go for a large pizza right now.”

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[Vortex] Palumbo on USPAP: The Fool’s Gold of AMC Licensing

June 17, 2010 | 10:07 pm | |

palumbo-on-uspap

Guest Columnist:
Joe Palumbo, SRA

Palumbo On USPAP is a column written by a long time appraisal colleague and friend who is currently the Director of Valuation at Weichert Relocation Resources and a user of appraisal services. He spent seven years at Washington Mutual Bank where he was a First Vice President. Mr. Palumbo holds an SRA designation, is AQB certified and he is a State Certified residential appraiser licensed in New Jersey. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions. View his earlier handiwork on Soapbox and his interview on The Housing Helix.
-Jonathan Miller

The Fool’s Gold of AMC Licensing

Since I landed in the world of Relocation some three and a half years ago, I really did not pay much attention to what was happening in the trenches of the lending world. That changed when the concept of licensing appraisal management companies came about. My interest became more of an occupational study since these laws are so “broad-brush” and vague. As the manager an in-house appraisal arm of Relocation Management Company I was shocked and disappointed that that these laws cast a net on just about anyone who manages selects and retains appraisers for third party use. Clearly this type of legislation was created out of a knee-jerk reaction to one of the many “crisis-type” issues that came AT the appraisal community in 2008 and 2009. I am specifically referring to the attention to the “appraisal process” brought about by the ill-informed attorney general Mr. Cuomo of NY and the infamous HVCC. I agree with the basic the tenets of the HVCC and the AMC laws I just do not think there will be a net tangible positive affect and that the “real issues” are being conquered. AMC laws and HVCC are not the PANECEA. I WISH THERE WERE a panacea because some calm is needed. Being the realist and institutionally tenured manager of the appraisal process I just know reality of what happens VS what is supposed to happen.

foolsgold

For starters let me say that the relocation world has no direct OTS-like government oversight or appraisal requirements for the appraisals which are NOT intended for lending. The relocation industry is self- policing and we rely on what is set up by state licensing and our own quality control. Let me also say that while my department may perform some of the same functions that an AMC does, we do not TAKE ANY of the appraisers fee. We do select maintain, review AND USE appraisers as well as arbitrate valuation disputes. Also for the record I am not anti-appraisal management company.

Here is the issue: As pointed out by the OTS, last year FIRREA laws of 1989 already contain much of the language that the AMC Laws cite. States have also set up Appraisal Boards who are supposed to monitor fraud egregious issues and such. The problem with FIRREA and the State Boards is simple: money, resources and time. So along come laws that state it is unlawful to coerce an appraiser, unlawful not to pay them, unlawful to tell them which appraiser to use, unlawful to have people who select and review who are not “trained in real estate”, and so forth and so on. So the new laws are just restating the same of what we already had but we still lack an efficient mechanism to enforce. If the AMC laws are governed and enforced by the state boards who are short on cash and time then what makes AMC laws different? Currently 18 states have such laws on their books.

On top of the AMC laws many states are requiring AMC’s to be “registered”. This process is costly and requires plenty of paperwork. KUDOS to the Governor of Virginia, who signed his states law basically making it illegal to engage in the “appraisal nonsense” described above, but NOT requiring a registration process or fee. Also noted as being proactive is Arizona, which requires licensing and registration for AMC’s but which has a single line exemption for the relocation industry simply because: “we are not the problem” (the law reads the exemption for appraisals prepared for the purpose of employee relocation) .

Recently I was contacted by a state board attorney whose state passed AMC legislation in 2009; she stated “this law was not intended for your business model….because you use the appraisal with the client, whereas an AMC does not use…. it they get it…Q C it and pass it on”. It is great to see some realistic thinking for a change. The AMC- appraiser relationship is much like the HMO doctor relationship: mutual need mandated by external forces peppered with some mistrust. Don’t get me wrong there is a lot of merit to the underlying premise of HVCC and such I just do not think it is going to result in a changed world for the appraisal community. What the appraisers do not like about the AMC’s are the request for fast appraisals, some at a lower fee than they have seen in years, requests coming with numerous assignment conditions many of which are not realistic and unacceptable (3 comps within 3 months and 1 mile) the occasional “can you hit the number request” before the analysis gets done (comps checks)…among many others.

Many of the pressures ON AMC’s…yes I said ON AMC’S, are a result of what has transpired in the world: Increased competition, web-based valuation tools, fingertip internet real estate research, fraud, secondary market issues, and MISUNDERSTANDING of the appraisal process in general. I wonder what planet the “investors” live on that have guidelines they will not purchase loans in declining markets? I also believe that a lender than asks an appraiser to “remove a negative time adjustments” should be reported to the LVCC hot line” . Oh… that’s right there is none? Call your department of banking they say. Good luck. I had an appraiser the other day who did not read or adhere to the engagement letter I sent tell me “we have an AMC law here and you have to pay me regardless or you are breaking the law”. I stated, “great, I will take my chances since you signed the engagement letter but yet failed to meet the (simple) requirements stated in the letter, which is why I have called you three times ”. We’re not talking about value here we are talking about basic development and reporting issues that were not clear to me as user and client. Is this what the AMC laws are for?

Does anyone really think that the requirement of an AMC to fill out an application, pay a fee and require a few staff to take a 15-hour USPAP will stop the madness? Actually if the fees are an issue it could increase the cost of operating for the very folks that are presumable not paying a “fair rate”. Since the BIG 3 lenders (all using profitable AMC’s) have 60% of the market now via servicing or closing every US loan, I don’t see things changing until we see a UNIFIED industry, an industry that will unilaterally agree to push back on any conditions that are deemed to be unreasonable. It is very difficult to push back on three financial giants, but without a push, it will not happen. The other day a friend told me of a lender (his client) who is seeking to create a special list outside the AMC they use; their claim is poor service and product….betcha licensing that AMC would fix that! I also heard of a request coming from a AMC in a state that requires they be licensed and registered. The “caller” asked the appraiser if he could “hit the number”. He asked “isn’t that a violation of the HVCC and the AMC laws?”. The caller laughed…who is enforcing this stuff anyway..we do it all the time and we just send a text message to our appraisers telling them what they need”. There are approximately 97,000 appraisers in the US handling over 1 trillion dollars in mortgage money. Over 75% of the states require licensed appraisers for federally related transactions and 45% require for all appraisals. Imagine if ALL 97,000 decided to make change by just saying “no” on unreasonable compensation or assignment conditions. If we did not have state licensing there would be a clamor to get it. Remember what was stated twenty years ago? “State licensing will change everything” .

Maybe it didn’t because we didn’t MAKE it matter.

What we had already in FIRREA and state law is part of the mechanism to get us to the next level. The missing ingredient is unity. It does not mean abolishing the AMC’s or AMC laws either. Let’s look within and stop trying to reinvent the wheel with both the products and the process. We are miners of fool’s gold until we make real change happen from within, which while not easy is the only way for true meaningful change.


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[HVCC and AMCs Violate RESPA?] Here’s a possible solution

March 16, 2010 | 12:01 am | |

I was provided an interesting solution to the AMC appraisal issue from Tony Pistilli, a certified residential appraiser who has been employed for over 25 years in the appraisal area, at governmental agencies, mortgage companies, banks and has been self employed.

He wants appraisers to get the word out. His solution is compelling.

Anyone who reads Matrix knows what I think of the Appraisal Management Company and the Home Valuation Code of Conduct (HVCC) problem in today’s mortgage lending world.

Here’s a summary of the his article before you read it:

  • Appraisers, Realtors, Brokers HATE the HVCC.
  • AMC’s and Banks LOVE the HVCC.
  • Regulators are disconnected from the problem just like they were when mortgage brokers controlled the ordering of appraisals during the credit boom.
  • Appraisers and borrowers are paying for services the banks receive.
  • Banks should pay for the services received from the AMC’s.
  • Appraiser’s fees should be market driven.
  • Banks should be held accountable for the quality of the appraisal.

AMC/HVCC appears to violate RESPA (Real Estate Settlement Procedures Act) since a large portion of the appraisal fee is actually going for something else coming off the market rate fee of the appraiser.

(RESPA) was created because various companies associated with the buying and selling of real estate, such as lenders, realtors, construction companies and title insurance companies were often engaging in providing undisclosed Kickbacks to each other, inflating the costs of real estate transactions and obscuring price competition by facilitating bait-and-switch tactics.

The Ultimate Solution for the Appraisal Industry

by Tony Pistilli, Certified Residential Appraiser and Vice-Chair, Minnesota Department of Commerce, Real Estate Appraiser Advisory Board, Minneapolis, Minnesota

Since the inception of the Home Valuation Code of Conduct (HVCC) in May 2009, there has been much discussion, and misinformation, about the benefits and harm caused by the controversial agreement with the New York Attorney Generals office and the Federal Housing Finance Agency. This agreement, originally made with the Office of Federal Housing Enterprise Oversight, requires Fannie Mae and Freddie Mac to only accept appraisals ordered from parties independent to the loan production process. Essentially, this means, anyone that may get paid by a successful closing of the loan cannot order the appraisal.

In the past 6 months while the Realtors© and Mortgage Brokers associations point fingers at appraisal management companies for their use of incompetent appraisers who don’t understand the local markets, appraisers are complaining that banks are abdicating their regulatory requirements to obtain credible appraisals by forcing them to go through appraisal management companies at half of their normal fee.

Banking regulations allow banks to utilize the services of third party providers like appraisal management companies, but ultimately hold the bank accountable for the quality of the appraisal. Unfortunately, the banking regulators have yet to express a concern that there is a problem with the current situation.

I need to state that appraisal management companies can provide a valuable service to the lending industry by ordering appraisals, managing a panel of appraisers, performing quality reviews of the appraisals, etc. However, banks have been enticed by appraisal management companies to turn over their responsibility for ordering appraisals with arrangements that ultimately do not cost them anything.

The arrangement works like this, the bank collects a fee for the appraisal from the borrower; orders an appraisal from the appraisal management company who in turn assigns the appraisal to be done by an independent appraiser or appraisal company. During this process the appraisal fee paid by the borrower gets paid to the appraisal management company who retains approximately 40% to 50% and pays the appraiser the remainder. So for the $400 appraisal fee being charged to the borrower, the appraiser is actually being paid $160-$200 for the appraisal. Absent an appraisal management company the reasonable and customary fee for the appraisers service would be $400, not the $160 to $200 currently being paid to appraisers.

Rules within the Real Estate Settlement Procedures Act (RESPA) have allowed this situation to occur, despite prohibitions against receiving unearned fees, kickbacks and the marking up of third party services, like appraisals. RESPA clearly states, “Payments in excess of the reasonable value of goods provided or services rendered are considered kickbacks”.

Banks are allowed to collect a loan origination fee. This fee is intended to cover the costs of the bank related to underwriting and approving a loan. Ordering and reviewing an appraisal is certainly a part of that process. Understanding that banks ultimately have the regulatory requirement to obtain the appraisal for their lending functions, why is it that borrowers and appraisers are paying for these services that are outsourced to appraisal management companies? Does the borrower benefit from a bank hiring an appraisal management company? Does an appraiser benefit from a bank hiring an appraisal management company? The answer to those two questions is a very resounding, no! Clearly the only one in the equation that benefits is the bank, so why shouldn’t the banks be required to pay for the outsourcing of the appraisal ordering and review process?

It is here where I believe the solution for the appraisal industry exists. Since banks are the obvious benefactor from the appraisal management company services, the regulators should require that the banks, not the borrowers or appraisers, pay for the services received. This one small change in the current business model would allow appraisers to receive a reasonable fee for their services and in turn they should be held more accountable for the quality and credibility of the appraisals they perform. Appraisal fees would be competitive among appraisers in their local markets, much like the professional fees charged by accountants, attorneys, dentists and doctors. Appraisal management companies would suddenly be thrust into a more competitive situation where their services can be itemized and their quality and price be compared to those of competing providers. This will ultimately lead to lower fees and improved quality of services to the banks. The banks will then have a very quantifiable choice, do they continue to outsource their obligations to an appraisal management company and pay for those services or do they create an internal structure to manage the appraisal ordering and review process? Either way, the banking regulators need to hold the banks more accountable at the end of the process.

When all of the previously discussed elements are present, I believe the appraisal industry will be functioning the way it was intended. Appraisal independence will be enhanced and borrowers will be rewarded with greater quality and reliability in the appraisal process. This is exactly the change that is needed, in addition to the HVCC, to stop the current finger pointing and address the poor quality and non-independent appraisals that have been and are still rampant in the industry.


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[Idiotic Mortgage Lending System] How to not get scr*w*d by an (AMC) appraiser

March 15, 2010 | 4:37 pm | |

Here’s the result of an email interview I conducted with Brick Underground expressing my dissatisfaction with Appraisal Management Company (AMC) appraisers these days and corresponding situation that a real estate agent was going through.

The real world appraisal situation – the name of the appraiser and related organization was omitted to protect the guilty. Here’s the sequence – READ THE DETAILS CLOSELY (sorry for the all caps but I really am yelling):

  • Appraiser who works for an Appraisal Management Company on behalf of a national lender performs an appraisal of a walk-up apartment.
  • Contract price in appraisal was $414k when the contract price was $460k
  • The appraised value was close to the incorrect contract price.
  • The wrong apartment was appraised. The correct apartment is larger than the one appraised.
  • The inspection/effective date was listed as January 27, 2010 when the property was actually inspected on February 3, 2010.
  • No comparables from the subject neighborhood were used.
  • The appraiser reversed the floor level adjustments suggesting that the lower floor of a walk-up is less valuable than a higher floor (A built-in health club!).
  • The appraiser gave no credit for a private roof deck.

And the key detail…

  • The AMC fought hard saying that the appraisal was correct. In fact, despite these amazingly negligent errors they “refused a new appraisal saying despite errors below, the value stands.”

In other words, the appraiser did not know the market or how to appraise a walk-up, was guided by the contract price which was actually wrong. When told the price was wrong and a smaller apartment was appraised, the AMC stood by the appraisal.

I didn’t appraise the property and have no idea whether the apartment was worth the sales price. I’m just using the information provided.

The only solution for the buyer is to roll the dice and go to another bank. The bank loses because a professional evaluation was not performed. The bank likely doesn’t even know that this happened. A buyer and seller lose because the appraiser was incompetent. The broker may lose a fairly earned commission because of a form filler who has no business being called an appraiser.

This is not appraising – it is idiotic form filling managed by people who should not be in the mortgage lending business.

So you can see how my interview on Brick Underground covering this topic was so terse – I was being told the above situation at the same time. Here is the link again:

How to not get scrwd by an appraiser [Brick Underground]

As I’ve said many times before, the current appraisal system with Appraisal Management Companies is an accident waiting to happen while we pretend that everything is OK.


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[NAHB] 26% Of Appraisals Faulty While AMC’s Talk Parrots

July 14, 2009 | 12:53 am | |

NAHB regroup on the HVCC/Appraisal issue from after a very silly press release a few weeks ago to a more coherent message in the to the current press release [FAULTY APPRAISAL PROCESS HARMING HOUSING AND THE ECONOMY} which has more stats.

Twenty-six percent of builders are seeing signed sales contracts fall through the cracks because appraisals on their homes are coming in below the contract sales price, according to a nationwide survey conducted by the National Association of Home Builders (NAHB).

“Home builders are increasingly concerned that inappropriate appraisal practices are needlessly driving down home values. This, in turn, is slowing new home sales, causing more workers to lose their jobs and putting a drag on the economic recovery,” said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla.

Ok, I can relate to this but the 26% figure is much higher than I would have thought, and I see myself as an appraisal pessimist these days. NAHB essentially defines faulty as “killing the deal” which is a very thin standard, but still their argument has merit.

This press release comes on the heels of the NAR press release in the form of research that said that 37% of all realtors have had 1 or more deals blow up because of the appraiser.

Lost sales were reported by 37 percent of Realtors® attempting to complete home sales, with 17 percent reporting one lost sale and 20 percent reporting more than one lost sale.

Approximately 85 percent of NAR Appraiser members reported a perceived reduction in appraisal quality.

Although these are trade groups and are known for spinning on behalf of their members, in this case, I do believe they are right. Appraisal quality has fallen sharply and the fact that Appraisal Management Companies (AMC) being enabled by HVCC has a lot to do with that.

Here’s how the AMC trade group responds to appraisal criticism from real estate agent and mortgage broker trade groups.

Realtors and mortgage brokers say the new procedures tend to produce below-market valuations that can delay or kill pending deals. Consumers are paying for the changes in higher fees and subsequent appraisals when the property doesn’t price right initially, they claim.

Such complaints are a “gross mischaracterization” that merely parrot talking points circulated by industry trade groups, said Jeff Schurman, executive director of the Title Appraisal Vendor Management Association, itself a professional organization representing AMCs.

“The way they tell the story, it sounds like we’re a bunch of cowboys who have come on the scene to take advantage of the situation,” he said. “We’ve been around since the 1960s.”

Yes that’s true Jeff, but it became an issue on May 1 when HVCC was implemented. The 1960’s cowboy analogy is like saying the Internet has been around since the 1960s.

Technically a true statement but a wildly misleading reference (much like many AMC appraisals).


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