Another Huckster Enters the Appraisal Arena
Yet another third party huckster has entered into the real estate appraiser and appraisal arena.
It’s that time again! Yet another third party huckster has entered into the real estate appraiser and appraisal arena. Apparently motivated by pure altruism.
We identified a need in the marketplace to address a common problem that lenders are regularly challenged with in providing accurate appraisal quotes and then ensuring pricing on the Loan Estimate is consistent and compliant,” stated Vladimir Bien-Aime, president and CEO at Global DMS.
(I LOVE this guy, he writes like me!)
I too spent much time analyzing this horrifically burdensome challenge lenders are faced with. Bear with me. It’s complicated.
First let’s consider the unreasonable burdens imposed by FIRREA; USPAP and even Dodd Frank. Each in it’s way points out solutions to past problems of appraisal abuse. Collectively, they sought to address and resolve all the old problems. They established minimal rules of behavior relative to appraisal and lending. Annoyingly so.
Oh, they worked relatively well until 2009 when HVCC reared its head. Major appraisal management companies such as Landsafe had previously been hiring significant numbers of bottom of the barrel, low fee appraisers for years. Appraisers susceptible to improper pressure, and lacking in experience so that in the end, 90% to 95% of ALL Landsafe FDIC contractor reviewed appraisals were found to be deficient-to-egregiously deficient. Bad (typically sub-par fee) appraisals were a huge factor leading up to TARP.
To ‘solve’ that problem, a new process or practice was developed to ‘prevent’ commission compensated ordering staff from influencing appraisals.
Who best to implement such a plan? Why OTHER TITLE INSURANCE Company subsidiaries JUST LIKE LANDSAFE!
With typical disregard for ethics and conformity to the spirit of the laws that govern them as well as subsidiaries of most title insurance companies, they used their national clout to muscle their way into ‘managing’ a profession they knew nothing about.
Applying their industry wide accepted standards of greed and avarice they immediately set to suppressing and ‘fixing’ appraiser fees. To assure they could maintain their undue influence over their appraiser thralls, large title companies became sponsors of The Appraisal Foundation (they who write and interpret USPAP); became sponsors or influential members of MISMO (the private incorporated mortgage association that claims credit for causing Congress to create TAF); and though the unholy alliance of First American and CoreLogic they set about monopolizing every conceivable aspect of real estate transactions.
That is until even the FTC was forced to pay lip service to anti trust laws. They required CoreLogic and First American to split apart into two separate entities. Naively believing as two separate entities these two former partners would not continue to monopolize the entire real estate transactional process… as they have done; to the huge detriment of consumers ability to choose; and taxpayers risk of future bailouts.
Look both up and see all their subsidiaries. Too numerous for me to itemize here.
From day one, these mega-monopolies and their wistful, lesser corporate admirers have sought to squeeze every penny from a profession which also required them to eliminate that profession’s independence. Why? Because it is interfering with their other real estate related ‘major profit centers’.
Already having suppressed competitive appraisal fees far below what was required to continue to assure good professional appraisal quality (much like Landsafe did), they and their banking industry customers / partners managed to get a law passed that circumvents selected portions of requirements of USPAP. It also bypasses Dodd Frank legislation which had previously recognized the fallacy of policies that left ‘hungry men guarding the buffet table’.
Reasonable and customary fee language of Dodd Frank was re-interpreted as ‘customary and reasonable’, thereby emphasizing what is subjectively customary, rather than the much less subjective ‘what is reasonable’ to assure ongoing, professional quality work.
The title company subsidiaries; and their host of corporate sycophants (that have included the likes of Coester VMS) had a relatively unrestrained field day forcing appraisal fees down NATIONALLY to amounts that were less than typical twenty years before. They still continue to try to argue the very fees they forced to become lower are now ‘customary.’ Oddly, the FTC supports that illegal practice.
FNMA had passed rules that no appraiser may be paid direct by borrowers if the loan is to be sold to FNMA.
They unilaterally reversed a long-standing appraiser independence custom of more than fifty years standing. “COD” Cash on doorstep. THAT policy had developed over years so that appraisers would not be held hostage by borrowers that may not like the results of an appraisal. Borrowers that in the past used withholding payment to enforce favorable changes. JUST LIKE BANKS DO TODAY THROUGH THEIR 100% CONTROLLED AMC’s and AMS’s!
COD had assured financial independence (barring outright dishonest acts). Banks and their wholly dependent AMCs eliminated that independence.
Lenders didn’t like COD because they are all fundamentally unethical (Wells Fargo ring a bell?) & because they routinely tried to steal each other’s clients once a refinance or new loan in process became known.
One way they reduced this was to control the appraisal. Either pay for it themselves (too costly) OR require the borrower pay for it through them or their AMC. Lock them in!
That way no borrower could cancel a loan and still require the appraisal be delivered to them or their new lenders. Rather than risk being forced to pay for two appraisals, borrowers usually opted to stay in the deal they were already in.
Later, banks and TAF had the definition of client redefined from traditional legal interpretations to only mean the lender. Gone were state mandated fiduciary obligations to property owners or borrowers.
On seeing how successful this tactic was, they went further. Banks are competitive (or pretend to be while offering the same services under different names and descriptions).
Bank of #1 can’t attract business if their loan officers are telling borrowers no one knows how much the appraiser will charge.
So, along comes Coester VMS who regularly advertised they invented the one size fits all national appraiser fee policy. Now Bank of #1 could quote borrowers a specific fee in advance, even though no one knew what the complexities would be or how much the specific appraiser would need to do a USPAP compliant job on that specific property! Coester could assure the fee is accepted by a take it or leave it approach to ‘negotiating’. Makes TRID compliance so much easier too!
Unfortunately, Bank of Number Two which offers the same product as #1 can only compete if they quote lower fees. So they go to their contracted AMC huckster and dictate a $100 lower fee.
Bank of Number Two offers lower fees; THEIR AMC hires cheaper appraisers and to remain competitive also handles requests for reconsideration of value or appeals often ‘assuring’ their client they can get most appraisals ‘fixed’. AND THEY WILL WITHHOLD APPRAISER PAYMENT UNTIL THEY ARE FIXED!
Once Bank of #1’s AMC learned that Cousin Stinky’s bank AMC had appraisers so hungry for work they’d accept half fees like a trainee used to, they saw opportunity. They can offer even LOWER quotes to their bank masters while still doubling their net fees per order! Just shop for the desperate.
The problem with this system is appraisers were getting wiser and fighting back. Additionally, micro management of appraiser business practices had eliminated the viability of trainees. Inexperienced appraisers willing to be manipulated and over worked for peanuts were fewer and fewer.
Prices started creeping up to REASONABLE fees for the work required. Old timers are unwilling to be bluffed or intimidated by former fast food worker-AMC ‘reps’ who need a blind eye turned toward (all) property problems that delay loan closings.
That combined with MISMO’s long standing objective of full automated loan processing including appraisal. FHFA’s White Paper on AVMs pointed to a behind the scenes scheme already well on its way to replace traditional appraisals.
Secretary Mnuchin’s Financial Reform Package to the White House even suggests newer streamlined processes will harmonize loan automation & production. Until his replacement [i] as Chair of the powerful House Finance Subcommittee, Representative Hensarling (R-TX) also proposed a ‘new system’ where that pesky Dodd Frank consumer protection …er bank inhibitor would disappear.
Why heck! Surprisingly even good old First American (Pace Pro / ACI infamy) and Corelamode already had AVM products they purported to be able to cure most value errors; quality control deficiencies, measles, whooping cough, shingles, flatulence and bad breath.
All for about $1.29 with results ready in mere seconds. As near as we can tell it may be as reliable as Zillow, Trulia, Realtor.com, etc., etc. Very high praise indeed!
Such forward thinking, award winning innovators as the wonderful folks that brought us ZAIO (and a fondness for sausage) years ago even ‘perfected’ new innovative products.
Products where appraisers could do what they do best for 1/20th to 1/3 of the usual cost (while ostensibly netting twice their normal daily rate) and even analyze and deliver finished products within fractions of an hour.
Initially these were touted as some form of evaluation until it was realized FIRREA specifically prohibits evaluations being called appraisals. Wall Street’s foreign investors demand APPRAISALS. Not only that, but appraisals that are labeled USPAP compliant.
So, third party inspected evaluations became bifurcated hybrid appraisals. They can be provided at a cost of anywhere from $8.00 each (when done in Hyderabad Pakistan) to a USA range of $25 to $150 if one isn’t too picky about that USPAP compliance thingy.
“Professional third party inspectors” typically comprised of part time students with nearly a whole days training.
…huckster will guarantee full appraisal for only $150 more…For a mere $599 a buyer can pay for and agree to a property inspection waiver (minus $150 for the bifurcated hybrid above), and if the waiver is not authorized the huckster / amc / “settlement Service” / software experts will guarantee a full appraisal for only $150 more!
Huckster nets $299 to $449…Everybody’s happy, happy, happy! Huckster nets $299 to $449 (unless they have to split it with the bank in which case they may lose another $75 real processing fee); consumer is happy, and appraisers churning these out at a rate of 4 per hour non stop 7 days a week are earning literally $gazillions per week.
Soooooo… Mr. Vladimir Bien-Aime, president and CEO of Global DMS, unless YOUR product can produce credible results at least an hour BEFORE an order is placed; pay the customer to use your service, end hunger, and at least result in World Peace you have serious challenges ahead.
Do tell us how to invest in your product and where we can follow it’s exciting daily stock price… now that Clear Capital has become so boring.
PS: Vlad, see footnote
- [i] “I have the gavel”: Maxine Waters lays out an aggressive agenda at the House Financial Services Committee