AMC Dangers to the Consumer
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Appraisal Management Companies (AMC) are changing how our profession works.
It’s important to know exactly how they are affecting the real estate process, especially if you are a home-owner, looking for real estate or are involved in another part of the property.
Who does an Appraiser work for?
An appraiser works for “The Client” named in the report who ultimately responsible for the appraiser’s compensation. It is important to realize that while a borrower may have paid a lender or third party the cost of the appraisal, “The client” remains the only party authorized to use the report. The appraiser is restricted to direct communication with the client only.
When an individual or attorney retains the services of an appraiser, for an estate settlement, divorce, asset determination, etc the individual or attorney is “the client”. It is necessary to note that Federal regulations do not permit an individual borrower to select or engage the services of an appraiser for the future purpose of a loan application.
The purpose of lending and appraisal regulations is intended to “protect the public” (citizens) from unscrupulous appraisers which mandated appraiser licensing effective in 1992. Since 1992 many regional banks merged into several larger entities such a CitiCorp, Bank of America, Wells Fargo, JP Morgan/Chase, AIG, etc. Large corporations were unable to maintain a business relationship with local appraisers and the necessity for coordination of appraisal, title, and credit services evolved.
These lenders originally outsourced the tracking of appraiser licenses, qualifications, and appraisal assignments to independent “Appraisal Management Companies”(AMC’s) aka “Vendor Management Companies”(VMC’s). The AMCs were not appraisers or Federally Regulated Lenders and were not subject to any Federal or State Regulatory Agency or oversight. The incentive for lenders utilizing the services of an AMC was cost. The lenders were no longer bearing the cost of maintaining approved appraiser lists, accounting procedures, etc as the AMC’s originally performed the services for the same fees paid directly to each appraiser, by hiring “appraisers” at a discount, often inexperienced without an established client base in place. The lenders were assured that appraisals were being completed within regulatory compliance.
The lenders also enjoyed the idea that for every mortgage loan application, a single phone call to an AMC would generate all necessary documents, including the appraisal report, title search, title insurance, title policy, survey disaster inspection, and/or Broker Price Opinions (market data provided by a Real Estate Agent)
AMC’s progressed and lenders began to realize the title insurance premiums and AMC profits could be an additional revenue source, and AMC’s were “encouraged” to enter into “Joint Ventures”, or a “profit sharing”. During this “Joint Venture” exercise, First American Title Company, began to purchase appraisal data collection services, as well existing AMC’s and continued to merge AMC’s, each servicing an individual major lender such as Corelogic with a joint venture agreement with JPMorgan/Chase, and RELS which services Wells Fargo, Finiti which services CitGroup, all owned directly by First American. Several Banks directly invested and purchased exiting AMCs.
In order to “profit share”, appraisal and title insurance fees were increased to the consumer, concurrently reducing fees even further to the appraisers. In addition, the appraiser was pressured to complete an analysis in a maximum 24-48 turn-time which emphasized speed rather than accuracy and adequate research. Loans were being processed and approved in record time with minimal quality control and no regulatory oversight.
At approximately the same time, it was alleged that certain AMC’s were colluding with certain lenders to achieve specific results, altering appraisal reports for a specific value, pressuring an appraiser to provide a pre-determined value, selecting only appraiser that would promise a pre-set value, and ignoring the utilization of unqualified individuals preparing appraisal reports. As a “settlement agreement” which implicated certain lenders, AMC’s , and GSE’s (FNMA and Freddiemac), additional regulations were implemented by the NY State Attorney General, which encouraged the insertion of third party AMC’s into the lending process, known as The HVCC (Home Valuation Code of Conduct). Many of the stipulations of this settlement agreement were never implemented by the GSE’s such as a complaint hot-line.
AMCs and others viewed this action as an opportunity to expand the business model and within 2 years over 80% of all residential appraisals were controlled by AMCs.
Real Estate Agents were finding that the AMC’s were sending unqualified individuals to complete appraisals.
Waiting on the Federal Government, individual States implemented AMC regulations and registration, in an attempt to protect the consumer. It is the consumer of appraisal services who is harmed by inexperienced appraisers and corporations looking to increase profits. These lenders have created a profit center without approving a single loan.
The Housing Market was beginning to show signs of decline and Federal legislators Chris Dodd and Barney Frank introduced legislation which proposed establishment of regulations of AMCs, by individual State regulators, as well as The Consumer Finance Protection Bureau (CFPB), and was eventually passed in both houses and signed by The President. As could be anticipated, the owners of AMCs and those which profit from same objected to the implementation of the approved regulations, to which the Federal Reserve redefined for the benefit of the continuation of revenue sharing by AMC’s and lenders.
The AMC’s and lenders are concerned that the CFPB may interpret that the revenue sharing agreements violate RESPA (Real Estate Service Procedures Act) which requires lenders to make disclosures about the charges and fees that the borrower can expect at closing. RESPA forbids service providers from requiring the consumer to use specific companies for services and the act also forbids kickbacks and payments for services not rendered for the benefit of the consumer.
With every Real Estate Loan Transaction, a HUD1 statement is required to be presented and signed by the consumer, which is supposed to disclose title insurance premiums and all fees related to the costs of the transaction, yet the same lenders and AMCs are resisting efforts for disclosure of the fees paid to the AMC’s. The appraisal fee of the HUD1 is not what the appraiser receives, a portion, up to 50% of the fee goes directly to the AMC and joint venture partners. Other fees to which are shared are also not disclosed as a separate line item. Of additional concern is the solvency of certain AMC’s. If an appraiser is not paid by the AMC, a homeowner might find a lien filed against their property, regardless if payment was paid at closing to the lender. Consumers should not be risking their homes due to AMC irresponsibility.
Virginia legislators passed laws effective 7/1/2010 regulating certain AMC aspects, yet responsible appraisers are “blacklisted” by AMCs as AMCs blatantly violate those laws.
The Commonwealth of Virginia Legislators have again passed regulations regarding the registration, bonding, and practices of AMC’s to be enforced by the Virginia Attorney General’s office, with additional regulations to be determined and regulated by the State Real Estate Appraisal Board effective 7/1/2014.
VaCAP supports implementation of fair and necessary regulation of AMC in order to protect the citizens of the Commonwealth of Virginia and welcomes suggestions and examples of difficulties which might be utilized to strengthen the rights of Virginia consumers.