AMC’s “My Way or the Highway” Attitude
Apparent appraiser abuse by AMC’s…
As Chairman of the American Guild of Appraisers (AGA) National Appraiser Peer Review Committee, I have had the opportunity to see and hear directly about many cases involving alleged, as well as apparent appraiser abuse by AMC’s. These cases ranged geographically from California, Arizona, Michigan, Illinois, Florida, North Carolina, Louisiana, New Jersey, Virginia, New York, Maryland, and District of Columbia.
As a QC consultant to a smaller appraiser owned AMC, I have also seen low fee spreadsheets from a variety of lenders that had 90% listed at the SAME APPRAISER fees: $495.00 (which INCLUDED the AMC cut) ranging to a high of $550.00. In most cases the AMC were reported to be averaging between $150 to $200 per non complex, FNMA conforming loan limit transactions. Some were reported as being as high as 50% of the quoted fees.
While the (generic) lender clients TALK a good game about appraisals being USPAP compliant, that frequently only lasts until THEIR deal is jeopardized by a purported “low” appraisal. This typically triggers a request for reconsideration (usually without new data), followed by a request for a desk review if the reconsideration fails.
The desk review is not intended to determine overall appraisal credibility. It is usually sought only if it already appears a technical oversight has been identified in one or more areas. THEN that appraisal review is used to justify ordering a new appraisal (appraiser shopping was the client intent all along) OR to exert Collateral Underwriter (CU) rating pressure. IF the new appraisal is higher, then the original appraisal that may have had no significant error, is turned over to the state board by the client/lender so that the illusion or pretense about quality control can be maintained; as they in turn create their own internal defense file against any possible future claims of appraisal shopping.
Oddly enough, the same thing is almost never seen where the appraisal is (allegedly) 5% to 10% HIGH.
Anywhere in the process after the request for reconsideration fails to achieve desired goals, the lender to AMC account rep will file THEIR inevitable complaint about the (1) AMC picking bad appraisers that are killing deals, or (2) specific appraisers killing deals.
Rather than less improper pressure being brought to bear on appraisers, there is more. Where before they risked only losing one client for upholding ethical standards, now they risk losing their livelihood if only one or two large AMC’s control all the work in their state or county.
As an AMC QC consultant I also routinely see the detrimental effects of low fees on basic appraisal quality. As fees come closer to being ‘reasonable’ there is a corresponding decline in the volume of bad appraisal work. Clearly, time and adequate compensation remain quality control issues despite Dodd-Frank.
The obvious solution for AMC’s is cost plus pricing. I suspect some, if not many or even most resist this because it precludes them from collecting the higher 50% fees from naïve or financially desperate appraisers. Some banks may also resist it because they now see appraisals as separate ‘profit centers’ where traditional ‘junk fees’ can be assessed even where there is no lender appraisal related overhead.
There should not be an unregulated or unlicensed AMC in America today. Their ‘banking’ clients are regulated and so are their appraiser vendors. Why would the intermediaries or “independence firewalls” be left unregulated?The larger AMC’s cite smaller ones as being the rogues and uncontrolled entities promoting bad habits, but my experience demonstrates just the opposite. Eighty to ninety+/- percent of the cases I’ve had put before me for review have involved very large lender owned AMC’s, or “Independent” national scope services. Smaller AMC’s can be problematic but generally lack the ‘our way or the highway’ arrogance of the larger ones.
Rather than to seek better ways of assuring compliance, those big enough to have the deep pockets to hire lobbyists seek to have the regulatory rules and laws modified to suit THEIR needs.
This will without the tiniest doubt lead American taxpayers back into the conditions that brought us to TARP I and TARP Two; It will lead to another economic collapse which will not be as relatively assured of being ‘curable’ because confidence of the American buyers and sellers will have been destroyed permanently.
Both American consumers and taxpayers can only be lied to so long before they react in the only way left to them. Withholding their check books. We’ll see long term artificial constraints on value similar to the instability of the short sale markets of 2009-2011.
Had FIRREA of 1989 been followed instead of being gutted, twisted and reinterpreted right alongside with USPAP every two years to suit lenders, the collapse of 2006-07 that culminated in November 2008 never would or could have happened.
Rules and laws are passed for reasons. The discussion should not be about whether to enforce them. It should be about why they have not already been enforced. A question that arises more and more in America of 2015.
There should not be an unregulated or unlicensed AMC in America today. Their ‘banking’ clients are regulated and so are their appraiser vendors. Why would the intermediaries or “independence firewalls” be left unregulated?
The ONLY reason for an AMC to be unlicensed today is if a particular state does not yet have a license law. To their shame there can only be one reason why they have no such laws. Their leaders LIKE the disorder.
If there is an AMC practicing without a license in a state that requires one, then that AMC has already proven that they cannot be relied upon to follow laws or regulations. Why would we think that voluntary or perceptual things like ambiguous ethics and integrity would not also be ignored, or at least parsed so carefully as to be meaningless?
The entire United States waits for Virginia to do the right thing. I hope it is not in vain.