The C&R Compensation Argument
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Audit amc’s for C&R payment compliance nationally…
A wrongful denial of that immunity is effectively unreviewable because it subjects states and related entities to the indignity of defending sovereign action through protracted litigation. Delaying appeals or orders denying state action immunity will interfere with their regulatory freedom by distracting officials from their duties and hindering their discretionary actions.
Please allow me to help with a summary of the past 10 years in the appraisal industry. Amc’s are billion dollar companies and they circumvent many long standing ethic and spirit of regulatory compliance laws in states where they operate. They shop for reduced cost, then pocket the differences in secret without returning cost savings to consumers. If they were mortgage lenders they would be in violation of junk fee and unearned fee rules. They pressure appraisers in one form or another, position like an advocate for the lender, then force appraisers to sign independence compliance statements. They often hire non licensed poorly qualified people because they have only limited interest in compliance and many would rather litigate than comply. It’s a more profitable approach. Despite clearly understanding the reason any individual state may impose a new ethical or operational requirement for the purpose of better consumer protection onto them in one location, they refuse to offer such benefit to appraisers and consumers in other states and lobby against such restrictions in the future elsewhere. Their position on legal compliance is usually the bare minimum. Please audit them for C&R payment compliance nationally.
In the case of information based on fee schedules, studies, and surveys, such fee schedules, studies, or surveys, or the information derived therefrom, excludes compensation paid to fee appraisers for appraisals ordered by appraisal management companies, as defined in paragraph (f)(4)(iii) of this section.
That’s what this is all about right? Appraisers know in a very plain and straight forward way, the amc’s pay notably less than non amc work. The C&R fee rule with recurrent $10,000 / $20,000 per instance fines if the abuses continue were put in place to stop the obvious abuses of appraisers by appraisal management companies. Overnight the business entities we used to source orders from were forced to comply with separation from loan production rules, they sent that work through amc’s to comply. Overnight what used to be a $500 order dropped to $350, $250, sometimes only $175 dollars per order, while base consumer costs for valuation services often only increased. Overnight the fair distribution of orders changed and the lions share suddenly went to those few appraisers whom cut corners and often used outsourcing services. They were able to produce such reports at bare bones pricing via outsourcing essential services, using overseas typing and other services which may also compromise data security for consumers, using non licensed inspection runners, short cutting and automating many aspects of appraisal development. Setting a new performance standard that many appraisers can not match with more careful detailed developmental approaches. Amc’s immediately drove tens and tens of thousand of appraisers out of business and attrition has continued for 10 solid years while the amc business brag about record setting business growth. Most amc companies do not return cost savings to consumers so when an appraiser agrees to accept a discounted fee from an amc, it may be argued that the appraiser has violated the spirit of ethical guidance to not provide a thing of value to be the preferred selectee. It’s similar to pay to play, in a more complicated engagement setting riddled with other subjective regulatory compliance requirements. This is the typically expected engagement model the amc presents with and they absolutely do have a financial incentive to assign as many orders to the lowest priced vendors. They get to keep the variable fee rake in an unrestricted manner and do not have to comply with junk fee rules and unearned fee rules or even basic fee distribution disclosure which would otherwise be applicable to other businesses dealing with federally regulated mortgage lending.
Some states make small moves to help appraisers but very few if none were able to effectively implement the C&R customary and reasonable fee rule, that amc’s must compensate appraisers at a fair manner as if there was no amc involved. Also known as cost plus billing. The majority of amc’s in business today do not use a cost plus billing approach. Rather the billion dollar amc industry exists on the appraisers dime, exercising an infinite power and restraint over appraisers where we can not compete in the free market place of appraisal order engagement unless we accept these anti competitive practices, willingly working for less income in order to have access to the amc work. As amc’s reportedly have captured over 85% of all mortgage origination requests in the US, it is exceedingly difficult in many locations to source mortgage lending work without going through them. To add insult to injury amc’s also implemented a non disclosure agreement the appraiser was not allowed to share their fee with the consumer, cleverly concealing the amc fee rake in a singular ‘appraisal fee’ line disclosure in consumer documents. Consumers might get upset if they were to find out that although they paid over $650 for appraisal services, the appraiser himself only charged $350 or even less. Also there is an appraiser’s ethical guidance point that we should bill fairly. This of course is ignored because appraisers whom are forced to accept amc discount work to stay afloat do not then purposefully reduce the fees for the same working efforts elsewhere without such imposed billing restraints.
It is generally understood by appraisers that amc’s have remained in violation of C&R rules for more than a decade. It remains the hope of many remaining appraiser that they will receive the retroactive 10k / 20k fines for every instance where they have been in violation of fair compensation rules and have continued to restrict access to sourcing orders. They have become so empowered with the billion or more dollars of profit, they now seek to bypass the bulk of regulatory compliance by lobbying for hybrid and alternative appraisal products. Again, a more profitable approach. Consumers deserve better.
And the one state whom stands up for fair billing gets wiped out by an anti competitive suit when they were actually trying to defend appraisers from long standing anti competitive practices, if I have understood the recent anti trust article sequences correctly. FNMA CU system has the data to provide guidance, they can parse appraisal data in the CU system by amc vs not and they can make fee comparisons and provide the fee tables for what substantiated C&R should look like. The VA panel is not secretive and because they prohibit amc meddling and fee raking in general, they do have clear straightforward fee compensation tables from factual and substantiated free market appraisal cost surveying. All one needs to do to prove the theory amc’s have violated the original spirit of the C&R rule as literally intended is to compare the fee an appraiser gets if working with an amc vs the VA fee. For example, here in CO; VA fee; $700. FNMA typical direct lender fee; $550 or more. Amc fee if the appraiser wants similarly reliable order volume; $350. Yet consumer charges lenders impose for appraisal valuation services remain generally consistent on the front end regardless of where the consumer goes.
Meanwhile, amc expansion continues and only the VA puts out an unbiased and factual fee survey based on confirmed fair market appraisal charges which excludes amc fee raking. Some states are fighting back with C&R compliance rules of their own which hopefully will not be subject to such interpretation which goes against the very spirit of the C&R fee rules as originally written and intended. The spirit of the customary and reasonable C&R fee rule as originally intended is simple to explain; If the lender wants an amc to be involved they should pay for that in addition to what appraisers would be compensated as if there was no amc involved. We’d all rather just not deal with them if we had an option, the presence of amc’s has been devastating to the appraisal industry with lasting negative consequences. The intention of the C&R fee rule was to provide appraisers immediate financial relief since we could no longer source similar order volume without having to go through amc’s. There is a direct relationship to the rapid pace of amc growth vs the rapid pace of appraiser industry decline. After all, we’re the ones paying for it.
amc: “We have an available order in your area. This request has been sent to multiple appraisers. Please provide your best fee and turn time.”
By Champ, Certified Real Estate Appraiser – author requested to remain anonymous