Open Letter to Mortgage Lenders
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The world has changed and most everything in our lives involves technology. The technologies available to each of us are tools. They are not a more reliable means, merely more convenient. Human thought and analysis is still required in every aspect of life.
When the Final Rules of the Dodd Frank Legislation went into effect, many lenders chose to use appraisal management companies with the false idea they had no liability for appraisals. This simply is not a true belief. You, the lender, are 100% responsible for the appraisal and additionally are 100% responsible for the actions of the appraisal management company utilized.
How much vetting have you done on the appraisal management company? Are you aware some owners of appraisal management companies have criminal records? Assault convictions? Disciplinary actions as a State Licensed Appraiser?
How involved are you as the lender in the day to day activities of the appraisal management company?
- Are you aware, most appraisal management companies violate appraisal Independence Requirements on a daily basis?
- Are you aware most appraisal management companies pressure appraisers for higher values?
- Are you aware some appraisal management companies shop an assignment, sometimes for over a week searching for the lowest priced appraiser? Does this not delay the appraisal completion?
- Are you aware some appraisal management companies send an appraisal request to 50-100 appraisers regardless if they cover the subject market area or not? Does this not delay the appraisal completion?
- Are you aware most appraisal management companies do not value the education and experience of the appraiser? The appraiser that was licensed last week is seen equal to an appraiser with 40 years’ experience.
- Are you aware most appraisal management companies violate Fannie Mae guidelines on a day to day basis in regards to Collateral Underwriter results?
- Are you aware some appraisal management companies employ individuals to review appraisals that are not properly educated or licensed to do so?
The GSE’s have given lenders their assurance if an appraisal meets a certain score in Collateral Underwriter the lender has no liability for the appraisal. This could not be further from the truth.
Fannie and Freddie may not hold you liable however, there is nothing stopping an investor of the mortgage backed security from legal action against the lender. There is nothing stopping a borrower, Realtor, or seller from legal action against the lender, and there certainly is not any guarantee an appraiser will not seek legal action against a lender. What about E&O insurance companies? They too could file a legal action against the lender due to the actions of the appraisal management company.
Are you aware the cost of an appraisal has risen significantly to the borrower because of the appraisal management company? Why is the borrower paying for a service the lender outsourced? Could this be another area for legal action against lenders?
Regardless of who pays the appraisal management company, what does the appraisal management company actually do to earn their fee? Their title states appraisal management company. One would tend to believe they actually manage something. But they do not manage anything about the appraisal itself. In fact, most appraisal management companies force the appraiser to sign an indemnity agreement releasing them of all liability, completely ignoring the fact each appraisal management company has their own instructions on how to complete the appraisal. Heck, some even want to make the appointment for the appraiser. How can someone who is supposed to manage the appraisal be released of all liability? Where does that leave the liability? Directly on the lender!
The market has been crazy and everyone is extremely busy. But what is going to happen, not if, but when the market turns? The foreclosure moratorium will end at some point. Then what? Forbearances will end. Then what? The lender who signed off on the entire loan package, including the appraisal will be on the hook for any and all legal claims. The appraisal management company the lender hired approved the appraiser and signed off on the appraisal. The legal action from all parties is pointed directly to the lender, after all the lender approved and funded the loan!
The Dodd Frank Legislation does not require the use of an appraisal management company. If you are utilizing an appraisal management company, you are encouraged to reevaluate your responsibility and liability with using appraisal management companies. Why not pick up the phone and call some appraisers and get their feedback on the appraisal management companies. I am sure they will be more than willing to talk about their experiences. These companies provide no benefit to the lender, nor do they release the lender of any liability.
Lenders, start getting better quality appraisals quicker and for less money by eliminating the appraisal management company. Start protecting your liability by eliminating the appraisal management company.
By Advocate. The author is a Certified Residential Appraiser and has chosen to use the pen name Advocate to protect their identity. Many famous people including Benjamin Franklin, Agatha Christie, and Steven King have written under a pen name for various reasons. Just Google pen names used by famous authors, there are only 45,700,000 results to choose from.