Influencing the Appraiser
The biggest issue that threatens the appraisers and the appraisal industry is the AMCs intrusion into the appraisal process. Many competent and experienced appraisers have left the industry due to the AMCs involvement in the appraisal process. The AMC is the most influential party in the appraisal process and they control the money which comes from the borrower and goes to the appraiser which gives them the power to dictate to the appraiser. The intent of the AMC process was to put a firewall between the production department of the lender (Loan Officer) and the appraiser, to reduce or eliminate influencing of the appraiser. What has happened is that the AMC is now the major influence on the appraisal process and they are not the “User” or “Intended User” and do not sign or take any responsibility for the completed appraisal report. They control the content of the appraisal report and what it must or must not contain, how much the appraiser is paid and when the appraiser is paid. They also require changes in the appraisal that the appraiser need to make to the appraisal report after it has been completed and sent to the AMC before they will send it to the lender which is listed on the report. I believe that this is or should be a violation of USPAP when a third party who is not the “User” or “Intended User” requires that the appraiser make changes to a completed appraiser report before it is forwarded to the lender.
Other ways the AMC influences the appraiser and appraisal report:
this gives the AMC control over the appraiser and the content of the appraisal report…AMCs require that the appraiser sign an agreement prior to receiving appraisal assignment from them. These agreement often contain requirements that no prudent business person would agree to. However, the appraiser has little choice since the AMCs control 75-80% of all appraisal assignments. You may ask why the appraiser would sign such an agreement. The answer is simple. Sign the agreement or close your doors. When you get an appraisal assignment, typically it will come with instructions from the lender on what their requirements are for this appraisal report. This is usually one page or less. The AMC will include their instructions and requirements which can be 8, 12, 16 or maybe 20 pages. This is in addition to the requirements of the lender. Since the AMC collects the fee from the borrower and pay the appraiser, this gives the AMC control over the appraiser and the content of the appraisal report.
The problem is compounded by the fact that over 80% of all states have no policies or procedures for monitoring the AMCs. The federal regulations give the states the power to regulate AMCs. However, most states only require them to register, pay a fee, and do not have a procedure in place to file a complaint or have any requirements on their operation. Most states do not enforce federal regulations on AMCs.
The industry has lost sight of the purpose of the appraisal report. The purpose of the appraisal is to assist the lender in evaluating the risk of a loan request. It is not to protect the lender from a loss or a foreclosure. In my over 20 years as a Banker in lending, much of it as a senior lender, I never saw one mortgage loan that went into foreclosure do to a faulty appraisal. Appraisals do not make loan payments, borrowers make loan payments.
There are solutions to these problem. However, most appraisers are independent business people and cannot afford to fight the AMCs which are large national companies. If we want to make the appraiser truly independent we need to level the playing field and remove the pressure which third parties such as AMCs are putting on them.