by David Brauner, Editor
Given the fierce efforts to keep HVCC alive, it makes you wonder if AMC interests know something the rest of us don’t.
As federal legislation that would end the Home Valuation Code of Conduct (HVCC) moves closer to reality, appraisal management company (AMC) interests are blitzing the media with their message that overturning HVCC means a return to lender pressure/appraiser compliance and an environment that allowed the current real estate collapse.
Industry thought leaders have been saying for months that, no matter the fate of HVCC, the shotgun marriage between appraisers and AMCs is sealed: if appraisers want to do business, they will have to do business with AMCs on the terms dictated by these middle men or so goes the conventional wisdom.
Representatives from the Federal Housing Finance Agency (FHFA), Fannie Mae, Freddie Mac and others, tell appraisers that there will be no going back to business as it was prior to HVCC, no matter if the Code is allowed to sunset in November of this year or terminated before then (FHA, Fannie/Freddie Tell it Like it Is, WorkingRE.com, Current Edition). If this is the case, what is the AMC trade group TAVMA (Title/Appraisal Vendor Management Association) so worried about?
In recent weeks, TAVMA has published stories in the appraisal press and in other online real estate-related publications strongly defending HVCC’s role as a “firewall” protecting appraisal independence. TAVMA also recently published a widely circulated “AMC Standards of Good Practice in Appraisal Management,” in an apparent effort to head off the growing trend of AMC regulation by states (see WorkingRE.com, Sidebar for the AMC Standards of Good Practice in Appraisal Management). Such regulation, they argue, would create a confusing and expensive tangle of legislation that would drive smaller AMCs out of business and raise costs for consumers.
Safe Act
What may have rattled AMC cages is passage by the House late last year of the Financial and Mortgage Industry Reform Bill (find the Bill at WorkingRE.com, Sidbar: HR 4173). If signed into law, the Bill would establish a Consumer Financial Protection Agency and require lenders to compensate appraisers their full fees, rather than splitting them with management companies. There are also rules to assure appraisal independence. The bill gives the director of the new agency 60 days from the date of enactment of this legislation to establish such appraisal rules and calls for the HVCC to sunset at the time the new rules go into effect. The bill was referred to the Senate Committee on Banking, Housing and Urban Affairs earlier this week.
The bill includes the following:
(1) shall not prohibit lenders, the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation from accepting any appraisal report completed by an appraiser selected, retained, or compensated in any manner by a mortgage loan originator—(A) licensed or registered in accordance with section 1501 et seq. of the SAFE Mortgage Licensing Act of 2008; and
(B) subject to State or Federal laws that make it unlawful for a mortgage loan originator to make any payment, threat, or promise, directly or indirectly, to any appraiser of a property, for the purposes of influencing the independent judgment of the appraiser with respect to the value of the property, except that nothing in this section shall prohibit a person with an interest in a real estate transaction from asking an appraiser to—
(i) consider additional, appropriate property information;
(ii) provide further detail, substantiation, or explanation for the appraiser’s value conclusion; or
(iii) correct errors in the appraisal report; and
(2) shall include a requirement that lenders and their agents compensate appraisers at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.
(c) SUNSET.—Effective on the date the appraisal independence requirements are promulgated pursuant to subsection (a), the Home Valuation Code of Conduct announced by the Federal Housing Finance Agency on December 23, 2008, shall have no force or effect.
The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”), requires state licensing of mortgage brokers, including coursework, testing and fingerprinting.
These developments and a flurry of state laws to regulate AMCs may be what has TAVMA fighting back. Quoted in HousingWire.com, TAVMA executive director Jeff Schurman said, “Turning back-the-clock, and letting parties who are compensated based on closed deals order and interact with appraisers will inevitably lead to pressure and inflated appraisals.” (Find the story at WorkingRE.com, Sidebar: TAVMA Opposes New Consumer Protection Bill.)
Reason to Believe- Speaking Up
Some appraisers have given up believing that their autonomy as businesspeople will ever be restored, since HVCC has cut them off from their mortgage broker clients. Indeed many have called it quits in recent months reporting that they can not earn adequate fees working with AMCs or generate sufficient orders to stay in business.
Passage of this Bill may be the light at the end of the tunnel. TAVMA and others are pushing hard to see that that light is turned off and that HVCC remains in place. If you are opposed to HVCC, this may be a good time to make your voice heard with your Senators.
Pressure Tested
According to the Working RE/OREP HVCC Appraiser Talkback Survey, with over 4,500 appraisers responding as of this writing, 92 percent of appraisers are not in favor of HVCC as written and 82 percent do not consider AMCs to be a legitimate business model. Fifty-three percent (53%) report that they experience pressure for value with the AMCs they work with at least some of the time (47 percent say they “never” experience this pressure). Over 55 percent say that, with the AMCs they work with, they are asked to re-examine reports with the intention of trying to “make the deal work” at least some of the time (44 percent say they are “never” asked). So despite TAVMA’s PR to the contrary, appraisers say pressure still exists.
Quality Not Job One
Survey and Blog results also support anecdotal evidence from appraisers that appraisal quality has diminished since HVCC, not improved. The reason, they say, is that many AMCs look primarily for the lowest bidder when selecting appraisers, not the most qualified professional. According to the survey, 98 percent say that, in their experience working with AMCs, appraiser selection is based solely on obtaining the lowest fee at least some of the time (less than two percent answer that appraiser selection is “never” based solely on obtaining the lowest fee).
Survey results clearly indicate that pressure for low fees and quick turn around also is hurting quality. To the question: “Do ‘low fee’ appraisals result in a product that is less reliable for the end user compared to a report where adequate fees have been paid, 45 percent answer that this is “never” the case (55 percent say it happens at least some of the time). To the question: “Does the time pressure (from AMCs) result in a product that is less reliable for the end user, compared to a report where adequate time has been allowed, 31 percent say this never happens (69 percent say it happens at least some of the time).
Freddie Mac, on the other hand, reports that an internal review indicates that appraisal quality has improved since HVCC and that complaints are down. (See FHA, Fannie/Freddie Tell it Like it Is, WorkingRE.com, Current Edition.)
FHA Fees- Customary and Reasonable?
An appraiser poll hosted by AppraiserSupport.com finds that today the majority of fees for FHA appraisals are under $250 nationwide. At issue is FHA’s new policy, which takes effect this week and mandates that appraiser fees be customary and reasonable. According to AppraiserSupport.com, “In 1986, FHA mandated the appraisal fee of $225 be paid to all FHA appraisers. FHA realized that a fair wage was required to produce quality appraisal reports. If you adjust the 1986 mandatory appraisal fee for inflation, a current appraisal fee would be $436, which was approximately the amount appraisers were charging prior to the HVCC. HUD has addressed the issue of ‘reasonable and customary’ appraisals fees. Their definition is that ‘customary and reasonable’ are reflective of those fees established and negotiated by an FHA-approved, self employed independent fee appraiser.’ However, we have evidence that, on average, AMCs are only paying 60 percent of the reasonable and customary appraisal fee.”
New FHA changes also stipulate that the fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal. (See Appraisers Talk, FHA Listens at WorkingRE.com, Current Edition.)
Side Notes: The Good, the Bad and Shangri-La (Montana)
Reaction to coverage of HVCC and AMCs in the current issue of Working RE magazine has been mixed, to say the least. Comments range from gushing praise to tirades that would make Senator John McCain blush. Here are two of many.
“I just read your latest article, it was very enlightening. I have been in the business for 23 years and sound very much like the appraiser at the end of your article. I worked very hard to build a reputation and good list of clients, just to have it all taken from me. I have to start all over again but this time it is not about my education or my designations. The only thing 95 percent of the AMCs ask for if my license, that in itself should indicate they are not interested in quality or education of any kind. The only requirement they have is the bare minimum and the lowest fee they can get. I have one exception, and that has been Landsafe. Landsafe is the only reason I am in business today, they have a staff that is knowledgeable and they actually look for quality work,” said Kevin Talbott, SRA.
And this from another appraiser: “So how much are AMCs paying you to help them? Give me an article that defends appraisers and criticizes our enemies.” (Name withheld.)
Also, several appraisers wrote us puzzled about what the acronym “HVCC” stands for- they had never heard of it! One of these appraisers, who lives in rural Montana, told us he has not been effected one way or the other by the Code.
Getting Out: Why I’m Leaving Residential Appraisal
A sometime contributor to WRE, appraiser Mike Read, sends us this letter:
I used to love appraising. Long before there was any appraiser regulation my clients came to me for valuation opinions because of my years of experience in real estate and their recognition of my accurate and reliable reports. Then came HVCC. Now my clients of 24 years are not allowed to contact me. They have to order appraisals through a third party appraisal management company (AMC) which takes up to 60 percent of my fee for their trouble.
I have signed up with about a half dozen AMCs. One went out of business owing me over $7,000. Three asked for all my exhibits and I’ve never heard from them again. One expected me to complete a URAR for $90. My most recent AMC has not sent me an assignment in months due to their lack of volume.
I recently testified before my state legislature in support of a bill to regulate AMCs. My first suggestion was to support the repeal HVCC at the federal level. Secondly to ensure that a certified appraiser is on staff at the AMC to do review work and third to require the AMC to have a surety bond of $500,000 to $1 million so payment to appraisers is assured if the AMC defaults. Others recommended that AMCs become regulated by the State Appraiser Licensing Board.
I have 24 years of appraising experience, am licensed in two states as a General Certified Real Estate Appraiser, have been HUD approved for the whole 24 years without any complaints and have completed hundreds of hours of special education. What good has that done for me?
What is driving this patchwork quilt of ineffective appraiser regulation? Have you heard of “The Golden Rule?” He who has the gold makes the rules! The greed of lenders is the source of the problem and always has been. They are the ones with the money to lend. They are the ones that establish the lending guidelines that have to be followed by everyone else in the lending chain. They are the ones with the “pipeline” to keep full and flowing. When they run out of borrowers with 20 percent down they reduce the requirements to encourage borrowers with 10 percent down. Keep that pipeline full. When they run out of borrowers with 10 percent down they reduce the requirements again to encourage borrowers with five percent down, then zero down, then “no doc loans.” Keep that pipeline full.
What about the increased risk? Well, they just pack the loans up and sell them off to someone else in a mortgage backed security that is so far removed from the valuation process no one can figure out the value any more…not even the sophisticated investors. (Nobody thought to ask the appraisers!)
Now it’s time for me to say goodbye to my clients and friends in the residential real estate and financial service fields. You’ve heard of the theory of “trickle down” economics? Well here is how my exit from the business will trickle down to you all.
Dear MLS provider, I will be canceling my subscription for data services at the end of my current period ($105/Q).
Dear title company, I will be canceling my subscription for data services at the end of my current period ($85/mo).
Dear software company, I will not be renewing my annual software maintenance agreement at the end of my current period ($399/yr).
Dear Board of Realtors, I will not be renewing my annual dues this year ($375/yr).
Dear Appraisal Institute, I will not be renewing my annual dues this year ($330/yr).
Dear E&O insurance company, I will not be renewing my policy at the renewal ($500/yr).
Dear state of Washington, I will not be renewing my appraiser license at the end of the biennium ($500).
Dear state of Oregon, I will not be renewing my appraiser license at the end of the biennium ($500).
Dear education provider, I will not be needing any more CE credits so will not need any more expensive classes ($500/yr).
Dear AMCs, goodbye.
Dear Consumer, you are the only one I feel sorry for. I will no longer be in a position to provide you with an independent valuation for your largest lifetime investment. Your lender does not want you to know who I am, how to contact me, how much I charge, what value opinion I reach, they just want you to pay for some conforming paperwork. If they receive any bad news they just shoot the messenger.
For more from Mike Read, including his entire farewell letter: http://appraisals4realestate.wordpress.com/.
14 responses so far ↓
1 Robert Coop // Feb 3, 2010 at 8:57 am
A very interesting article.
Much mention is made of the results of previous surveys.
Those results always mention “Lender Pressure” under the current HVCC rules and AMC model. However. I have yet to see a question on any of the surveys I have taken addressing “Lender Pressure” prior to the HVCC and whether or not, if it existed, it was an influence on the appraiser?
My answer(s) are YES it existed and No it did not influence my opinions at all.
I know that, if answered honestly, not all appraisers will respond the same way. It would be interesting to see what the differences are between the two time frames. Before HVCC and after HVCC.
In the meantime I feel I must say to my peers that if the AMCs are getting into their wallets it is because they are letting them. Just say NO.
2 Robert Agnelly // Feb 3, 2010 at 8:59 am
I Totally Agree with the Last Appraiser quoted. I think what we really need to do is find out who owns these AMC’s and find out how much they are “Contributing to the Politicians who are backing them. Follow the Money. They are Ripping off Quality Appraisers and Paying clients.
3 Francois Gregoire // Feb 3, 2010 at 1:25 pm
David,
Thanks for the article and point of view. It is interesting to see TAVMA sound the alarm about the end of the world if AMC regulation is in the hands of the states. It would be wise for all appraisers to keep up with their efforts and strategies. Pay regular visits to their blog http://tavma.blogspot.com/ . Jeff Schurman invites comments, so provide him with some dialogue.
Regardless of what Congress does or does not do, it appears that as a result of HVCC, everyone and their brother is starting an AMC. As many have noticed over the years, excess profits breeds ruinous competition. The AMC gig has the added benefit that so many unscrupulous individuals (previously disciplined appraisers) seem attracted to the AMC biz. Their business practices provide great illustrations and examples to show state legislators why AMCs must be regulated. The ineptness of the Federal regulation of financial institutions, Fannie Mae and Freddie Mac illustrates perfectly why states must take the lead and NOT put AMCs under the supervision of any Federal agency.
4 Mike Favela // Feb 3, 2010 at 10:12 pm
The banks own most of the big AMC’s along with our old friend Andrew Cuomo. I’ve been in the profession since 1974 and was exposed to appraising when I was old enough to pull a tape around a house with my dad. He was one of the forst MAi appraisers in houston so I have learned the profession through osmosis. We are to blame for what has happend with the HVCC. We have been too busy woring about other crap instead of keeping an eye on the ball. At one time I was partners in a residential shop and had 50 appraisers and were doing 600 to 800 assignments a month. Everyone got paid what they were worth and were happy and treated like family. In addition, I required the appraisers to meet once a week to discuss their appraisals, and things that needed to be done thaqt were not being done correctly. After may when the rele went into affect, we billed 378 appraisal for the month of April and had 15 fee appraisers and six support staff. In may we billed 88 appraisals and since that time have had to let 12 very well trained, seasoned appraisers go as well all but one support staff. I have spent all of the operating cash paying rent and mls dues for 16 MLS systems troughout Texas. andall of the other expenses which total about $16,000/month. I am losing my home, all of my savings and everything I have worked for for the last 20 years. We no longer do any local Austin work, as the idiots that this law was meant for, are now doing all of the local work for $175 to $200/file. I know everyone has to put food on the table, but most of the appraisers doing the cheap work never made any real money in the business as they were to stupid to figure out how to get their business. So a $200 fee looks pretty good. If any of you do review work then you know the quality of the work blows and in most cases, not worth the paper they are written on. And all we can do is get on these blogs and whine about it. Does this scenario sounf familiar? In addition, I get e-mails everyday from lenders, wanting higher values and don’t care about the rules. Then we have to deal with the flunkie AMC reps that have no clue about any of this reviewing the reports and telling us what we need to do. It goes on and on and on. Not just that, coersment comes in many forms, the unrealistic turn times, affect appraisal quality. I could rant about this all night, but I will shut up, just a couple of more things! Look anyone reading this, we have the power to stop this assault on our livelyhood, if we could see past our noses and just not take any of the low fee assignments being offered. If no one accepts these assignments, sooner or later the fees will go back up. I was getting $175.00 for a house fee in 1974 and I’ll be damned if I’m going to do it 36 years later. There is a whole generation of so called appraisers out there that if they got an assignment on a property that isn’t in a tract/cookie cutter area, wouldn’t know where to start. They never got trained properly. In most cases given a clipboard, tape and a stack of files and thrown to the dogs. If they got any training, most of the trainers were not properly trained and just passed on the same wrong habits to the new guys. These are the guys doing all of the work for $200 or less.
HELLO !!!APPRAISERS!!! ANYBODY HOME!!! IT IS TIME TO STAND UP AND QUIT BEING A BUNCH OF WHINEY BABIES (pussies, excuse the expletive for all of you pc’s) AND TAKE BACK OUR PROFESSION.
Because if something isn’t done soon then you might as well get a job at McDonalds because that is about as much money as you will ever earn. I am in Austin, Texas and my partner and I are starting an organization for appraisers who are tired of getting kicked around and want to help get appraisers together to at least put up some kind of a fight. I have seen all of my state and federal reps, talked to John Cornyn about testifying before congress and in the process of forming a non profit to lobby for our cause. We are the only ones in the Mortgage Industry who doesnt have a voice, and as you can see, this is what happens to people with out a voice. If any of you think the Appraisal Institute is looking out for you, then you need get a grip. They helped write the HVCC and are involved in with a lot of ventures designed to put the appraiser out of business. The latest the appraiser assisted AVM. You have to ask your self why is it that the Mortgage Bankers organized the HVCC petition, were responsoble for getting the signatures and got it done, when the appraiser has the most to lose. Where are we on this, I’ve spent a lot of money developing clients now I cant even talk to them. We need each other to break the AMC’s backs. Please, anyone interested in getting some kind of representation for our profession and fighting this crap please contact me or just get everyone in your area fired up about this. If I have offended anyone by this letter it was not my intention, I hate to see this profession, which has been very good to me, go by the wayside, so a bunch of pencil neck commie polititions cna make more money and the appearence that they care about anyone but themselves. Any help with this or ideas are appreciated. We at least need to have a seat at the party, the next time someone legislates somthing that affects so many of us. Lets make our voices heard.
Mike
5 Richard // Feb 4, 2010 at 4:05 pm
Appraisers did not cause an environment that allowed the current real estate collapse. Greed by Stock Market Investors who hold REITs as well as those who buy and sell bundles of real estate mortgages is what caused the current problem (which has now lasted about 4 years!!!).
Overturning HVCC does not necessarily mean a return to lender pressure/appraiser compliance if appraisers were to all act according to the rules and laws outlining appropriate behavior. It is a big shame that people don’t learn from history and just don’t learn in general. Greed ruins it for all of us.
6 Ed // Feb 5, 2010 at 9:17 am
Wait - you had 50 trainees and can’t see that you vastly contributed to the over supply of appraisers??? Sounds like greed to me, greed that’s ruined it for us all. If you had it to do over again, would your company be an appraiser mill? As long as the banks control the process as client we appraisers are going to be jumping at whatever bait they throw out - and that is what keeps us at each others throats and why we can’t organize. We’re a lot like pavlovs dog when it comes to appraisal orders. Right now they’re busy reducing us to the most least denominator and after the skippies have been starved out, AVM’s will take over. A union wouldn’t work as there is no line that can be drawn that can be stipulated as “Do Not Cross”. We can’t stop skippy from doing his crappy $150 appraisals. The only way we can change pressure is to make the homeowner the client. You lose 1 homeowner you lose 1 job. You lose an AMC you’ve lost 10 banks and thousands of jobs.
How about this. Cuomo is running for Governor of NY and he’s got $10’s of millions from banksters and real estate investors. What if we all got together and contributed to his opponents campaign? Browns election to the Mass. senate seat sure shook up Washington. Imagine what would happen if appraisers and brokers got Cuomo defeated?!! Hahahaaa. Talk about news!! Talk about a shake up in Washington!! It would let the whole world know that Cuomo should have kept the HVCC in NY and not force his will on an entire nation. It certainly will educate the public and you know what? We will be listened to, finally. Nothing is working that we’ve all tried. Talking to our Gov representatives, lawsuits, talk of unions and guilds, appraiser owned AMC’s and Co-ops, HVCC complaint software, logic and common sense that the wolf should not be in charge of the hen house. Nothing, because no one is listening to us. No one. What they would understand is a national campaign to defeat a NY governors race. Hey, we owe it to the putz, don’t we? The HVCC is illegal - make it legal or get rid of it.
I go to the “think big work small” website where they have daily updates of mortgage news and a good blog. They are the ones that got 120,000 signatures for repeal of the HVCC, and contributing to ruining Cuomo’s chance at Gov has been the topic. We’re talking about setting up a pledge site to raise funds to defeat Cuomo. I think it’s a great idea and even though I don’t have any money to spare, $100 would be worth it. The goal is to have those 120,000 people that signed the petition contribute $100 each. That’s $12 million. Would you contribute to make sure Cuomo gets his due? I hope so and I hope to see you all over at TBWS (think big work small) with Brian and Frank. Today there’s a 2 hour live discussion of the HVCC and what to do from 10 to noon PST.
7 Chad Pehrson // Feb 9, 2010 at 11:49 pm
AMC’s, what a laugh. Isn’t it interesting that the shield to protect the lender, loan officer, processor, Realtor, seller, and borrower from the unrelenting pressure applied by the appraiser to get the value up has to get it’s funding from a split of the appraisal fee? Oh, excuse me, but did I get that wrong? For real, isn’t it interesting that WE are the ones that have to pay for the avenue to get everyone in the transaction to lay off of us? What a JOKE! Who here thinks that AMC’s are really there to protect us from pressure? Pimps, oh, excuse me…AMC’s are there for the banks to have just another profit center to make millions of dollars by forcing appraiser’s to stand in lines to beg for action if we will just play by their rule book (fee & turn-time).
Who owns the large AMC’s like Rels, FISERV, and LandSafe? It’s the Banks. What genius was it that approved the idea to require that banks either do their own appraisal order desk or allow them to have ownership in a company that has fee and turn-time as their PRIMARY focus for the selection process of the appraiser. Many of these AMC’s have SET their fees and if you want to sup from their precious cup, then you have to take it the way they give it to you. The bottom line is that AMC’s have clients too. They have been given position and power over the appraiser the same way that a Pimp takes power over a prostitute by setting the price that will be charged, dictating the hours you will work, dictating the services that they feel you are fit for, and if you aren’t willing, then you get removed from their radar. Is there a Senator or a Congressman ANYWHERE that will listen to what we are saying? Doesn’t it seem funny that HVCC all came about because an AMC was applying pressure on appraiser’s for values in the first place, and the fix for it is to require appraisal work to be either handed out by a desk from within the bank or by an AMC? Are we the only ones that can see what is wrong here? The bottom line is that AMC’s, whether owned by the banks or not, have a client to impress. If they can’t impress them, then they risk losing the client to another AMC.
Is fee and turn-time their only care? I say NO. Though there may not be a discussion with you when AMC’s order work from you, are you concerned that there is an underlying risk of not getting future appraisal orders from the AMC if your value is not aggressive?” It has happened to an appraiser that I had on my staff. I received a call from one of the big AMC’s and said that they have had complaint after complaint from their client (a single Wells Fargo branch) that this appraiser that I had was argumentative with owner’s, that she was consistently late, she was rude, and not workable with borrowers. I was told that we either needed to remove her from receiving orders or they would have to remove my company altogether. This is how the Bank branches now get you removed; by saying it is everything other than value. I ask; how long do you think an AMC will continue to work with you just because you turn the appraisal around fast and you have a low fee?
The bottom line is that every AMC has a client base from which they are trying to win business from too. Who is there client? Their client is obviously the Lender, and exactly what is the mission of any lender? It isn’t to be the watchdog of the general public by becoming a branch of the consumer protection agency. They’re not serving up soup at the local homeless shelter. They are in the business to make money and they do that by doing loans. Loan companies don’t care who is under the bus, just as long as there is traction to get the buss load of potential loan revenue across the closing table. I think it is safe to say that if there is any appraiser out there with half a brain, you know that you still have to get value, even for AMC’s or the work will stop coming in. Appraiser’s are the licensed and insured bridge builders assigned the task of protecting the banks from getting their hands dirty by getting their bus load of potential revenue loans across the great value divide.
In the end, there is nothing that HVCC will do to stop the banks from making their money. Banks thirst for loan revenue. These problems for the appraiser will not go away until the lending industry strikes at the real problem that causes appraiser pressure, and that is the definition of market value. But, the banks and AMC’s are making too much money, so don’t expect a repeal on the definition of market value any time real soon. Walk with me for a moment. Currently, market value is defined largely, among other things, as the “most probable” price for which a property will sell. Well, who in the purchase or refinance transaction cares about the most probable price? The seller wants, and justifiably so, the highest possible price. It’s a toss up for the buyer who either wants the property to not appraise for the purchase price, thereby getting the advantage over the seller, or maybe the buyer has become emotionally attached to the home, but eventually is turned away because of value issues which then puts a cramp on their ability to buy the home because they would need to come up with even more money that was initially planned for down payment. The loan officer just wants the deal to go through because he has his bills to pay and doesn’t want grief from the appraiser because he doesn’t want to lose future business from the Realtor. The Lender doing the loan has production requirements. The Realtor’s just want their 6% and if they get trouble from the mortgage company for using that stupid appraiser, they’re going to throw their weight around and pull the loan and close it elsewhere. Does anyone remember the name of the borrower’s anymore? Everyone has their boss, don’t they? Isn’t it obvious that the appraised value is central to the whole problem here, and the appraiser is the only one concerned with meeting the requirements specified by the current definition?
Until the basis by which lenders loan money changes, the problem of appraiser independence and lender/realtor pressure is not going to go away. Appraiser’s could be pulled out of the squeeze in this equation by a small change in the definition of value by asking the appraiser to indicate not only the most probable price for which the property would sell for, but to include a demonstrated marketable range of value for the subject property. The change of the definition alone won’t do it; the lender would need to tweak some things too. The appraiser can provide a clear and independent appraisal of the property that may or may not meet the contract price of the purchase transaction. If the value is justified, then no action needed. If the value comes in under the contract price, then the lender could allow the buyer to make their own decision on purchasing the property without increasing the down payment by allowing the buyer to purchase a form of “Gap” insurance to cover the difference between the appraised value and the original purchase price. The coverage would be rated based on the borrower’s FICO Score, length of employment, DTI, Income, the amount of the deficit, and other table factors based on average default losses that occur in the industry. Just think of all the deals out there that go south because the appraiser is $500 or $5000 short on the value. I say let the buyer buy, and when the deficit is paid by the borrower through additional payments paid on principal on a monthly basis, or if the borrower wishes to continue to pay the coverage amount until such time that the loan is paid down naturally, then let them buy. The cost would be minimal. Let them buy and all parties in the transaction are happy and not looking at the appraiser like he is from mars because he doesn’t see the same motivations as justifiable that the buyer or Realtor sees? I have lost so many clients in my 16 years of experience because I did not put a value on the appraisal that made the deal go through. I say let the buyer buy, as long as it falls between the demonstrated marketable range established by the analysis, by providing them the avenue through Gap coverage. The cost would be very minimal and relatively inconsequential to the buyer that is emotionally attached to that property. The loan people can still do their loan. The seller gets to sell his property for the highest price possible. The buyer gets their dream home in spite of what goggles the appraiser was looking through. The Realtor doesn’t have to pull the loan and still gets his 6% of over-compensation. And last but not least, the appraiser still continues to provide a good service to the lender and end consumer without pressure or fear of being sued, removed from the approved appraiser panel, or being shunned from existence for not coming up with the value.
8 David // Feb 10, 2010 at 9:43 pm
Thank you for sharing your experience Mike Favela. Your circumstances seem to be a exaggerated version of what nearly every experienced appraiser is going through. HVCC in it’s current format is driving every experienced (and intelligent) appraiser out of business. Idiots and newbys continue to accept AMC work for $150 to $200 because they are not intelligent enough to figure out that they are working for free.
I very much disagree with Francois Gregoire’s solution. While state regulation of AMCs is needed the states are failing to use proposed regulation to protect appraisers and borrowers from AMCs.
Would it be asking too much of states to prohibit AMCs from being paid out of the appraisal fee?
Would it be asking too much to require the correct appraisal fee to be disclosed on the HUD 1?
Would it be asking too much to require AMCs to take experience into consideration?
If only the first two changes were made HVCC would be a good thing (as opposed to an act that simulates organized crime).
Finding a solution is not that difficult. Getting around big bank influence (who stand to lose billions in appraisal fees) is extremely difficult.
9 David // Feb 10, 2010 at 9:49 pm
I also support Mike’s idea of a national appraiser strike against AMC work. Congress will not solve the problem for appraisers because bankers control the U.S. Senate. If AMCs are to be kicked to the curb it will only happen if appraisers organize and strike. I’ve been saying this for 12 months. Unfortunately 99.999% of appraisers don’t have the balls to do it.
10 Mike Favela // Feb 17, 2010 at 8:06 pm
Ed, in response to your last blog, I had 50 contractors, with the exception of 7 trainees, who received training from appraisers who have 20+ years in the business. We expanded our business to support the number of assignments we got. Our business was generated by our busines model, a simple one, providing the best service around, with quick turn times and a quality product that was rarely questioned. We got big because our clients werte getting crap work from the competition. Why is it that anyone with a big shop is greedy, I would be willing to bet any of the guys that worked for me got better training then most with less than ten years in the business. I am an advocate of appraiser training and education, and from looking at the majority of the reviews I have seen, there are many appraisers that have been taught by someone who had no adequate training. You hear no one addressing the issue of a whole generation of appraisers with inadequate practicle field training. I paid all of my people more than anyone else and paid for education, licensing, as well as making sure they knew what they were doing, befor thay got a tape and clipboard. I was taught to give back to the profession and have always tried to share the sucess. Because a good friend of mine (a billionaire) told me that part of his phiosophy is that “sucess, unshared is failure, and I don’t take the profession that has been pretty good to me lightly. I have been around the industry long enough that I will always be able to make a living, as there is always someone needing, the benifit of my experience. Ed I also wanted to speak to Cuomos run for gov. His fate is sealed and you can do nothing to change that. I does our cause no good wether this guy is elected or not. The damage by him has already been done, so I don’t see how his election will have anything to do with helping us regain our profession. So I’ll say it again, time to grow some Huevos not huevos de gallenos. For those of you with no immigration problem, that means Balls, and big ones, not chicken balls, what do we have to loose, we have everything to gain. Lets get this thing organized. You guys that want to sit on the sidelines will be in for more of the same, you ought to just quit now, because you are part of the problem.
Thats it, like talking to a wall, all I can say is Get a grip, before its too late. Next, they will be requiring us to wear a McDonalds like uniform, and that is about what we will be getting paid.
11 Larry // Feb 23, 2010 at 2:59 pm
Reading all the comments, it seems appraiser are at each other throats rather than working together to solve the problem in doing away with AMC’s. You guys need to band together! I am a banker and broker, and I can tell you this…I hate AMC’s! I’ve been in the mortgage business for over 17 years, been a licensed realtor for 17 years, been a licensed contractor, and a building inspector. The only profession I should have chose to make money is the owner of a AMC’s. You don’t need to assume any responsibility, just collect a check. Only 15% of my orders from my branch and all of my employee ever come in to value, for what ever reason. 80% have numerious errors, so either the appraiser is inexperienced or an idiot! I spent 6 hours reviewing and finding errors, only for the appraiser (after challenged) to correct them and not to offer and “new opinion” of value. I am taking the appraisal to be reviewed by the State Appraisal Board, but that will do nothing really…However, the AMC got paid good money for a appraisal that is crap! I like the old system, when the customer was the client, not the AMC or Lender, for that part! At least we could communicate! You guys needs to organize! I have carried my 5 page reports all the way up to the CEO, and as of today…That one particulare AMC…will get no business from us, ever!
12 Appraiser Inactive // Feb 23, 2010 at 7:03 pm
If only appraisers could organize. The day appraisers are capable of organizing will be the day that Elvis, Buddy Holly, & John Lennon unite for a concert in Central Park.
The sad fact is that appraisers would agree to complete $25 appraisals before they would consider organizing. If anyone has an understanding of this please write a few words.
13 His Advisor // Mar 2, 2010 at 1:11 pm
HOW TO RAISE CAMPAIGN FUNDS FAST
Andrew Cuomo recently reported to have 5:1 more in campaign funds available for the upcoming NY governors election. Let’s take a look at his play book for raising funds.
I. Speak with larger banks about massive campaign contributions if you can help them to raise a few billion in additional revenue.
II. Blackmail FNMA & Freddie Mac into signing off on HVCC; thereby forcing 90% of all appraisal orders to go through AMCs.
III. Revise HVCC to allow for 100% ownership of AMCs by banks after FNMA agrees to it.
IV. Structure deal to expire at the time of the election so no investigation takes place.
Benefits To Banks:
Banks make billions in new revenue off of appraisers (through AMC ownership) . At the same time it puts 85% of their competitors mortgage brokers) out of business.
Benefits To Cuomo:
$18,000,000+ in campaign funds and a guaranteed seat in the governors chair.
Not bad for a putz.
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14 An Appraiser // Jun 7, 2010 at 2:21 pm
Is the HVCC actually legal? Now that the HVCC has required that lenders use AMC’s in appraisal assignment I can’t help but wonder about the legality of the HVCC.
1. Appraisers can no longer establish relationships with the end users of their product and must work mostly for an AMC at reduced fee levels or not work at all. Now that banks can own AMC’s they are free to drive down the fees paid to the appraiser while raising the fee to the borrower..last year the HVCC increased the cost of appraisals approximately 2.8 billion dollars with the money going to the AMC’s and in many cases the lender which owns them. Look up antitrust and see if you feel the HVCC created one…..after all, appraisers are no longer able to compete in a free and open market with the exception if you want to cut the fee even lower than it is then you can “compete” in a race to bankruptcy. Of course the settlement statement just reflects a total fee paid for an appraisal leaving most borrowers to believe that appraisers are getting the full fee.
2. USPAP requires that anything of value given by the appraiser to obtain an appraisal assignment be disclosed in the report. Most AMC’s forbid appraisers from submitting invoices or disclosing the fee. Since AMC’s have reduced appraisal fees paid to appraisers by as much as 50%(or dont get an assignment) it would seem logical to say that the appraiser has given up something of value to obtain the assignment. The lack of disclosure of the reduced fee to obtain the assignment appears to violate USAPAP.
The HVCC has done little more than to promote the use of improperly trained and unqualified appraisers coming from as much as 150 miles away to do appraisals with no knowledge of the market they are appraising in (ooops there’s that competency provision) for the reduced fee’s in which I know (through review) dictacted the amount of work and the quality of work. I have been told that some out of area appraisers are actually getting their comps from the real estate agent as they dont belong to the local MLS / Board and dont have access to comps or adequate knowledge of neighborhoods. Now that AMC’s hold all the cards many are requiring the purchase of ACI software subscriptions and services for uploading appraisals ($400.00 / year for the ACI and as much as $10.00 per appraisal uploaded). Fannie and Freddie supposedly have pushed this to use in quality control but the truth is that AMC’s are extracting information and building AVM’s to sell to lenders for $60.00…..hey, nothing like being made to pay to put yourself out of business. I personally have little faith in an AVM’s credibility due to the statistical nature of data generated.
It appears that the HVCC has effectively tried appraisers and mortgage brokers, found guilty some mortgage brokers and appraisers, and punished all reputable appraisers for misdeeds of some………. and rewarded the main culprit of mortgage fraud (the lenders) with an additional 2.8 billion dollars a year in income out of the appraiser’s and borrowers pocket. I worked hard to get my license to appraise and have not succumb “ever” to lender pressure as I was taught to do it right and support my conclussions of value with facts…not subjective / specualtive adjustments…….I refuse to work at the ridiculous fees offered while my cost of board / MLS dues, insurance, licensing, continueing ed, etc. go up every year. I have complained to the state board and FHA about bad appraisers and shady lenders only to be told we dont have the money or resources to investigate. I have never been sanctioned or reviewed for bad appraisal work and my reward now will be that I will be bankrupt before the end of the year and will most likely lose the house I bought 15 years ago because I am not able to change professions due to physical limitations, age, and lack of education in another field…….Any savings I had was eat up by trying to compete at the reduced fees which I found out was futile as the trainees will do appraisals for any fee offered just about. I have had trainees tell me they would work forwhatever was offered until they get their license and then would raise their price…….they dont understand that there will be a trainee with the same attitude cutting their throats. I am totaly disgusted with the appraisal profession now and feel that I have wasted 10 years of my life and thousands of dollars to go broke…..thank you Mr. Cuomo, Fannie, Freddie, and all of the other players that promoted and supported this screwing you have given reputable appraisers……..enjoy your money while you can because you can’t take it with you and it won’t buy you out of the judgement you will surely receive for your conduct and part in ruining many families while filling your pockets with their money you effectively stole from them.
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