Starting May 1st, third-party Appraisal Management Companies (AMCs) will be charged with eliminating pressure applied to appraisers by lenders – urging them to inflate housing values.
Under the new Home Valuation Code of Conduct – drafted under the “supposed” watchful eye of James B. Lockhart (left), director of the Federal Housing Finance Agency, which oversees Fannie and Freddie – lenders and mortgage brokers will be prohibited from communicating directly with appraisers. Instead, appraisals will be ordered via AMCs, who will farm the work out to appraisers they have either contracted or retained on staff.
Is it a Buffer? Or a Sponge?
In theory – at least thus far – I’m fine with AMCs being put in place as a third-party “middle man” type buffer between lenders and brokers and the appraisers working on any given loan. It’s warranted, and we need but look at the way Banks (Washington Mutual) and Appraisal Companies (See Cuomo vs. First American Appraisal Group) cajoled and pressured their way through numerous deals in order to get appraisal numbers where they needed to be in order to close deals.
But what really stinks is that there is at least one case where and AMC – Lender’s Service, the country’s largest AMC – is reported to have passed along statements to appraisers from lenders and borrowers urging for higher valuations in order to close loans. Ex-squeeze me?
AMCs Won’t Be Regulated! Where are the Watchmen When We Need Them?
- Image via Wikipedia
Hear me on this folks – AMCs as they move forward will not be under any sort of formal regulation. Yup. You heard it here. Zip, Nill, Nada Zilch. Not even Freddie or Fannie – who will then try to make lenders pay them back for toxic loans sold for cash down the line.
Don’t get me wrong – lenders shouldn’t be approving or passing along or passing forward bad loans. It just strikes me as odd that Lockhart, the FHFA, and Fannie/Freddie worked to pass the Good Conduct act – will only accept loans that have been duly certified by its measures, yet haven’t bothered to set up any sort of formal oversight body to make sure things are done properly on the side of the AMCs.
Forget ongoing oversight! What about the “Driver’s License from a Cereal Box” – like approvals they are at least tacitly granting by letting a bunch of “Known Entity Dopes” form and run these AMCs?
Oh yes. As the BusinessWeek article linked below sates – there’s nothing to stop former sub-prime mortgage companies and even appraisers who lost their licenses for erroneously reporting home values from… are you ready? RUNNING AMCs THEMSELVES!
Hello Fox? Meet Mrs. Hen and Mr. Rooster. You’ll be watching over them for a while.
Related articles
- Housing Appraisals: Still Blowing Bubbles? (businessweek.com)
- Appraisers Continue to Speak out against AMC Loopholes in the HVCC (appraisalnewsonline.typepad.com)
- FHFA Announces New Mortgage Data Requirements – Tracks “Appraisers’ Performance, Negligence and Fraud” at the loan level (appraisalnewsonline.typepad.com)
- Fannie Mae Issues “Home Valuation Code of Conduct” Updates and FAQs (appraisalnewsonline.typepad.com)
- Inflated Home Appraisals Come Under Fire (mymortgageinsider.com)
I hope you found this post useful! As always, if you or anyone you know is in need of a local Florida mortgage broker, I’m your guy. Call me at 863-604-3019 or apply online for your Florida mortgage. We’ll keep you posted and let you know when it’s time to pull the trigger!
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That is not the half of it. In some cased mortgage brokers that have lost their license have found a niche in developing AMC’s. They now can pressure appraisers to inflate values with out any risk, since AMC’s are not licensed.
There are direct and indirect causes for inflating values. The direct approach is to demand the appraiser increase value, and if they don’t tell them you are taking them off the approved list of appraisers if they do not comply. This rarely happens but does in rare occasions.
In most cases, they stay on the list and are not selected. Or simply demand a reduction in fee, turn time and provide target estimates of value. Then over time again, you whittle down the list until you have what you are looking for.
As consumers we try to provide good fast and cheap, yet we know that in most cases we get what we pay for. The emphasis of the AMC’s to obtain fast cheap work and not be concerned if it is dependable. Because they have not legal obligation to the borrower. only their pocket books.
One problems in the past is these AMC’s or mortgage brokers don’t have a stake in the loan defaulting. That is to say, once the loan is sold to the secondary market the broker is no longer responsible for the quality of the report. While portfolio banks or in-house lenders are concerned with the quality… that is one reason many of the smaller banks are in good shape regardless of the larger banks.
The second problem can be illustrated by my conversation with two appraisers last week in Mass… One was doing reports at $350.00 with some work coming in, another was doing appraisals for $95.00 … and the AMC was charging $500.00 to the borrower. Is this fair to the borrower, or homeowner, is it reasonable to believe that the quality of work received from each appraiser is of the same quality? Are their corners being cut by the first appraiser… oh yeah… lots of them rules not being met. But as he indicated … the client wants good fast and cheap and that is what they going to get.
Appraisers like him are basically saying the heck with the borrower, the heck with the secondary market, the heck with the taxpayers supporting the bailout. I need to pay my mortgage. In part I don’t blame him or appraisers like him that are trying to survive.
Part of the problem is that local boards are not regulating their appraisers. Either because the laws are unenforceable, there is sympathy with fellow appraisers, they are only concerned with minimum standards and lastly because those that are responsible for making sure regulators do their job are simply … not doing their job.
Been on this merry go round for 30 years … it will be another 10 years before this loop hole is fixed
Jeff – first, thank you so much for leaving such a well-reasoned comment.
Second – oversight seems to be the “overarching” message here – we need it! Society – or at least a fairly dominant portion of it – has a tendancy – much like water – to seek out the lowest levels. We need but look at the history books to provide numerous examples of this.
This Home Valuation Code of Conduct is not the right answer for the industry right now. This is going to drive the good appraisers out of the business.
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Got a call from a Naples area Appraiser today. Been in the business for 30 years and is fuming about the HVCC issue!