New Consumer Protection Bill Would Reinstate Practices that Led to Housing Bubble: Appraisal Management Group- H.R. 1728 MAY UNDERMINE APPRAISER INDEPENDENCE AND HURT HOMEBUYERS -The Title/Appraisal Vendor Management Association (TAVMA) today announced its opposition to federal and state legislation that would dismantle new federal safeguards designed to protect appraiser independence and provide unbiased appraisals to homebuyers and lenders.Proposed legislation (H.R.1728) on the federal level and numerous initiatives on the state level would once again permit discredited business practices that were key factors behind the real estate bubble and crash. Specifically, they would allow mortgage brokers to select handpicked appraisers and communicate with them regarding property values. In May 2009, Fannie Mae and Freddie Mac banned this practice and the Federal Housing Administration (FHA) is expected to enact a similar rule next month.H.R. 1728 would in effect repeal that new Home Value Code of Conduct (HVCC), initiated by Fannie Mae and Freddie Mac to prevent appraiser pressure and inflated appraisals, even though both agencies are on record as saying that the new code has improved appraisal quality.TAVMA warned that the new bill, if passed, would reinstate business practices that have lead to appraiser pressure. Specifically, it noted:· Commission-based professionals like mortgage brokers and others, who get compensated only when a real estate deal is completed, would again be in a position to unduly influence transactions.· Without firewalls, appraisers would be subject to pressure, both overt and implied, to hit the price" and appraise a property at the value the mortgage broker or other commissioned salesperson needed to close the deal or lose future business.· There is an inherent conflict of interest when appraisers are selected by referral sources that have a financial stake in the outcome of the appraisal."Unbiased home valuations protect consumers and encourage lenders to provide home financing," explained said Jeff Schurman, Executive Director of TAVMA. "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. This was clearly one of the major factors that inflated the unsustainable real estate bubble that has just burst and tanked our economy. If Congress wants to help consumers, and not just a small group of interested parties, it will make sure that it retains safeguards to protect appraiser independence, before it discards new rules that are already doing this job."Background on this issueSince the S&L Crisis of the late 1980s, various federal agencies have attempted to mandate a firewall between appraisers and mortgage brokers. But these efforts, for the most part, were unsuccessful until HVCC went into effect and said, among other things, lenders couldn't sell loans to Fannie Mae or Freddie Mac, unless they prohibited mortgage brokers and commissioned loan officers from selecting and influencing appraisers.Since implementation last year, both of these government sponsored entities and their parent, the Federal Housing Finance Administration (FHFA) have stated that the quality of appraisals has improved significantly, since appraisal management companies have replaced mortgage brokers as the primary source of appraisal orders. These entities have also rebutted the charges made by brokers and realtors in the press that AMCs and the new code are deflating home values.Last summer, FHFA issued the following statement: "Contrary to some suggestions, the Code does not lead to lower appraisals for property. The Code insulates appraisers from pressures that led to higher or lower appraisals and should now lead to more accurate valuations. This is in everyone's interest. Declining home prices began long before the deployment of the Code and relate to many other factors."This has not stopped opponents from waging a campaign against HVCC and AMCs in the media and the Internet. Among their most frequent claims: AMCs hire out of market appraisers; AMC appraisers travel too far and or use the wrong "comps"; HVCC is depressing real estate prices.The facts are:· AMCs use licensed and certified local appraisers. In fact, 60% of all independent residential appraisers work with AMCs.· The average AMC appraiser travels 13 miles or less to their assignment, and are chosen based on local real estate expertise.· AMCs offer clear methods to challenge an appraisal based on incorrect or incomplete comps being used.· AMC appraisers are licensed and bound by professional standards that prohibit them from taking assignments if they are unfamiliar with the locality or type of property.· AMCs monitor their appraisers for performance and professionalism."For more than 20 years, various federal bodies have struggled with ways to prevent appraiser pressure, " said Schurman. "Finally an effective mechanism has been put in place to prevent this practice, and in less than six months, pressure from the same groups that created the real estate crisis are on the verge of overturning it. Is our collective memory really that short?"
Capitol Markets do not operate without risk. An opinion of value is never as good as a statement of value and a Sale is a Statement of Value. It is lending without any SKIN IN THE GAME that got us where we were. Now Opinions of value are stopping equity Transactions. What ever happen to Bankers Rule 1... Equity over comes all objections!?
I take exception to this article, this is obvisously someone who is pro AMC. As with anything there is good and bad. The good is the AMC allows for one central entity to "farm out" appraisal services, the bad is they look for the appraiser that will charge the least amount of money and give them the fastest turn time. On the surface this sounds great, but the old saying is true "You get what you pay for". Lenders are required to utilize the services of an AMC as long as they have a system in place that keeps the commission based employee out the appraisal process. I have to deal with AMC all day everyday and the pressure that I receive from most of them is "either do the appraisal for the fee that we tell or you will not get any work from us, or we expect that you will have the appraisal back to us within 8 hours of doing your inspection. The fact is AMC's are not regulated at all and they will typically choose the appraiser who will do it the cheapest and fastest. Since HVCC has come into play my income has been cut it half for doing the same amount of work. There is a place for AMC's but they should be subjected to the same regulations that I am and they should not be allowed to dictate what my fee's are. As it is there are hundreds of AMC's and the list keeps growing. Leave it to the government to create a problem while trying to fix another problem that was created from another problem that they were trying to solve etc, etc etc.
The housing bubble was not just a result of lender pressure, bad appraisals and greedy mortgage brokers the root can always be traced back to government.
" AMCs use licensed and certified local appraisers. In fact, 60% of all independent residential appraisers work with AMCs" this is only because we are forced to work with them....
"AMC appraisers are licensed and bound by professional standards that prohibit them from taking assignments if they are unfamiliar with the locality or type of property." All appraisers are rquired by USPAP to follow these standars regardless of be approved by an AMC or not..... It is disingenuous to state the AMC's have higher standards when all appraisers are held to USPAP regardless of being associated with an AMC or not.
"The average AMC appraiser travels 13 miles or less to their assignment, and are chosen based on local real estate expertise" maybe so, but all AMC's ask what area's you cover and I have been asked by many an AMC to go to an area that I know nothing about only for me to tell them NO.
"AMCs offer clear methods to challenge an appraisal based on incorrect or incomplete comps being used" don't get me started on this one. The clear method is to have a person who knows nothing about the appraisal process try to tell the appraiser they are wrong. Granted some AMC's will hire an out of area appraiser to review your work but for the most part they do not. The best way to challenge the results of an appraisal is to have a review appraisal conducted by a peer located within the same market area as that of the original appraiser.
There is a place for an AMC, however they are not the savior of the appraisal industry at best they are just another aspect of doing business.
Comments
The housing bubble was not just a result of lender pressure, bad appraisals and greedy mortgage brokers the root can always be traced back to government.
" AMCs use licensed and certified local appraisers. In fact, 60% of all independent residential appraisers work with AMCs" this is only because we are forced to work with them....
"AMC appraisers are licensed and bound by professional standards that prohibit them from taking assignments if they are unfamiliar with the locality or type of property." All appraisers are rquired by USPAP to follow these standars regardless of be approved by an AMC or not..... It is disingenuous to state the AMC's have higher standards when all appraisers are held to USPAP regardless of being associated with an AMC or not.
"The average AMC appraiser travels 13 miles or less to their assignment, and are chosen based on local real estate expertise" maybe so, but all AMC's ask what area's you cover and I have been asked by many an AMC to go to an area that I know nothing about only for me to tell them NO.
"AMCs offer clear methods to challenge an appraisal based on incorrect or incomplete comps being used" don't get me started on this one. The clear method is to have a person who knows nothing about the appraisal process try to tell the appraiser they are wrong. Granted some AMC's will hire an out of area appraiser to review your work but for the most part they do not. The best way to challenge the results of an appraisal is to have a review appraisal conducted by a peer located within the same market area as that of the original appraiser.
There is a place for an AMC, however they are not the savior of the appraisal industry at best they are just another aspect of doing business.