Fire Your AMC

Fire Your Appraisal Management Company

Lenders and appraisers alike are finding their dependence on appraisal management companies (AMC) is not necessary.  Lenders can remain compliant and appraisers don't have to compromise quality and lower their fees when an appraisal independence management system (AIMS) is in place. 

The Home Valuation Code of Conduct  rules never mandated that lenders hire AMCs to handle the  appraisal process, although some AMCs were quick to try to set that standard.  Nowhere does it say a lender has to use a third-party company to initiate the order of an appraisal.

Yes, mortgage brokers and commission-based lender staff are prohibited from ordering appraisals but this does not mandate the use of an AMC.  Lenders simply need to implement a process that provides compliance of appraisal independence. 

Here is a direct quote from the U.S. Department of Housing and Urban Development:

“FHA does not require the use of Appraisal Management Companies or other third party providers, but does require that lenders take responsibility to assure appraiser independence. While FHA's existing policies regarding appraiser independence are consistent with the Home Valuation Code of Conduct (HVCC), FHA will adopt language from the Code to ensure full alignment of FHA and GSE standards.”

An appraisal independent management system restores processes to pre-May 1 (pre-HVCC).  Lenders don't need an AMC.  They can control the process as long as they have a procedure in place that systematically and unbiasedly chooses the appraiser.  This is what a data management software such as AIMSdashboard does.  It puts the ordering process into the lenders hands while using an electronic portal (online) as a means to select from any one of its 90,000 plus appraisers listed nationwide.  Selections are based on chosen competencies, namely geographic and expertise.  The lender can then choose from a a select pool of trusted appraisers.

Ken Sykes, owner of Affiliated Mortgage, has been using an appraisal independence management system since the HVCC went into effect.  Sykes implemented the program with AIMSdashboard last May and couldn't be more satisfied.

“I have to supply an HVCC certificate for every loan we sell on the secondary market,” he explained.  “AIMSdashboard is an HVCC-compliant approved procedure, it's compliant by design – the computer chooses the appraiser.”

AIMS manages and documents the appraisal request workflow from start to finish.  Additionally, it provides evidence of the lender's conformity to Appraisal Independence standards, HVCC included, with automated audit reports.

AMCs have broadened the bureaucratic process while stripping appraisers of their market.  For example, appraisers whose market was primarily mortgage brokers lost most of their steady business when the HVCC went into effect and lenders felt obligated to move to AMCs.  Most brokers have to order through the AMC unless they use a banker who has an appraisal management system set up -- so now the AMC initiates the order with the appraiser.  The AMC has to get paid so they cut the appraisers fee 40 percent to 60 percent.  This cannot make for happy appraisers.

David Cozzarelli of Apex Appraisals said he lost 45 percent of his business as soon as the HVCC went into effect.  But as soon as lenders began using AIMSdashboard his business picked up again.

Cozzarelli said he had no idea what AIMSdashboard was about when he received his first request from a lender using the system.  He made a few phone calls and it was confirmed this was an HVCC-compliant request.

AMCs don't want to pay Cozzarelli his full fee for a regular appraisals so he doesn't get many requests from them, but they will pay him full fee for a review.  Some of his peers have been forced to take AMC appraisal requests at almost half the fee they used to make, just for the sake of getting any business.  And this is also coming with an extra cost to homeowners.

“Anytime you have people that are willing to work for 40 to 60 percent of their fee, you are going to get substandard work,” he explained.  “They take shortcuts to make it work somehow, it seems like these guys are just barely breaking even – they wait until they have three or four orders in one area and then try to do them all in one day to save travel expense.”

So lenders are waiting longer in some cases.  And what is even more disturbing is that some of Cozzarelli's peers say they will just give the three lowest comparables to avoid any protests from the underwriters – which is in essence, undervaluing homes in some cases.
“It's the path of least resistance, you may have to go back if you use higher comps, they are are concerned you are overvaluing,” he said.  “No questions for those with all three lowest comps, is that accurate?  I don't think so.”

Sykes said he has retained some of his brokers simply because his appraisal system is better.  He has a list of more qualified appraisers that are geographically located within their expertise.  AIMS allows appraisers to stay in their zip code approved areas.  It's a simple solution to a complex problem, he surmised.

“It's a product that should be adopted nationally.”