Appraisal Management Company (AMC) Notice

I do not accept AMC assignments due to their unlawful and unethical practices including:

-Compensation practices contrary to congressional enacted Reasonable and Customary fees legislation.

Congress’ acknowledged AMCs abuses with legislation. However, the Federal Reserve Bank, task with enforcement is condoning AMC practices. I am sure there are many reasons for this including the FED’s conflict of interest with their banking associates.

Civil lawsuits against AMCs and appraisers boycotting AMCs appear as the only remedies available to force change. As an appraiser, my decision NOT to accept AMC appraisal assignments is perhaps akin to David vs Goliath. Call me Don Quixote, but enough is enough.

On November 7, 2011, the American Guild of Appraisers (AGA) filed suit. Click the following link to read about it.

Why should non-AMC parties care? The appraisal industry is dwindling; well skilled appraisers are leaving. Many of my associates are retiring or obtaining fulltime employment elsewhere. The loss of appraisal talent should be alarming to the real estate industry and property owners alike. Good appraisals are dependent upon skilled practitioners. New appraisers lack complex valuation experience.

-AMC’s require appraisers to sign Indemnification clauses.

According to the National Association of Realtors President, Ron Phipps, AMCs control 70 to 80 percent of the home purchase appraisal market. AMCs have placed the appraisal process liability on appraisers through the use of Indemnification clauses. Such liability is not limited to the actual appraiser work product. Rather it includes all appraisal activities related to the obtainment and processing of the appraisal including AMC and lender activities. Knowledgeable appraisers will not sign such an open ended clause resulting in fewer skilled appraisers. Some states have ruled such a clause illegal and non-binding. However, everyone should be concerned. Mr. Phipps’ August 11, 2011, letter urged regulators to prohibit such AMC actions due to the foreseen damage to the real estate industry by assigning all liability to the appraiser; the one least able to afford such liability. Furthermore, the indemnification continues the erosion of “skin-in-the-game” by the institutions (banks, lenders, AMCs, etc.) that brought us the real estate crisis and “Great Recession”. By extension, Fannie Mae and other parties related to a failed real estate transaction can seek recourse from the appraiser for almost any cause.

-AMCs manipulate appraisal fees.

Controlling 70 to 80 percent of the market affords them pricing power. AMCs have not reduced appraisal costs to home buyers. Many AMCs, especially those owned by banks have increased fees to home buyers while reducing appraiser compensation, resulting in windfall AMC profits for themselves. Wells Fargo is one such firm. Wells Fargo Bank operates an internal appraisal group known as Rels Valuation. Lawsuits have been filed against Wells Fargo and others such as Countrywide. Countrywide is well known for its abundant subprime loans that started the real estate crisis while its management earned millions in bonuses. Mr. Angelo R. Mozilo was awarded a $125 million bonus when his failed company was sold to BofA.

The mortgage appraisal process is controlled by the large banks and lenders who own the appraisal management companies. We all know how well they have run things in the past and how fair they are to the consumer. The AMCs are the non-value added middleman of mortgage appraisal reaping 50% or more of the appraisal fee. There should be a consumer law to protect mortgage seekers. AMCs were created by a 2009 settlement crafted by the New York attorney general, Andrew Cuomo to correct bad behavior by Washington Mutual and their AMC eAppraiseIT. As an appraiser I have always said, follow the money to reach the abusers.

Appraisal standards do not allow appraisers to earn commission based fees on the size of the loan and/or its approval. Prior to AMCs, appraisers such as myself commonly based our fee structure on property features such as size, location, difficulty, etc. Today, most AMCs I dealt with set my fee based on their estimated value range of the property to be appraised which is most often less than half of my previous rates. And compensation for the lenders and others in the mortgage process is commission based. There should be a consumer law to protect mortgage seekers. Oh, but there is. The Dobb-Frank Act passed in 2010 was originally intended in part to benefit consumers. The Reasonable and Customary fees provisions were intended to ensure appraisers were fairly compensated and to provide full disclosure to consumers. Will, how is that working? AMCs routinely instruct the appraisers NOT to attach an invoice to the appraisal report, so as to hide the true cost of the appraiser. Find out more by reading the following article:

-AMCs are setting appraisers up for failure and lawsuits.

Good appraisal takes time to complete the necessary research and analysis. In the trade we call it due diligence. Good appraisers have repeatable procedures we use in our appraisal process. Good valuation takes time that many AMCs don’t deem necessary. Appraisals are not akin to fast food. No two properties are the same. Good appraisers are like ice skaters where they make the finished product appear easy. It is NOT. Our process steps may be similar for comparative properties. However, appraisers under time constrains dedicated by AMCs may not be able to complete their due diligence. Common steps eliminated may include forgoing permit checks and not verifying comparable sales information with a party to the transaction. Neither of the aforementioned steps is required to develop a value opinion. But, in the absence of completing these two items, a faulty conclusion may be obtained. Case in point, relying on public records: Public records show my 3-bedroom, 2-bathroom house with 5 bedrooms. I recently corrected this inaccuracy by calling our county assessor’s office. No verification was required! MLS often lacks seller’s concessions and incorrectly reports days on market. All are important valuation elements. In a recent appraisal I completed, MLS included day-light basement square footage in the gross living area. The listing agent told me her data was per the county. The selling agent asked for additional information as this is the grounds for a lawsuit.

Which leads me to explain why a good appraisal takes time? Often it is difficult to obtain verification information. Sometimes, parties to a transaction do not want the facts exposed. In appraising the Davies’ Estate in Woodside Ca., the opposing party included a rather large 4,000 SF, non-existent basement in their valuation report. Having previously reviewed the construction permits and inspected the property, our firm prevailed in a court action using verified and supported facts. Our client understood the need for time to complete our appraisal assignment and paid us to do a good job. Most often AMCs do not; rather they shop around for the price and turn-time that puts the most in their pockets. For AMCs, this is a win-win situation as they limit assignments to their appraisers signing indemnification clauses.

AMCs frequently blast a text message to multiple appraisers looking for the cheapest appraiser with the shortest turn-time. Oftentimes I see out of area appraisers hungry for work taking the assignments that those in the know, know can’t be correctly completed in the time allocated by the AMC. Again I say the AMCs are setting appraisers up for failure and lawsuits.

-AMCs securing cheap, out of the area appraisals should be reported to enforcement agencies.

A Google search using the phrase “Out of area Appraisers” will yield numerous problem stories. YouTube also feathers testimonies from real estate professionals. AMCs are not very selective of their appraisals provided the appraiser meets their price and turn time expectations. This means cheap and fast. And why not? This puts money into the AMCs pockets since the appraiser shoulders the liability.

In 2006 I completed a Leman Brothers’ mortgage unit REO appraisal of a new estate in the Saratoga Hills. My value opinion was half that of their previous appraisal conducted by an out of area appraiser. Leman Brothers would NOT allow me to report the previous valuation with glaring errors leading to a faulty conclusion. Leman Brothers advised me that doing so would breach our confidentially agreement. I don’t have to tell you what happened to Leman Brothers and why. If you are reading this, you already know. But to this day I have remained silent.

In the past, it had been nearly impossible to report AMCs abuses. Today, it is still difficult, but improving. Recently the state of California put a band-aide in place for filing complaints. However, what I claim as an infraction by an AMC that leads to a valuation defect can be viewed as incompetence on my part. And what is the point? If I am getting an AMC appraisal assignment, one must assume there must be an indemnification clause on record with the AMC holding me responsible for all issues.

In summary, as an appraiser I have taken the position that AMC appraisal assignments are not worth their paltry income when compared to the downside liability. Doing business with an AMC is not good business for me. Nor do I believe AMCs represent the best interest of the mortgage seeker. I take great effort to provide complete and supportable opinions. It is my belief that AMC business is a setup for appraiser failure. Furthermore, true mortgage industry reform will NOT take place until everyone is answerable with “skin-in-the-game”. It is only then that borrowers and appraisers alike will feel secure that everyone is working to provide faithful and accountable services to their client.

The system is broken. Mortgage is big money for most of the players. Lenders, banks, Wall Street, politicians and insurance companies are some of the folks that earn big commissions and recurring fees. They do NOT want changes that encroach on their earnings. Just today as I am finishing this paper I happen to read a Wall Street journal article entitled “Lawmakers Target Fannie, Freddie Pay”. The story is based on the House Financial Services Committee’s measure to place Fannie and Freddie employees on Federal pay scales. Why? Because, of pay abuses. Fannie and Freddie CEO’s making $900,000 annually plus as much as $6 million a year in deferred pay and bonuses are schedule to testify…

To find corruption, follow the money...

Re, Mike Angles,  November 16, 2011