Wednesday, December 14, 2016
Valuation Review Article | An Editorial by AXIS’ Chief Appraiser, Bill Waltenbaugh
There is the notion felt by many in the valuation industry that an AMC passes orders from the client, to an appraiser, then back to the client again, collecting half of the fees. This is not to suggest that these AMCs do not exist, but those that do are not under the umbrella of those who exercise best practices.
So what does an AMC exercising best practices do?
“They spend a considerable amount of resources developing, vetting, and maintaining a nationwide panel,” AXIS Appraisal Management Services Chief Appraiser William Waltenbaugh told attendees of the Appraisal Summit and Expo in Las Vegas. “This includes monitoring and keeping up-to-date appraiser credentials and errors and omissions (E&O), while scrubbing appraisers against lender approval or do-not-use lists to ensure only those lender-approved appraisers are utilized.
“Other considerations include accounting services, QC review, performance rating, and carrying out audits to assess qualifications and competency to complete different assignment types (SFR, 2-4 family, reviews, etc.). In addition, all communication between the client and appraiser needs to be filtered and managed to ensure appraiser independence every step of the way,” Waltenbaugh added.
The chief appraiser also suggests that AMCs should create a distinct and compliant firewall between the appraiser and a client’s loan production personnel by having dedicated staff and departments available to resolve value disputes factually and professionally, without pressuring or coercing the appraiser. AMCs who follow best practices do not have a dog in the value fight; rather, they are compensated for their service, not for the closing of a loan.
“Communication is key in sorting out disagreements without coercion and within the confines of appraiser independence,” Waltenbaugh said. “A reviewer can’t change the value conclusion in the original appraisal. When an institution cannot resolve deficiencies with the appraiser, the institution must order an appraisal review performed by a competent state certified or licensed appraiser with a second opinion of market value, or obtain a second appraisal and adhere to a policy of selecting the most credible appraiser, rather than the appraisal that states the highest value.”
Per TILA, the definition of appraiser independence states, “in conjunction with a covered transaction, no covered person shall or shall attempt to directly or indirectly cause the value assigned to the consumer’s principal dwelling to be based on any factor other than the judgement of a person that prepares valuations, through coercion, extortion, inducement, bribery, or intimidation of, compensation or instruction to, or collusion with a person that prepares valuations or performs valuation management functions.”
Appraiser independence, according to Waltenbaugh, always has been a requirement and expectation in the appraisal process. But the mortgage meltdown of 2008 brought new light to the importance of appraiser independence, with the Home Valuation Code of Conduct (HVCC) the first response over appraiser independence. HVCC was an agreement between then-New York Attorney General Andrew Cuomo and Fannie Mae and Freddie Mac that required the Government Sponsored Enterprises (GSEs) to institute new appraisal independence policies.
“For many lenders, the use of an AMC was the easiest, quickest, and most cost-effective solution to comply with these new requirements,” Waltenbaugh said. To ensure appraiser independence, an institution must establish reporting lines independent of loan production for staff who administer the institution’s collateral valuation program. This includes appraiser selection, performance monitoring, and quality assessment as outlined by the Interagency Appraisal and Evaluation Guidelines.
“An approved appraiser list, or do-not-use list, must have appropriate procedures for its development and administration that includes a compliant process for qualifying an appraiser for initial placement on the list,” Waltenbaugh added. “Periodic monitoring and an internal review of the use of the list is necessary to confirm that appropriate processes, procedures and controls exist to ensure independence in the development, administration, and maintenance of the list.”
Additional lender responsibilities include reviews, resolving discrepancies and recognizing deficient appraisals. Many lenders use a risk-based approach in determining the depth of review necessary for an appraisal. AMCs can be beneficial when evaluating the level of review necessary, Waltenbaugh said.
The question of why did the number of AMCs continued to increase also was addressed during Waltenbaugh’s presentation. He outlined that mergers of regional lenders created large nationwide lenders. When a lending institution has an internal appraisal department, staffing for market fluctuations can be nerve-racking, he said. If not prepared for a rapid increase in the marketplace, it can result in a loss of business.
“Suddenly, there was great demand and reason for outsourcing the appraisal management process,” Waltenbaugh said. In response to this demand, many companies entered the AMC space with no history in valuation at all. Thus, numerous new AMCs sprung to life, many without the necessary capitalization, knowledge and resources to meet the task. This resulted in stories of incompetent appraisers traveling hundreds of miles to complete assignments for bottom-of-the-barrel wages. For some, this means poor and unprofessional service, subsequently giving the whole AMC industry a black eye.
“However, outsourcing the appraisal management process to a best practicing AMC allows for valuation experts to manage appraisals across the nation and provide a layer of quality control. It not only reduces risk, but is also a good fiscal decision,” Waltenbaugh added.