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The Big C
By: Joan Trice
The big thing on everyone’s mind this year is compliance. If you are an AMC, an appraiser, or a lender you have been focused on compliance. If this has not been your focus it is akin to running with scissors across a banana peel minefield.
If there is any lesson we may have learned over the past few years it is that denial only works for a while. Compliance is costly. Noncompliance is even costlier.
Denial has been easy. Regulators have so enabled everyone to behave badly. We have institutionalized bad behavior. The standard “everyone is doing it” so why not me has brought our entire nation to a new ethical low. When USPAP defers to “what would your peers do” as the standard, it makes me pause.
Dodd Frank mandates that lenders and AMCs must report appraisers who have violated USPAP to State Appraisal agencies. It is not optional. Lenders… how many complaints have you filed in the past 12 months? Have you audited your AMC? AMCs… how many complaints have you filed? Out of millions of appraisal transactions each year only an infinitesimal have associated complaints filed. Is that because appraisal quality is terrific?
Appraisers of course are concerned with irrational witch hunts. In spite of those fears I have seen no indication that frivolous complaints are actually occurring. In fact Dodd Frank inserts some nice protections for appraisers—independence, customary and reasonable fees, and a safety net from being placed on exclusionary lists for all of the wrong reasons. I know what you are thinking… where is my C&R? That one puzzles me a bit. I am surprised a few enterprising AGs who want to make a name for themselves aren’t modeling their careers after Andrew Cuomo.
But these are risks that both lenders and AMCs face every day. If a lender believes they can outsource their risk they will find that they are woefully wrong. An awful lot of energies are being expended trying to maneuver around the intent of the regulations.
One of the biggest regulatory focuses mandated in Dodd Frank and in Interagency Guidelines is the engagement of the “best” appraiser. As an appraiser when is the last time a potential new client asked you for your credentials? What is your fee, what is your turntime? A call to quality is great for good appraisers, not so great for the rest.
You know the old axiom--- price, quality, service… choose two. We have historically placed turn times above all else. Fees have been commodity driven. Lenders are jumping up and down screaming they can’t get quality yet they are squeezing their vendors for the last ounce of blood and scoring vendors based upon service level agreements.
The new sheriff in town is the consumer. With consumers getting copies of their appraisal report 3 days prior to closing, your report is going to be scrutinized by a new set of eyes. E & O providers are proclaiming that complaints are more likely to be filed by consumers than any other stakeholder. The consumer has become the new defacto regulator.
Regulators, Lenders, AMCs and Appraisers all play in the same sandbox together. Compliance is a symbiotic relationship whereby sound policy, transparent processes, and adherence to best practices create a safe environment. Compliance is contagious so go do the right thing.
Joan N. Trice is the founder and CEO of Clearbox, LLC, publisher of Appraisal Buzz, and host of the annual Valuation Expo, the largest conference for the valuation community. Joan also hosts the Collateral Risk Network, a members-only group of more than 300 dedicated chief appraisers, collateral risk managers, regulators, and valuation experts who are focused on resolving the many challenges facing our profession.
Comments
Thoughtful article
I am not personally acquainted with Joan Trice, but in reading a great many of her articles, she is obviously one of the smartest and best at what she does. I for one get a lot more out of her pieces than just about anyone else I read. I think she has a lot of good ideas. I have to hand it to her, though, because she sure does get a lot of criticism. I don't know that I'd want to read all that... ;-)
That one puzzles me a bit. I
That one puzzles me a bit. I am surprised a few enterprising AGs who want to make a name for themselves aren’t modeling their careers after Andrew Cuomo. You mentioned that you were surprised ….. I am surprised that a few continuing education suppliers are not taking the class action lawsuit route re: C&R fees as they see the numbers of appraisers dwindle Or the software suppliers- will ACI, AlaMode, etc have as many customers if more of us drop out? Or if there are less and less new recruits to the profession? Why aren’t E&O insurers upset when there are less and less to be insured as it becomes more and more difficult to earn a living to the fee structures? And lastly, will the Institute, the IFA, Appraiser Guild, etc every have the “gumption” to initiate a lawsuit challenging “customary and reasonable “ fees. It would seem they would all have an interest in making sure there was an adequate number of real estate appraisers in the future, and even though they have deep pockets are reluctant to take a stand. It would seem that when a national lender orders an appraisal for a conventional property with a fee of $250 or $255 and then there is an order for an identical property from an AMC for the SAME LENDER at a fee of $350.00 then the case would be easy to prove. I am surprised that the threat of a $10,000 PER OCCURRENCE penalty has not changed the flawed fee practices. Just puzzled as I am sure you are
I read the article titled
I read the article titled `The Big C’ on my e-mail. My question is what about us appraisers? Who can we call or report to when lenders and AMC’s are violating the Dodd Frank. As you know, you and I have discussed this before. There are lenders still dictating appraisal fees and nothing is being done about it. Also there is one AMC that sends out blast e-mails to all appraisers looking for the first to accept an appraisal assignment. Their fee is shown on the e-mail and it is well below the usual and customary fee. I wish we appraisers had a voice in this industry but we don’t. And I don’t see it getting any better until someone steps up and represents us with laws that protect us. Some agency that we can call and have someone in the regulatory industry go out and check our concerns and complaints. Until that happens lenders are going to continue to undermine us. Why is it NAR represents realtors but we have no one. It boggles my mind that realtors can make mistakes on listings yet nothing can be done to them due to the ever popular statement `Information has not been verified, is not guaranteed and subject to change’. I hate to say it but it seems like an appraiser union might not be a bad idea. We would just have to be like NAR however and force all appraisers to join.
amc,lender,regulator,appraiser...
Regulators regulate, that's what they do. They have to justify their jobs somehow. AMCs are a form of legalized extortion. They take from the rich(lender) AND the poor(appraiser) indiscriminately. They produce nothing. They just provide an unneeded and inefficient firewall between the lender and the appraiser. That's what they do, they will eventually go away. Lenders and appraisers are the only ones in this mix that actually perform a service. The lender provides liquidity - a finite resource - in exchange for a fee. The appraiser makes sure that the lender's finite resources are ultimately recoverable should the borrower not perform. The regulator owes allegience only to itself. The AMC likewise. The lender owes allegience to itself and its customers - the owners, the depositors, and the customers (borrowers). The appraiser owes allegience to the truth. Not to regulators, especially not to bloodsucking AMCs, not to the lenders, or to the borrowers. When an appraiser realizes this, it is a truly liberating experience. The appraiser who conforms to USPAP and the Code of Ethics and provides a useful, unbiased product that meets the current market criteria (FHA, FNMA, etc.) is seldom going to have a problem, and will continue to receive assignments. It is only a matter of time...the appraisers who serve the regulators, the AMCs, or the lenders rather than the truth, will go away - some to the graybar hotel as they deserve. Those remaining will then be able get the fees they deserve. The lenders will get the reports they deserve. The regulators will be happy, and there will no longer be a place for AMCs. .In the meantime, there is always plenty for the ethical appraiser to do in court work, relocation, estate evaluation, fire insurance, feasibility analyses...
You got to be kidding.......
Come on Joan.....You got people reading my reports at AMC 's that have only been in the home they were raised in. I'm a seasoned appraiser. My job is to interpret market data and come up with a supportable and credible value conclusion.When people like you start getting on the AMC's and the competance of people reading my reports, then I'll see you as a worthy writer.
Point Pounder says
I think I like Joan Trice. Let’s not forget that she is not a voice for appraisers but as the founder of the CRN she is accountable to everyone for everything she says and that means that when she speaks out in favor of quality reporting she is standing right in the middle of the sandbox brawl. Her comments can’t be one-sided but notice that they are on our side which means that everyone is talking about appraisal quality as a prime component of compliance.The woes of our profession (valuation) took a long time to settle in and like any big ship taking a turn does not happen quickly. When Joan can speak out in favor of appraiser quality that means that the rudder of the big ship is actually turning in our direction. So, take solace in the small victories people.…and by the way, Appraisers sell compliance, not value. Anyone can give a value opinion but appraisers do it by the numbers. So, the BPO and the AVM should be excluded from the valuation discussion, notice that they are excluded from this article? That is because they don't belong in the sandbox. Just a point aside that I am pounding today in a poetic way…
The Sad Truth
...is that although "Regulators, Lenders, AMCs and Appraisers all play in the same sandbox together," the lender has the AMC in a headlock, the AMC has permission to steal the appraisers lunch money, and the regulator sees the appraiser as the troublemaker.
The Sad Truth
I can't disagree with this perception. If all "trouble makers" believe that their integrity have been put down, disrespected and that they were wrongfully labeled, they all should stay out of the "federal related" transactions to prove that they, the troublemakers are the real ethical ones. Let the lenders AMC and its soldiers handle the federal related transactions. Regulators' C only has its battles active when someone is in its battle field.In the meanwhile, we should start forming an Appraiser Union to represent ourselves in the coming rounds. Only big players can play with big players to achieve the highest and best result . it's the principle of Balance, i guess.
Reply to Big C article
As one who is in the business of both defending and prosecuting appraisers accused of misconduct- I can't agree with you that state regulators are not on a witch hunt. I am defending an appraiser against what I believe are totally bogus and trumped up charges.
Blame
Yeah, report the appraisers, blame it on the appraisers. Let the lenders and AMC's run wild as always. When are they going to be regulated? Yeah, I know, never. It's all nothing but a big joke. Why do we pretend otherwise?
If anyone was hoping for
If anyone was hoping for compliance it was appraisers. They were looking forward to having the IVPI so they could finally get those AMC offenses on the books for the whole country to see. Unfortunately for appraisers IVPI became a four letter word to the idiots who lied about creating it and it disappeared overnight (much like C & R fee regulations).I agree with you on two points Joan:Compliance IS costly.Noncompliance IS even costlier (more costly).You missed one however.Incompetence is the most costly obstacle we now face with inexperienced appraisers and inexperienced reviewers now in full control of the mortgage based appraisal market. THAT is what I call a costly mistake. The IVPI would have at least created a checks and balance style compliance system for AMCs. We wouldn't want that though would we?
The article fails to recognize the actual problem
Put the lenders feet to the fire and have them put their actual money up against the collateral (or at least for something meaningful). Then hold them accountable. You want to see change over night or change at all? Promote this, get some traction and you'll be a hero. THIS is ground zero for the housing market.What you state has always been the objective; you and your partners think that just b/c a bunch of misguided regulators say it's this way NOW it will be this way for those that it's intended to corral (this all just placates to those who know a lot less about what's really happening behind the scenes). They have these people in their side pocket, talk about that for a change. Homeowners filing complaints? They should be required to take a 3 hour seminar before they can even consider filing a complaint b/c 90%+ are going to be emotional and about "MY LOW VALUE B/C.........." There should be a consequence for filing a frivolous complaint, that's checks and balances my dear.Confused about C&R? Two very well known AMCs just LOWERED THEIR FEE's to the appraisER for the appraisAL. Call them and ask them what's up, then report back to the public you hold so dearly. In fact, ONE that just lowered fee's AGAIN is actually on your CRN lender list (owns the AMC)?? They ALSO have a seat on the board over in NC. Shocked? A little dramatic on your part I think.Use your clout for something that will have a meaningful outcome; something that has a shot at changing something, anything. You shouldn't be satisfied with adding more fuzziness to the process. Are we all this incapable of seeing who controls this mess (hint; who/what is continuing to make money and grow via acquisitions?)Consumers will lose again, remember this statement. Stop causing more panic b/c nobody will change a thing until it cost's more to lose than it does not only shirk responsibilities but to cheat the public.
The actual problem
Until the entity that hires the appraiser has a financial incentive for the appraisal being well developed and accurate, all the attempts at regulation do little good; particualarly with poor enforcement. As long as loans backed by poor appraisals can be sold to the GSE's and backed by the taxpayer, with repurchase claims being settled for 5 cents on the dollar, little or no progress will occur towards curing the problem.
The Big "C"
Actually, the big C is the BIG CON. Until we get some transparency on who gets paid what and why I don't see any end in sight. Why do management fees range so much between AMC's ? Some seem to get by on $75, others need a $250 kickback, or more, from the appraiser for the appraisal assignment. While TAVMA seems to be in agreement with what a "customary and reasonable" appraisal fee is for individual appraisers across the whole United States in every market somehow there is no dicussion of what a "customary and reasonable" management fee is.Lenders remain completely in the dark, by an large, and continue to assume outsourcing valuation functions makes for simple automatic compliance. This notion is fostered by the AMC community. Perhaps once they pick up the tab for a couple million in regulatory fines this might change. But without a mechanism to even bring complaints forward it all means nothing.So for now all that can be asked for is simple transparency for the consumer. Let the consumer make the decision on how much is reasonable for blasting out quick turn, low paying, appraisal assignments via mass email. Let the consumer decide if the first appraiser to agree to the "pay to play" system, regardless of location, experience or training is "reasonble" in assigning someone to value their asset. Given the choice I would think most borrowers would elect to manage their own system of selecting appraisers and either save the management fee or paying for somebody experienced and local.In the end it may be the consumer who will end up selecting their lenders by this sole crtieria alone.; "Do you select the appraiser or do you outsource this part of the lending process ?"
Too High Too Low
They say our values are Too High during an Up market and Too low during a Down market. The porcess and adjustments are little understood by the consumer. It is too easy for them to to complain and too hard for the appraiser to justify and explain our experience of the market. The process of gathering, digesting and summing up data is not an exact science, otherwise computers would do it!! This should make all appraisers scared of what is going on, including the good ones.
I agree
You can'y take the "art" out of appraising. When you buy a house you're not using algebra. You are using qualitative forces. One sees a corner lot as a detriment ( 2 streets for the kids to play in). Another sees only one neighbor to put up with. AVM that.
Compliance is a Business Decision
As an appraiser, compliance is a simple concept. We only have USPAP, HUD, the secondary market, individual lender requirements, and the ever burgeoning stack of changing regulations that tumble to the floor when they get too high to deal with. However you do it today, if you are doing it tomorrow, you will have to do it differently if you are to be in compliance. Of course, getting paid for scope creep is not an option. There are two options, actually. The majority of appraisers tend to see compliance as a business decision. Compliance costs money, and there is not money being offered. It is easy to say in a report, “recent area statistics suggest a drop in value of approximately 9% per year,” and make an adjustment. It is also easy to find the exact value change from your given area, and make the adjustment. Most times, the adjustment will be different. The latter takes time. Nobody pays for that time. So the appraisal appears to be supported with the former, which it is not. That is a lack of compliance. Lack of compliance is a business decision. There are some of us who opt for compliance. I’m one of them. My appraisal income results in occasional pocket money. My part time job and my social security are what I live on. I can’t accept an appraisal fee of $350 and be compliant. It takes more time than the fee is worth. I quote the AMC back a reasonable fee to complete the assignment, and never hear from them again. If every appraiser did this, fees would rise; Dodd-Frank and C&R be damned. I have a personal appraiser friend who is busy all the time. She accepts a lower fee, cuts corners, and doesn’t bother with compliance unless it fits into her regular routine. She writes a great report. But if you went to her work file, I doubt that you would find actual support for many critical adjustments on individual assignments. At $325 or $350, it’s just a business decision. I went to a US Bank seminar late last year. They pay well. I produced excellent reports that were documented and supported. I don’t mind spending the extra time to do it right. However that hasn’t gotten me back in the game. I have had two assignments, both complex, in five months. The point here is that even when a fee is adequate it doesn’t help in bringing up the volume with excellent work. The chief appraiser at US Bank told me to just be patient. I’ve been patient for five months and received two assignments and $950 in fees. Compliance for the vast majority of appraisers appears to be a business decision. They will not say no to inadequate fees. They will take whatever the AMC and lender will offer, and match their level of compliance accordingly. Meanwhile, those of us who take our responsibilities seriously don’t appraise much anymore. In this climate, we never will. Roy Brown, somewhere on the northern left coast