Technical mortgage warning: this post is intended to mortgage industry professionals, and believe it or not, we’re interested in what it says. You probably won’t be, and no one will blame you for clicking here and going to somewhere more fun.
The Home Valuation Code of Conduct (HVCC) is causing a firestorm of controversy and a growing wave of disgust across all parts of the mortgage industry. I’ve already said before that I think it’s not going anywhere, and why, so I won’t rehash that, but as I was thinking about it the other day, I realized why I wasn’t as upset about the HVCC as others are. And I realized that I had a solution to the frustration out there.
There’s nothing seriously wrong with the HVCC. There is, however, something seriously wrong with the appraisal management companies (AMCs) that administer it. The problem is this: almost all of them suck.
What used to happen, in brief, was that the loan officer would order the appraisal directly from the appraiser, who passed the completed appraisal back to the LO, and ordinarily this resulted in fairly quick service, or the LO would simply use a different appraiser next time. Now, though, the LO has to order the appraisal from an AMC, which then orders the appraisal from the appraiser. When completed, the appraiser transfers it to the AMC, which sends it to the LO. Sounds simple, though not as simple as it used to be.
There are 3 problems with this:
1. The AMC takes a large cut of the appraisal fee for doing piddly.
2. The AMC slows down the process because it’s incompetent.
3. The AMC, as an intermediary, reduces the feedback between the business end of the loan (the LO) and the appraiser, which results in slower service and worse appraisals.
Let’s look at each of these three more closely.
1. The AMC takes a large cut of the appraisal fee for doing piddly. Well, yes, but not always. Where there is competition in the marketplace, where LOs are free to select any AMC they like, this happens less often. Where the problem comes in is where the AMC is the subsidiary of the lender, so that the LO has no choice but to use the AMC the lender dictates. This used to be illegal. No lender could dictate to an LO a particular appraiser he had to use. But now, effectively, they can do this. The AMC has a sweetheart deal with the lender, and screws exorbitant fees out of the borrower, while paying the appraiser less than standard wage.
It doesn’t have to be this way. Appraisers can and should fight back by refusing to perform appraisals for AMCs that pay less than full fees. LOs should ask for a fee sheet from the AMC, and the AMCs should be required to provide one. If the AMC fee adds more than $100 to the cost of the appraisal, the LO should choose a different AMC, if at all possible.
Personally, I refuse to do business with an AMC that shorts appraisers money. I went to my broker (at City 1st we have the advantage of being correspondent) and fought for the right to use an AMC that made my appraisers happy by paying them what they were worth. LOs have much much more power with their brokers than with the State of New York. Time to use some of that power on behalf of the many great appraisers that are being hurt by the HVCC – hurt because we haven’t cared enough to protect them.
2. The AMC slows down the process because it’s incompetent. AMCs are made up of people. Generally, these aren’t the world’s most competent people. Their customer service sucks, they’re slow, they charge too much, they’re unresponsive, or they burst into tears when they get criticized (this is not a made-up deal, ask @mortgagereports). In short, they’re small, understaffed businesses. But be fair. Are these guys worse than your local contractor? Your DMV? Are they a lot worse than most appraisers? No. They aren’t. But this is no compliment – the aforementioned “service” personnel are among the most proverbially terrible for customer relations.
The fix for this in the contracting world is that there are hundreds of contractors, and the good ones do well, and the idiots die off as word gets around. Good plumbers and good mechanics and good appraisers float to the top. You can find them, because the market makes it possible to find them. What would happen if a contractor had a monopoly, got to build all the houses in a particular zip code? That’s the DMV, and that’s what happens when you don’t allow competition. But that, again, is what the HVCC allows that it should not – AMCs to be owned by, and exclusively provide appraisals for, particular lenders. The good AMCs – and they are out there, I use one myself – are actually faster than my old process. They’re easier to use, and I get better service than I ever did. But I shopped. I was lucky – I could. If you can, you should, too, and let the incompetent companies die.
3. The AMC, as an intermediary, reduces the feedback between the business end of the loan (the LO) and the appraiser, which results in slower service and worse appraisals. Tough to argue this one. Intermediaries are rarely a good solution to any problem – except where getting the relevant parties together directly (in this case the LO and the appraiser) could result in conflict or undue influence. And that, ladies and gentlemen, is what the HVCC was supposed to prevent. AMCs are supposed to solve this problem, but most of them simply create a new and larger one.
Does it have to be this way? Absolutely not. A good AMC could function better than a large appraisal company, taking orders in and efficiently passing them to the appraisers, while helping maintain a degree of autonomy for the appraisers. The appraisers should be happy that they are not getting heat about their values, and that they no longer have to perform collections. LOs should be happy that they don’t have to worry about overloading their appraisers in heavy times, causing slowdowns in performance, and they should be thrilled to be relieved of the task of selecting and vetting new appraisers all the time. HVCC ought to make everyone better off.
But it doesn’t. And it doesn’t, again, not because of what the HVCC contains, but what it doesn’t contain. It doesn’t contain the one sentence that would make all of the above go away:
“No lender may mandate the use of any specific AMC for the performance of appraisal services.”
That’s it. Instantaneously, AMCs like the one I use would get huge influxes of business, because they’re excellent at their job, they treat appraisers like professionals, and their customer service is outstanding. The bad AMCs, and those are everywhere, would dry up and blow away, or they’d improve in a hurry. Just like everywhere else in the economy. Just like LOs, like lenders, like appraisers.
All of this frustration, all this lost business, all the howling and letter-writing and distractions from us simply doing our jobs, all of it, would go away. We don’t need to force the State of New York and the FHFA, two gigantic bureaucracies, to completely toss out the results of two years of lawsuit. All we need is one sentence.
Probably, it’s too much to ask. But I’m asking, all the same.