Appraisal Warranty Insurance

[Junior Member]

The greatest value AMCs offer their lender clients is exactly this sort of warranty.

How much do AMCs really manage appraisals? Look to a current thread for the sort of errors escaping their detection. If anything, their own protection should rest on their diligent management of appraisals.

On the one hand, they assure clients against their worst outcome and on the other hand, they increase their own risk by driving out the most experienced appraisers with their fee pressure and scope creep.

As a model the AMC has many other weaknesses: greater scrutiny by the feds, increased state regulation, inflexible scaling, exposure to economic conditions which many of them are unable to weather.

AMCs do offer one-stop shopping for large-volume users. But there has to be at least a small market for an alternative such as an appraisal with warranty. It is a shame to see community banks and credit unions go with AMCs. Maybe this would be the market but there has to be more.

AMCs have invaded almost every niche of our business. This would put us in a position to compete with them on an issue of critical concern to clients.

or have I totally missed the boat here lol

Renee,

Not all AMCs offer their clients a warranty backed up by insurance -- some AMCs do, and there a few lenders who specifically require it. Other AMCs may warrant their appraisals, but their warranty is not backed up by insurance.

Overall, the purpose of enabling appraisers to provide insured appraisal warranties would be to allow them to compete in some respects with AMCs by having the same tool available, make their appraisals more attractive to other lender-clients, allow appraisers to differentiate themselves from others who may not be as well qualified, and hopefully charge a higher price for their valuation because it comes backed by an insured warranty.

-- Peter Christensen, LIA's general counsel

 

[Renee Healion]

Thank you. I now see what you have been saying about the applicability of it for us. I just wish we could go around AMCs precisely where their presence is newer and the clients are disappointed with the experience. Some smaller local lenders juggle a number of them and like none.

Some, however, still use none. A warranty might be a good marketing tool at the latter where it can be hard to get a foot in the door unless someone retires or moves.

 

[DTB]

Who or what will be the great arbiter of actual market value?

 

[Junior Member]

Who or what will be the great arbiter of actual market value?

The claims procedure for a warranty insurance product like this would require the lender desiring to make a claim to submit a retrospective appraisal as of the original valuation date from an independent appraiser and documentation regarding the foreclosure event and loss to the insurer's claims administrator. If the insurer's claims representative disagrees, it will obtain its own retrospective valuation. These are not reviews of the original appraisal because USPAP violations or lack of support in the original appraisal is not the issue, just what should the correct value have been as of the original valuation date? If there is still disagreement, the two retrospective reviewers must agree on a third, neutral umpire appraiser to make the value determination. The umpire sees both of the retros but determines his or her own value. Even if the umpire's value opinion is higher or lower than the others, the actual value used for the claim determination will be no higher or lower than the original two retros. If for some reason, the two cannot agree on a neutral umpire appraiser, an arbitration association picks the umpire appraiser. The lender and insurer must live by that final answer under the terms of the policy; it is binding without right to appeal. All of this is a form of arbitration and is highly enforceable. Nothing is perfect, but this procedure is more consistent and far less expensive than throwing a dispute about value into court or a regular judge/attorney based arbitration.

Leaving the mechanical issues aside, I'd like to know your thoughts on the potential value of this to appraisers? Or what would make it more valuable (besides being cheaper)?

 

[DTB]

The claims procedure for a warranty insurance product like this would require the lender desiring to make a claim to submit a retrospective appraisal as of the original valuation date from an independent appraiser and documentation regarding the foreclosure event and loss to the insurer's claims administrator. If the insurer's claims representative disagrees, it will obtain its own retrospective valuation. These are not reviews of the original appraisal because USPAP violations or lack of support in the original appraisal is not the issue, just what should the correct value have been as of the original valuation date? If there is still disagreement, the two retrospective reviewers must agree on a third, neutral umpire appraiser to make the value determination. The umpire sees both of the retros but determines his or her own value. Even if the umpire's value opinion is higher or lower than the others, the actual value used for the claim determination will be no higher or lower than the original two retros. If for some reason, the two cannot agree on a neutral umpire appraiser, an arbitration association picks the umpire appraiser. The lender and insurer must live by that final answer under the terms of the policy; it is binding without right to appeal. All of this is a form of arbitration and is highly enforceable. Nothing is perfect, but this procedure is more consistent and far less expensive than throwing a dispute about value into court or a regular judge/attorney based arbitration.

Leaving the mechanical issues aside, I'd like to know your thoughts on the potential value of this to appraisers? Or what would make it more valuable (besides being cheaper)?

Thanks for the mechanics though I'm still not sold on them. That aside, I would be inclined to see this as a value (no pun intended) add for the appraiser.

Cost is reasonable IMO. The problem is that most appraisers are green eye shade guys or gals and not great promoters. IMO they would not be able to sufficiently sell the sizzle.

If the insurer could combine some sort of national advertising or recognition type of promotion it would help gain traction for the individual appraiser. Something similar to an I-CAR thing in the auto body world, letting lenders know the benefit of ordering insured appraisals through "our" network of appraisers. Could be a game changer for appraisers.

Just spitballing here while watching some Olympics.

 

[Junior Member]

Thank you for your comments. I do think the outside marketing is a key. Creating awareness of the availability for hundreds of lenders at mortgage banking type events.

 

[Michigander]

It is an interesting idea, but if the reason banks use AMCs is for ease of shopping, how would this help the individual. Also, how will you determine the qualification level of the appraisers?

 

[Jo Ann Meyer Stratton]

Twenty five to thirty years ago I was a staff appraiser for TRW, one of the first AMCs nationwide. Eventually it sold to First American, but I left before that happened. TRW offered a guarantee on every appraisal and clients would choose TRW because of that reason. The only time a claim was made during my time with TRW was an unusual situation. Property was in the middle of the Phoenix area, about fifty years old. Seller told the real estate agent, buyer and appraiser that the property had all city utilities and had been paying for all utilities for many years. A year after the buyer closed on the loan, they had some plumbing problems. Plumber discovered the house had never been connected to the city sewer and still relied on a septic tank installed over fifty years prior. The buyer sued everybody including the appraiser from our office. Because of the "guaranteed" appraisal, TRW paid all the costs of having the property connected to city and having the old septic tank filled in. Then I left the company and never heard any thing else about the situation. After the purchase by First American, the guarantee no longer existed.

 

[Junior Member]

Twenty five to thirty years ago I was a staff appraiser for TRW, one of the first AMCs nationwide. Eventually it sold to First American, but I left before that happened. TRW offered a guarantee on every appraisal and clients would choose TRW because of that reason. The only time a claim was made during my time with TRW was an unusual situation. Property was in the middle of the Phoenix area, about fifty years old. Seller told the real estate agent, buyer and appraiser that the property had all city utilities and had been paying for all utilities for many years. A year after the buyer closed on the loan, they had some plumbing problems. Plumber discovered the house had never been connected to the city sewer and still relied on a septic tank installed over fifty years prior. The buyer sued everybody including the appraiser from our office. Because of the "guaranteed" appraisal, TRW paid all the costs of having the property connected to city and having the old septic tank filled in. Then I left the company and never heard any thing else about the situation. After the purchase by First American, the guarantee no longer existed.

Jo Ann,

Thanks. There is a history. The old TRW warranty is similar to the warranties now being insured by some AMCs. After that purchase, some years later, First American did offer various forms of insured valuations. That was about 6-7 years before the mortgage crisis.

During that time period, most lenders didn't see the value and actually would respond essentially "we won't do anything that might slow down the mortgage origination process" -- just checking the boxes or whatever was required to order an insured valuation, as opposed to a regular valuation, was too much trouble. Not from First American, but from other AMCs, a few lenders did buy insured valuations. In their case, they originated loans based on "insured AVMs" -- and when the US mortgage industry went into a tailspin, the claims on insured AVMs were enormous and the insurers of those AVMs retreated from offering the product anymore.

-- Peter Christensen, LIA's general counsel

 

[William K]

I look at the creation of such insurance as another added cost that lenders and AMC clients will soon be requiring appraisers to provide at no additional cost.
I can see appraisers being told you must sign up with and provide such insurance on every appraisal in order to be considered for assignments.

I can see a lender wanting this insurance far more than E&O.