Comprehensive Nature of Cuomo's Actions

[psmith2170]

National List similiar to the FHA roster.

I do not know how much the AMC's in your state pay for an appraisal, but in Virginia, the range is $175 to $250 for a 1004. Once Cuomo's agreement is fully implemented and we are all FORCED to work for an AMC, do you think they will raise or lower the amounts they pay to appraisers?

I do not agree than AMCs are the only choice. Though this may be true if we do not take part in this Now less than 90 day responce period. From the history I read AMCs are part of the problem though they mentioned bank controlled and or owned AMCs.. But lets think lets say after the Bank controlled AMCs are gone and there are lets say 20 AMCs left. Though the banks can decide of those left that they are going to use. Does the banks still have control Yes.. Let say John & Jane Doe Appraisals are being too conservative for ABC Bank and Trust. They call the AMC and say “Get John & Jane to be more liberal or do not send them any of our work because if we get another Conservative appraisal we are moving all out business to another AMC.” Will that happen maybe if so what has been solved.

There has to be another choice I have had AMCs in the past not related to a bank though controlled by a bank and asked for things they should not have asked for.

I would love another choice than AMCs. I am sure some of you have seen my idea. A rotating list something like VA uses but on a more National scale or a rotating list for each state overseen by the board that either covers appraisers or those that control Banks and Finance. True we would have to come together on our Fees lets say 325 to 350, and the Unit that controls the list lets say charges $5 to Appraisers and $5 to the ordering Institution to covert the service cost. This is just my idea but still working bugs out before presenting, to someone who may or may not listen. I think we will all be better off with No AMCs, at least as we know them now. Though sorry this would increase the unemployment of these workers.

Your idea of a national list sounds like a good idea. The nuts and bolts of implementing such a system prior to 1/1/09 may prevent this from happening however. This agreement coupled low AMC fees, new entrance requirements for appriasers as of 1/1/08, and the fact the Appraisal Institute said LAST year the average age of an appraiser was 59.5 years old and I think the current critical shortage of appraisers is going to become even more pronounced.

 

[panappr]

So, AG Cuomo is left with this half-measure which certainly satisfies his political agenda but fails to create a real systemic change that results in changing the motivation of the parties away from obtaining the appraisal as a necessary part of the lending process to motivating them to obtain a quality appraisal as part of their due diligence requirement obligations (and, even if they realize it or not, as part of sound lending practices).

And, when I say "satisfies his political agenda" (in reference to AG Cuomo's motivations) that isn't necessarily a derogatory remark. As you and I agree, his jurisdiction is limited; however this agreement is far-reaching beyond the boundaries of New York. That is not a law enforcement decision (IMO), that's a political agenda decision. Kudos to General Cuomo for filling in the void where the federal regulators (up to now) have been less than actively visible. A better solution would have been to invite in the federal regulators and construct a comprehensive solution that really would have some regulatory teeth built into it. That still may be happen down the road. Or, it may not. The problem with a quick half-measures are they satisfy the need for instant action but fail to provide a comprehensive solution to the entire problem. :new_smile-l:

I do believe AG Coumo has satisfied his political agenda here, and has now moved on to straighten out the "Health Care" system. He is currently probing their "price point" system nationwide.

 

[psmith2170]

Self-delusional?

Prior to, and after the inception of, AMCs appraisal fees were, and are, and always will be set by the MARKET. Demonstrated and Perceived Value of Appraisal Services and Supply and Demand - period.

Those who think otherwise are self-delusional.

Marcia's opinion is well-supported by ACTIONS taken by the NY AG, and others, further enhanced by Info sharing between State AG's and the FBI.

It ain't over till it's over....... and .........it's Just Begun.
The FBI is currently investigating 14 MAJOR players......... the AG's office is STILL investigating complaints and hardcopy data on AMCs, Lenders and (a)ppraisers provided by NUMEROUS sources.......

all Ethical Appraisers are URGED to continue reporting fraudulent appraisals to Regional FBI White Collar Supervisors and their respective Attorneys General.

Additionally - pls see my other post this morning with links to the FHA/HUD COMPLAINT PROCESS.

THE SUBPRIME WAS MERELY THE TIP OF THE ICEBERG. The same players, the same methodology, the same coercion, solitication to commit fraud, and the same extortion against Ethical Appraisers in the PRIME AND FHA Markets will make the Sub-prime fiasco look like a picnic in a park.

IT'S NOT OVER UNTIL IT'S OVER......... meanwhile..........the band continues to play on.

To state anyone who doesn't believe AMC fees are market driven is self delusional is pretty harsh. My firm has refused AMC work for the past 3-4 years because we can charge $400 for an FHA appraisal. Why then, would we accept $200 from an AMC? And how can you honestly say AMC fees are market driven? In reality, AMC fees are the lowest fees the AMCs think they can get away with. That is why you find the AMCs primarily staffed with new, inexperienced appraisers.

 

[moh malekpour]

This is what I posted yesterday on the other forum to solve the AMCs problem but didn't get any feed back. http://appraisersforum.com/showthread.php?t=135409&page=5#43
I know there are others who are working to set up some other systems or organiztions but I have no idea about their details.

 

[TJSum]

"And how can you honestly say AMC fees are market driven? In reality, AMC fees are the lowest fees the AMCs think they can get away with. That is why you find the AMCs primarily staffed with new, inexperienced appraisers." from PSmith.

Yes, their prices are market driven, like you say they pay the lowest fees the MARKET lets them get away with. The problem is quality doesn't matter to them, at least it didn't, only fast and cheap did.

The main question I have with Cuomo's agreement, what happens if another AG from another State or the Feds conduct their own investigation and brings lawsuits against Freddie/Fannie. The only reason F/F agreed was to call off the dogs, but if other dogs start sniffing around what happens to the agreement. Like Mike said, this is all just starting...

 

[Mike Kennedy]

To state anyone who doesn't believe AMC fees are market driven is self delusional is pretty harsh. My firm has refused AMC work for the past 3-4 years because we can charge $400 for an FHA appraisal. Why then, would we accept $200 from an AMC? And how can you honestly say AMC fees are market driven? In reality, AMC fees are the lowest fees the AMCs think they can get away with. That is why you find the AMCs primarily staffed with new, inexperienced appraisers.

The Market consists of the BUYERS (Lenders) who contract with VENDORS (whether AMCs or Independent Appraisal Firms/Appraisers) for a Negotiated Fee.

The Vendors (AMCs, or Independent National/Regional/Statewide/Local Appraisal firms/Individual Appraisers) NEGOTIATE a FEE for services contracted.

The Suppliers of appraisal services either Accept the Fees offered by Lenders - or they do not.

Subcontractors of AMCs, et al .........either Accept the Fees offered.......or they do not.

THE LENDERS ......either are in compliance with OCC, OTS, FDIC, VA, HUD requirements which mandate ethical competence in appraiser selection AND MANAGEMENT .....or they are not. They either DEMAND Competence or they do not. The either recognize and pay for Expertise voluntarily, or are forced to when Regulators fully comply with Fed Regulations and force major changes, or they do not.

I suggest the "Rifles" be pointed in the right direction - Federal and State Regulators and Enforcement Officials, Senior Lender Officials, Chief Compliance Officers, and Chief Appraisers (many of whom are Members of "Recognized Appraisal Organizations) who permitted and STILL REWARD Players in this "shell game" and "race to the bottom for anticipated profits" on the backs of American Consumers and Ethical Appraisers...........rather than Competitive Firms engaged in FREE MARKET ENTERPRISE.

Free Enterprise - Choice. :icon_idea:

The Market sets the Price in this or any other industry (excluding Government-subsidized products / services).

 

[Marcia Langley]

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I think the agreement is a poor idea. I've argued for at least a year that any legislation, regulation or guideline should not identify AMCs as a party to the transaction because it makes them a shareholder in the appraisal delivery system and now (I would argue) entrenches them into the business environment.

Denis,

I understand and appreciate this concern.

The much better agreement would have been this: Anyone who sells a loan to Fannie/Freddie must be a FRI. All FRIs who sell a loan to Fannie/Freddie are 100% responsible for due diligence quality control and the responsibility for such quality control cannot be outsourced to a third-party. The lender needs to take full responsibility for the quality of the appraisal they are relying on to make their loan and that they are relying on to use as prima facia evidence of the quality of the underlying asset when they sell it.

.

My problem in trying to get my mind around this is that if one considers 100% control to mean not outsourcing appraisals at all, then one would have to have all appraisals performed in house or by employee staff appraisers. I don't think that's what you meant. (Or did you?) I think you meant not outsourcing the selection and ordering process.

I think we both agree that the non-production-in-house-lender-employee function of selecting and ordering appraisals directly from independent fee appraiser contractors continues to afford the bank's 100% control of appraisal quality and appraiser independence.

So, from the lawmaker/regulator's point of view, how are they going to propose guidelines that distinguish between an AMC and a large appraisal shop that subcontracts on a split fee basis? Is the sole distinction whether or not the appraisal company performs at least some appraisals themselves? Like any other fee shop?

Because the way the code is written, an independent appraisal company of either sort (fee shop or AMC) is held to the same standards as the bank and the code also holds the bank responsible for their vendors' selection and ordering. They can't control it directly but they must assure that they only contract with appraisal companies that, themselves, adhere to the code.

In other words, the code puts fee shops and AMCs in the same category. If they didn't, what would stop an AMC from doing just enough fee work to qualify as being a fee shop? The code as written puts the same burden on fee shops to adhere to the code for appraiser selection and ordering of split fee work as it does the AMC.

For fee shops and AMCs alike, the code addresses both the bank/vendor interface and the vendor/appraiser interface.

Now, this (Fannie/Freddie/NYAG) agreement has taken away the ability of the lender to control that process and has created (de facto) the requirement to outsource to a third-party vendor.

I'm not sure what you mean by "requirement" except to repeat my question above, do you mean all appraisals should be in-house or do you mean all ordering should be in house?

The third-party vendor is now a stand-alone profit center based on business volume.
Volume can be generated by several means with the two obvious being competitive (low) fees and competitive service (e.g., quick-turn times, cost approach on all reports, six-minimum comps).

So could fee shops be like this.

Where is it in this agreement that the banks are any more responsible for quality and due diligence review of the appraisal?

You mean any more responsible than they already are under the existing federal laws and regs? None, I guess. This code cannot make new laws, it can only pressure the players to follow the existing laws. For me the only thing new is the detailed description of what appraiser independence actually looks like, and a promise for some sort of positive reportingof their efforts. The laws and regs already say that the banks are 100% responsible for assuring appraiser independence and selection/ordering should be done by non-production employees. The problem the code is trying to address is the fact that banks have been violating that requirement.

I am imagining the evidence Cuomo brought to the investigation included rampant violations connected to pressured in-house appraisers, pressured fee shops, pressured AMCs, pressured MBs, pressured UWs, pressuring MBs, and pressuring AMCs. This evidence was evidently serious enough that the GSEs and OFHEO were persuaded.

The agreement says the banks must quality control 10% of the appraisal reports on a random basis. What is not defined is what is the pass/fail consequence? So, if I am a bank and planning to sell my loans to Fannie/Freddie, and I complete my one-in-ten review and report those results to the "Independent Value Protection Institute", have I completed my due-diligence? How can Fannie/Freddie make me buy back their loans when I follow their "Code of Conduct" to the letter?

If I was a bank and planned to sell my portfolio to the GSEs, I couldn't think of a better process that reduces my costs and codifies my due-diligence requirements so I can manage my regulatory risk with minimum pain and effort.

I'd say the quality control positive reporting and the newly created "institute" are the weakest parts until they are fleshed out.

The reason why this agreement is deficient is because the imposing party (General Cuomo) has no authority to enter into a binding agreement with the FRIs (the FRIs will never negotiate with a state enforcement agency because they repeatedly- and rightly so- claim federal jurisdiction as their guiding authority). So, AG Cuomo is left with this half-measure which certainly satisfies his political agenda but fails to create a real systemic change that results in changing the motivation of the parties away from obtaining the appraisal as a necessary part of the lending process to motivating them to obtain a quality appraisal as part of their due diligence requirement obligations (and, even if they realize it or not, as part of sound lending practices). I do not think this agreement is a solution to the existing problem.
Make the lenders directly responsible and hold their feet to the fire. AMCs will come and go; one of them failing is not news. Having a bank fail or be put on a regulatory watch-list because of poor lending practices is news.

That lack of authority over the banks is sort of the whole point of going after the GSEs and the AMCs. You are right that it is a half measure but that is what he had to work with. I agree with your other friend that the highest part of the value in the body of Cuomo's actions is public awareness. If his direct work does not create systemic change, maybe it will pressure congress, or the feds to actually enforce a truly realistic plan to guarantee appraiser independence.



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[KenRossman]

I agree with Marcia completely...

On the jurisdiction issue, its not a NY settlement, It's Federal.

OFHEO has oversight and full jurisdiction over Fannie/Freddie.

OFHEO was full participant in the negotiations, Cuomo could never have made this happen without OFHEO.

The parties, particularly Cuomo are well aware of the AMC Issue and are working very hard on alternatives (to predatory low fee AMCs) as a solution.

The AI is plugged in and working very hard on the potential for unintended consequences.

It is paramount that appraisers be heard - loud and clear, particularly during the comment period.

Send you comments to Fannie, Freddie, OFHEO, NY AG, Your AG, any appraisal organizations you belong to, your elected representatives, your state board, etc.

We are at a crossroads, what we do now as an industry will either empower us or haunt us for years to come...

 

[hastalavista]

Marcia-

When I say "outsource the responsibility" that does not mean that a FRI must physically control the entire appraisal process.
For example, if I'm a bank, I can hire a company to do my due diligence work. I've given them the authority to complete it for me. However, the responsibility for appropriate due diligence is mine and mine alone. It doesn't matter if the ones who I authorize to do it for me do it well or poor- however they do it, it is my responsibility. This was a golden opportunity to re-affirm that direct line of responsibility. Who cares who physically manages the process as long as the responsibility for the outcome is defined?

Instead of drawing the hold-accountable line directly to the FRIs, the agreement has set up a third-party vendor system that, in my opinion, shifts much of the due diligence responsibility to the third-party vendor.
The only thing I'm held accountable as the lender under this agreement is to randomly review 10% of the appraisals and report them to a yet-to-be-constituted body.

Again, as a lender, I would welcome this agreement because it requires me to use someone else to control what I should be responsible for controlling. If you take away my ability to control a process, you take away my responsibility for ensuring the process works as intended. Its that simple. :new_smile-l:

 

[hastalavista]

My problem in trying to get my mind around this is that if one considers 100% control to mean not outsourcing appraisals at all, then one would have to have all appraisals performed in house or by employee staff appraisers. I don't think that's what you meant. (Or did you?) I think you meant not outsourcing the selection and ordering process.

I think we both agree that the non-production-in-house-lender-employee function of selecting and ordering appraisals directly from independent fee appraiser contractors continues to afford the bank's 100% control of appraisal quality and appraiser independence.

So, from the lawmaker/regulator's point of view, how are they going to propose guidelines that distinguish between an AMC and a large appraisal shop that subcontracts on a split fee basis? Is the sole distinction whether or not the appraisal company performs at least some appraisals themselves? Like any other fee shop?

Because the way the code is written, an independent appraisal company of either sort (fee shop or AMC) is held to the same standards as the bank and the code also holds the bank responsible for their vendors' selection and ordering. They can't control it directly but they must assure that they only contract with appraisal companies that, themselves, adhere to the code.

In other words, the code puts fee shops and AMCs in the same category. If they didn't, what would stop an AMC from doing just enough fee work to qualify as being a fee shop? The code as written puts the same burden on fee shops to adhere to the code for appraiser selection and ordering of split fee work as it does the AMC.

For fee shops and AMCs alike, the code addresses both the bank/vendor interface and the vendor/appraiser interface.

Marcia-

On this specific, I see no difference between an AMC (such as LSI) or large fee shop (such as Forsythe) or a franchise operation (such as IRR-Residential).

My concern is simple: In my opinion, requiring a third-party source to manage the appraisal process dilutes the lender's responsibility for quality control assurance since I believe one cannot be held accountable for something one does not have control over. :new_smile-l: