Judge Rules Appraiser/Lender Owe no duty of care

[Mile High Trout]

Looks like this is a two poster, soo long.

Well, having read a substantial volume of posts here, thought I'd chime in with a slightly different take. Apologies if others have covered these points, and I know several appraisers did cover what I'm about to post in part. Through many responses I had said, yes, that is what needs to be considered, agreed, etc.

Who's to blame is the entire AMC industry for changing the engagement modeling regarding appraisers performance and workflow availability standards. It's important to understand that the very basic frameworks of GSE guidance and subsequent individual lenders underwriting guidelines standards which often mirror GSE guidance and add to that, the entire framework was based on an older model of engagement before AMC's captured over 85% of all lending work which required an associated appraisal.

How it used to work was the individually licensed mortgage banker or mortgage broker would call their trusted appraiser and ask for a comp search, to check if potential value needs to form a loan around could be met. Or in the case of sales, as soon as a sales event was being formed and a contract in hand, the broker would immediately form an appraisal request. The important factor here is time. Because the appraiser was engaged at the earliest stages of mortgage loan package formation, the appraiser had adequate time to perform key actions; 1. Schedule in the request in a way which allowed for quality appraisal performance, careful consideration, and even some additional time for preponderance and reflection if complex issues existed. We used to routinely have deadlines which were anywhere from two weeks to eight weeks away for just about every order. Where I started our target turn time we'd ask from lenders was four weeks. This ties into the second important consideration. 2. Workflow reliability. Because the mortgage banker and the appraiser had formed a business relationship with at least a basic level of trust in each others performance standards, the appraiser would not live in fear that if they made one little error, had to charge more for a complex situation, ran a borrower through additional inspection hoops, or ran a day late, the appraiser would not have to worry about grading, performance metrics, and future loss of work. I like to refer to this as; If the appraiser is good enough to be on a lenders approved appraisers panel, they should expect a fair share of work.

Then the AMC's came around. They began grading appraisers based on meaningless performance metrics which were contrary and inhibiting to the very nature of quality appraisal practice. Due to the improperly co mingled AMC and appraisers fee, the AMC companies then had a financial incentive to push the appraisers for faster turn times so the AMC could make more money. But even more importantly the AMC's then had a financial incentive to select the lower priced appraisers to increase their profit margins. Then like a light switch the industry changed. Suddenly there were typist service firms, more runners and sub standard industry workers whom did not have a clue about what appraisal was, the importance of careful consideration, nor did they understand why an appraiser would take all this time to get what appeared to be a simple report done. Because AMC's are basically ready to go out of the box telecom companies, they have higher employee turnover, and typically are not employing qualified professionals whom under stand real estate. They understand time management and phones, order processing, simple stuff. Because these peoples own positions are modeled on time and simple performance metrics (anyone who's worked at a telecom will understand how they grade you on every last detail down to the very minutes and seconds), they thought this was a meaningful way to grade appraisers. Because they were not qualified to complete the appraisal task themselves, they turned to something familiar to judge the competency of the appraiser instead. Time. Cost. Efficiency. Accuracy. The ability to get the job done with the least amount of complications or questions. They judged the appraiser almost exclusively based on time, and the appraisers ability not to make waves or upset anyone. Then among the fasted appraisers, they selected what they call 'top tier', 'elite', or 'proffered appraisers', based on their lowest fee. In the AMC realm they appeared to have solved key concerns about appraisers higher costs and longer turn times; Now they have limited perceived excessive service fees, and increased service efficiencies. Appraisers whom did not meet these two key standards; speed and lower cost, were cut out of the loop and received no work. That's why prior to HVCC and subsequent DF RegZ separation from mortgage loan production rule, most appraisers would work with GSE's on FRT's, but then after these rules were implemented literally half of all appraisers now refused to provide service in the GSE realm for FRT's. But the AMC's were able to report to lenders about the faster turn times and lower costs. The illusion of quality service was established. The illusion of the value of AMC's management injection was confirmed. They were doing something good for lenders and training appraisers to do better.

But in the real world that's not what the end result of the AMC industries injection really played out. The AMC industry broke several key elements which appraisers must have to provide quality service. The appraiser must have a reliable work flow in order to have adequate resources to tackle difficult work. The appraiser must have reliable work flow to train the next gen of appraisers. The appraiser must have adequate income in order to sustain the business and make the work worthwhile from a business owners/managers perspective. AMC's took that away over night. So what is the real problem you may ask? The problem is that appraisers whom cut the most corners, moved faster then others, they were rewarded with the lions share of work orders. There was no more fair distribution aka round robin distribution of appraisal work requests. Behind the scenes appraisers were required to change their methods such as having enough time, instead time constraints and pressure. The fear of losing your entire business if one does not perform with these 24/48/72 hour turn time expectations. Being required to lie to borrowers and keep the appraisers fee a secret, to no longer include invoices with reports as had been the industry standard (and still is for non FRT work). These time constraints also limited appraisers ability to have diverse client bases which further reduced appraisers independent positions, as they became virtual employees of the AMC, subservient to their cause. If an appraiser upsets any single person at an AMC they don't just lose one lender, they lose all the lenders that AMC is contracted with, forever. A totally different model then being able to set an individual mortgage broker straight, then turn around and call the one sitting next to them and get ones work flow from them instead. Or in other similar modeling, the ability to switch which lender the appraiser preferred to work with. Then we get into other outsourced services such as remote typing services, cut and paste regurgitated writing material which was not unique, inspection runners, and less then stellar appraiser office staff. Instead of a full day if not two to complete a tough appraisal, the appraiser now had mere hours per each. The AMC appraisers were no longer training independent professionals, they were now training expedient efficient service workers whom only had one gear speed; fast and cheap. Again, a totally different model then before AMC's were involved.

 

[Mile High Trout]

Second part

The subsequent fall out is that today less then one in four appraisers is willing to work with AMC's. And consumers get harmed by their less then careful practices. All legal issues aside, which I'll leave to the group and persons here whom are more skilled than me at those considerations, there is one glaring point here which is undeniable and should be the center of the issue for the industry at large, as a whole. AMC's are the reason the public loses trust in the appraiser profession. They're anti quality, anti time, anti fair distribution of requests. They are anti small business and instead build up big firms instead of independent professionals. The appraisal industry was built around the concept of appraiser professionals whom were independent, and the AMC industry purposefully changed these business models. The AMC industry should be completely disbanded because they promote unethical principals of non transparent engagement and non transparent billing practices, hinder sought out accountability from individuals whom may be harmed by unscrupulous practices, limit appraisers ability to train effectively, and because they are not qualified to do the work themselves, judge appraisers based on issues which are antithetical and counter productive to the appraisers appropriate position of careful due diligence no matter how long it takes. Never seen such a large group of 'managers' whom are incapable of doing the work themselves. The AMC industry has reached peak absurdity, and now in the real world, real people are getting hurt.

And a quick follow up on MPR, as I do a lot of FHA work. Homes can be in really bad condition and still pass MPR. Minimum property requirements. Minimum standards for habitability. A roof only needs a 2-5 year cert. Homes can have ruined bath rooms as long as one of the agla ones still works. Windows and glass can be cracked, as long as they still have basic functionality. Floor covering does not need to be present, a home with missing carpet, as long as the sub floor is good and tacks are removed, can still be acceptable. That's cosmetic not required systems. The heat, electrical, water, sewer, and structure must meet MPR. That's it. There can be holes in the dang wall, missing interior doors, dated materials, they're still good for FHA. FHA does not require anyone to fix a fence, that's a municipal requirement. Lenders, appraisers, inspectors; nobody can force anyone to fix a fence. The city can though. The point of MPR is habitability of the home, and only in limited circumstances, also of the land. And I think that's what some of the appraisers should consider in dealing with this general public lady; She incurred real harm because that home did not meet MPR per the contractors. She had no choice but to pay. Those should have been identified issues ahead of time if theoretically possible. The system at large runs her around and nobody accepts responsibility. Lady, with all due respect, call a public adjuster, have you seen the series; insurance wars? Between the insurance company, the lender, the multi million if not billion in total income AMC company, and nobody can do the right thing and help her out? They could write off the cost as a business expense or charity. The corporations choose not to because they are ran by unethical people. Shameful. This is the key advice I give realty agents, to pay attention if the lender uses AMC's or not because if they do...

All that being said this story and many appraisers responses remind me of the old fashioned way of dealing with lenders. I remember we used to always call 'subject to' on all these issues with the generic disclaimer; The appraiser is not an expert. Whenever there was well/septic, subject to inspection by pro in that field. Subject to roof inspection. Subject to foundation inspection if there was a hairline crack anywhere. Furnace looks janky; subject to hvac inspection. And the reason we could do that then but can not do that now; There is not enough time. And we'll get negative grading. Because the AMC's will penalize appraisers and cut us out of the entire work flow pattern if we take that time. And the AMC will perceive the appraiser as overly cautious and incompetent and down grade us for doing too many subject to's, they keep track of that too. Just lose fifty thousand or more of yearly income and shut your doors down, because you tried to do the right thing. That's the real world situation AMC's put appraisers in. So who gets harmed? Borrowers whom relied on the appraiser to check those boxes and certify basic minimum standards of condition. And appraisers because they face the impossible choice of losing their integrity or losing their lively hood. The GSE guidelines were formed pre AMC's, as if the appraiser was both capable of and allowed to make such important decisions. The industry is a complete mess due to all this restructuring. Or as we like to say; 'Appraisal modernization!' The old way of doing things with direct engagement with mortgage brokers and appraisers, two way licensed accountability and truly free market fee setting, was clearly a better business and industry modeling.

The industry never needed modernization, automation, correction, middle managers, or more rules or more accountability. What the appraisers needed was for AMC's to bill separately for their services and distribute appraisal orders fairly without bias. There were key provisions removed from HVCC that if an appraiser was to be removed from panel or set to inactive they had to be told specifically why in writing. Now AMC's just blacklist appraisers with a push of a button, happens every day of the week. These companies drive quality appraisers out of the space because they treat us like children, write all these superfluous unnecessary rules, and there is always an underlying pressure that if the appraiser makes things difficult, they get down graded and down ranked. Here are some examples. They all require appraisers to conceal their fee from the borrowers. Honest companies do not operate that way. Which is why most of us boycott the AMC industry. The technical platforms facilitate this behavior by allowing these companies to downgrade derank or blacklist at the click of a button and any single person in the entire AMC org can do this to any given appraiser at any given time for any reason. These are the things which keep me up when considering a new home ourselves, because our preferred CU does use an AMC. That means personally I need a really great agent and really great home inspector because as far as I'm concerned, the appraiser will not be independent, and that's why he's the one completing the AMC work request.

 

[George Hatch]

I think everyone here agrees that the lender has a legit claim on the appraiser's E&O, which might yet still occur if they take a loss on this transaction.

 

[Mejappz]

Class Valuation poses a significant threat to the public, yet it continues to receive support from Fannie Mae and various state boards. The reasons for this backing are clear when you examine the events surrounding the AI and TAF—it's essential to "follow the money." The implications for transparency and accountability in the valuation process are concerning, as they often prioritize profit over public interest. So sad but some here have been warning about it for years.

 

[Terrel L. Shields]

Where I started our target turn time we'd ask from lenders was four weeks. This ties into the second important consideration. 2. Workflow reliability. Because the mortgage banker and the appraiser had formed a business relationship with at least a basic level of trust in each others performance standards, the appraiser would not live in fear that if they made one little error, had to charge more for a complex situation, ran a borrower through additional inspection hoops, or ran a day late, the appraiser would not have to worry about grading, performance metrics, and future loss of work.

Too right... I had a 2-3 week turn time for most of my career. And my clients were loyal to me and I was loyal to my clients.

 

[Mile High Trout]

Too right... I had a 2-3 week turn time for most of my career. And my clients were loyal to me and I was loyal to my clients.

Thank you Terrel. It's always only been a matter of time before stories like this surfaced in relations to AMC's. Probably there has been many more instances where people did not fight back like this and simply walked away. On the other side of the coin people benefit from non disclosure stances. They take a bankruptcy then can requalify as first time buyers in very brief periods, I think that's two or five years, not sure. That's what's so wrong with first time buyer home credits too, the credit will extend to many people whom are not actually first timers. There has undoubtedly been thousands if not far more instances where due to AMC's mis handling issues, buyers lender shopped and found a different originator. Just read yelp reviews for AMC's... Back in the day we'd compliment stories about any given AMC's with indeed and similar employee reviews, sadly much of that is behind a login wall these days. But you know with absolute certainty it's there, negative employee reviews, for every single AMC out there.

The way all of them handled this particular instance and this particular borrower lady is simply not fair. In the real world the contractors will not respect grandfathered code allowances, if they even exist in municipal guidelines. Because they take on too much liability themselves. GSE's could write in updated standards such as requiring a comprehensive array of additional inspections with every origination. They choose not to as the additional cost will cut down front end profit margins. All we get instead is this tired old line to save the borrowers time and money on appraisal services. While literally every other service provider involved continues to raise their fees. They could require appraisers to be shown home inspections, instead they continue the egregious practice of allowing lenders to constantly keep this concealed from appraisers. They could require equal distribution of requests for approved panel appraisers. They ignore the issue instead. They could require separated billing, they choose not to. They could require individual appraiser licensing for every single AMC employee in charge of order distribution, order shopping, administrative review, panel approval or denials. They choose not to. They could revisit evaluations as prohibited practices for origination. They choose not to and go with waivers instead. They could require a mandatory truly random field review for a substantially higher volume of origination appraisals. They choose not to. Instead they allow inadequately qualified realty and non licensed persons to perform this function. They could require transparent billing practices. They choose not to. They could audit the AMC industry for the billions of dollars of junk fee billing. They choose not to. They could implement a sort of trust fund or mistakes type of fund for this exact issue this lady experienced as a back end consumer protection safe guard because inevitably someone slips through the cracks or the system does not provide the promised service. They choose not to. That money is redirected to GSE bonuses instead. The FHFA did not have to condition GSE's executive pay in part on their ability to remove appraisers effective participation in the origination process. They did so anyways under the fictitious auspice of 'appraiser bias'. You know, Cindy Chance, the ethical expert; You're fired! We get that instead.

In the real world when an appraiser demonstrates independence while working with an AMC, the single controlling appraiser whom is theoretically in place to maintain ethical standards of the AMC program, the sole licensed appraiser every AMC is required to hire and maintain, the system does not work. The conversations go something like this; AMC manager to the required to be in place controlling AMC employee appraiser; The lender is upset that your appraisers are calling so many conditions, driving borrowers costs up, and slowing down the income streams. Now get that appraiser in line or we'll replace you both. / The AMC industry was a bold attempt at bolstering appraiser independence. The AMC industries end result is exactly the opposite, and now they portend to speak on behalf of the entire appraisal industry. They don't want just a piece of the pie, they want the whole thing. The entire concept of appraisal modernization and seperation from mortgage lending production should be scrapped. AMC's, the long arm of predatory lending. Waivers, a good way to conceal the ongoing shift to providing first purchase opportunities to corporate investors, and allow them to pilfer the entire nations worth of renters and home buyers with consistently applied housing over valuation. Confounding new appraisal forms which spread a single math equation across ten different pages and data mines what is supposed to be GLB protected data. Just another day at FNMA. Some of the data requested in the new forms is also in straight violation of MLS privacy and data use agreements, if anyone dares to care about that issue and the way GSE's now data mine sell and exploit borrowers data.

Appraisal modernization is a total disaster. And this is just the beginning.

Central planning never works. Never underestimate the damage incompetent program managers and bureaucrats can create.

I'd speculate the last ditch play for anyone whom finds themselves in these situations is a public adjuster and bringing instances like this into the court of public opinion. Don't get lost in the weeds of underlying minutia such as intended users, duty of care, and all of that. There is a much more substantial underlying issue here. Incompetent policy implementation along with biased regulatory management implemented by advocates whom now control the appraisal industry for their own benefit, rather then for the primary purpose of prioritizing consumer protection first. This has rendered the appraisal industry non functional, and all mortgage lending appraisers as persona non grata individuals. Our speech is silenced, also to include constitutional violations. Collectively these are violations of rico, anti trust, right to work, equal opportunity, and a long list of other regulatory violations. Only in appraisal are these things permissible, which is why there is a problem. And why we hold our breaths for the next Jeremy Bagott article. Finally someone dares to go public with the long train of abuses. We could have all made it big with AMC's and the only prerequisite would be the willingness to lie, cheat, steal, outsource professional duties to non professionals, leave borrowers hanging in the wind with unacceptable service, and have a good lawyer at your back. All of this is simply unacceptable. Ethics do not need to be rewritten every two years. Ethics are cut and dry, right vs wrong. Honest vs dishonest. Equal opportunity means fair distribution. Fee surveys are meant to protect free market principals and should not be used as tools to seek out the absolutely lowest priced service and subsequently drive the majority of workers out of the working space. There is a saying that if you end up in court, everyone involved has already failed in their civic duties to treat each other fairly. Houston, we've got problems.