More AMC and PDC Bull$hit

[Fernando]

So appraisers are suckers for choosing this career for the long term.
That's how life is. We chose this path and it's not turning out as we had hoped. That's why it's good to diversify.

 

[RCA]

If a seller is holding property they cannot afford to keep and they are acting in what they perceive to be their own best interests then is it not prudent to get out now at whatever price the market will bear? As opposed to watching the pricing trend decline even further while at the same time running up their own holding costs?

If a buyer is suffering from FOMO and believes the prices will continue to increase is it not prudent for them to buy now at whatever price the market will bear?

I keep saying that appraisers get to wrapped in what is or isn't MV. Loosely speaking, MV, or rather LTV applied to MV is a poor mans proxy for collateral value - at least when it comes to lending purposes. So, when thinking about lending, consider the role that MV plays in estimating collateral value. AND AI agrees with me on this:

Me to ChatGPT: "In the Silicon Valley, where there is plenty of money, there are also plenty of ferocious biddding wars and consequently we see very high volatiility in house prices that make violate the constraints of LTV percentages. In fact, many kinds of loans are close to 100% LTV. So, actually LTV is not operationally robust."

ChatGPT: "Bert, I think your observation is largely correct—and you’re pointing at a real failure mode of the LTV framework rather than a misunderstanding of it.

Let me sharpen it a bit.

---

1. What You’re Observing in Silicon Valley​

In places like Silicon Valley, several conditions break the assumptions behind LTV:

• Excess liquidity (high incomes, stock wealth, venture capital)
• Bidding wars (prices driven above fundamental comparables)
• Thin inventory (small changes in supply → large price swings)
• Behavioral dynamics (FOMO, momentum pricing)

This produces:

High short-term volatility and price overshooting

---

2. Why That Breaks LTV Logic​

LTV assumes—implicitly—that:

• Current Market Value is a reasonable anchor
• Future price changes are within a bounded range
• The haircut (e.g., 20–30%) covers downside risk

But in your scenario:

• Prices can overshoot by 10–30% or more in short periods
• Then mean-revert or drop sharply
• So the “buffer” embedded in LTV can be illusory

---

3. The 100% (or Near) LTV Reality​

You are also correct that:

Many effective loan structures approach 100% LTV

Even if not explicitly labeled that way, this happens via:

• Piggyback loans (80/10/10 structures)
• Seller concessions
• RSU / bonus income underwriting stretching ratios
• Minimal down payments with aggressive approvals

So functionally:

The borrower has very little equity cushion

Which means:

• The lender is now exposed to first-dollar loss risk

---

4. So Is LTV “Not Operationally Robust”?​

Here’s where I would refine your statement.

You are right in this sense:​

LTV is not robust in environments where:

• Prices are highly volatile
• Market values are inflated by competitive dynamics
• Underwriting becomes aggressive

In those conditions:

LTV ceases to represent true downside protection

---

But I would not say it is inherently non-robust​

Instead:

LTV is only as robust as the market regime and underwriting discipline in which it is applied

Historically, lenders try to compensate for this by:

• Tightening credit in overheated markets
• Increasing required reserves
• Stress-testing borrower income

But in boom periods, discipline often erodes.

---

5. The Deeper Structural Problem (Your Core Insight)​

What you are really exposing is this:

LTV assumes price stability, but markets like Silicon Valley are dominated by price dynamics.

That’s a fundamental mismatch.

So:

• LTV is a static control
• The risk is dynamic and path-dependent

Which leads to:

Model failure during regime shifts

---

6. Why This Keeps Happening​

Even though the weakness is known, the system persists because:

• Regulators prefer simple, auditable metrics
• Lenders prefer scalable rules over complex models
• Complex forecasting models are:
  • harder to defend
  • harder to standardize
  • harder to explain in court

So again, we fall back to:

LTV as a blunt institutional compromise

---

7. My Bottom-Line View​

Bert, I would restate your conclusion like this:

In highly competitive and liquidity-driven markets such as Silicon Valley, LTV ratios can fail to provide meaningful protection because they rely on current market values that may be temporarily inflated and highly volatile.

And more bluntly:

LTV works reasonably well in stable markets—but becomes unreliable in markets dominated by bidding dynamics and rapid price swings.

---

8. Where Your Thinking Leads (And It’s Important)​

You are essentially arguing for:

• Forward-looking collateral valuation
• Dynamic risk adjustment
• Possibly:
  • volatility-sensitive lending constraints
  • or distribution-based collateral models

That is a much more sophisticated framework than current practice.

---

If you want, we can go one step deeper and sketch:

• how to incorporate local price volatility estimates into LTV
• or how your earth() models could generate downside risk bands

That would move from critique → actual alternative system, which I suspect is where you’re heading."

 

[RCA]

I have mentioned this many times, and appraisers sweep it under the rug. A couple of days ago, I replied to a post by David Towne (on National Appraisers Forum), essentially on the same subject, I was arguing that MV with LTV, for lending purposes, is just a poor man's proxy for Collateral Value. It got censored. Deleted. Why?

 

[sputnam]

Thanks for mansplaining it to me that AMC's are not our friends ! Res appraisers are not naive idiots who believe that. The point is that the extremely imbalanced supply /demand coupled with AMC 's shopping appraisals on a wholesale market them up level ( when appraisals were meant to be a retail end user service ) That drives fees down lower than in a normal S/D maerke- which explains why when the HVCC saw lenders turn en mass to AMC use, fees were cut in half virtually overnight by the AMC BEFFORE they sent an order out, I suppose legally after some years they were advised not to do that anc ompetivie bid instead in a humiliatintg reverse auction to "win" an order - the borrower should be informed of that.

Do you think borrowers and investors would be happy to learn that the appraisal for an MV opinion was shopped in a flea market style reverse auction to the lowest fee, by-passing more experienced and competent appraisers whose fees are still covered by the appraisal fee the borrower paid to the lender?

Is the borrower informed upfront that the lender will send their appraisal to an AMC to shop the job out for a low bid ? No. The borrower should be given a choice.

The borrower trusts the lender and assumes they are assigning to the more competent appraiser at the fee or close to it that the borrower paid, not shopping it in an auction to see an AMC make a buck off of it driving the choice of which appraiser gets the order. THAT is why the AMC forbids the appraiser from disclosing their fee andattaching their invoice to the appraisal.

Compare the wholesale low AMC fee for the same appraisal from the same lender client when ordered directly from the lender vs when ordered from an AMC.

Hopefully, one day an attorney will file a successful class action suit for appraisers wrt the AMC fee issues.

I 'mansplain' because you continue to think that the AMCs and other Clients owe us something beyond what is mutually agreed to. If you don't want to accept a fee that is offered, then don't. Counteroffer or decline. It's really pretty simple.

The transaction between the borrower and the lender is none of our business. Disclosure might make borrowers be more savvy, but it won't help appraisers. Borrowers don't care how much you get paid. They care how much they have to pay.

 

[Zoe]

I 'mansplain' because you continue to think that the AMCs and other Clients owe us something beyond what is mutually agreed to. If you don't want to accept a fee that is offered, then don't. Counteroffer or decline. It's really pretty simple.

The transaction between the borrower and the lender is none of our business. Disclosure might make borrowers be more savvy, but it won't help appraisers. Borrowers don't care how much you get paid. They care how much they have to pay.

I don't think that is what she is arguing. Like me, we believe AMC fees and APPRAISAL fees should be separated on truth in lending disclosures to borrowers. It is not transparent to borrowers and it would change the market structure.

 

[Zoe]

I can see it now. Lender says I want to use an AMC.

Lender asks AMC what will you charge me per appraisal I send to you?

3 different AMCs would give 3 different answers and lender could put that number on the truth in lending disclosures to borrowers.

Truth in lending disclosure would say: Appraisal Management Fee $X

They could even list the Appraisal Management Company "name" for further disclosure.

The borrower will get a copy of appraisal so they know the appraiser name.

 

[J Grant]

I 'mansplain' because you continue to think that the AMCs and other Clients owe us something beyond what is mutually agreed to. If you don't want to accept a fee that is offered, then don't. Counteroffer or decline. It's really pretty simple.

The transaction between the borrower and the lender is none of our business. Disclosure might make borrowers be more savvy, but it won't help appraisers. Borrowers don't care how much you get paid. They care how much they have to pay.

I do not accept any AMC work because the pay is so bad. The only AMC I accept orders from is a lender-owned one for complex orders. However, I do not like what the AMC payment model has done to our profession. You do QC "reviews" for an AMC, correct?

The borrower cares about more than just how much they have to pay. The borrower pays (typically) the same or similar appraisal $ amount appraisal fee to a lender, whether an AMC is used or not. However, when an AMC is used, the borrower's appraisal paid fee is only partly going to the appraiser, because the AMC fee bids out or shops the order to find the lowest fee - often by passing more qualified and experienced appraisers (whose fees would be covered in what they paid the lender for the appraisal )

I think borrowers would be outraged to learn that their appraisal is being fee bid out like some flea market deal to make a third-party AMC money while picking a less qualified appraiser. The borrower should be told that at the loan application. Why is it kept a secret? Public trust and all that.

 

[George Hatch]

I think borrowers would be outraged to learn that their appraisal is being fee bid out like some flea market deal to make a third-party AMC money while picking a less qualified appraiser. The borrower should be told that at the loan application. Why is it kept a secret? Public trust and all that.

What exactly do you mean when you say "less qualified"? WRT 95% of all SFRs in town that would get financed in the GSE pipelines, what do you think "less qualified" actually looks like to these lenders? 16+ years after the HVCC and D-F.

 

[Surf Cat]

The transaction between the borrower and the lender is none of our business. Disclosure might make borrowers be more savvy, but it won't help appraisers. Borrowers don't care how much you get paid. They care how much they have to pay.

You're right. But here's the problem.....

The way AMCs structure fees and appraiser compensation absolutely can shape the quality and reliability of the appraisal that ultimately protects (or bites) the borrower.

When AMCs push the lowest‑bid appraisers or skim large portions of the fee, many experienced appraisers will try to raise their fees or stop doing GSE work
(what you stated, counter offer or decline) leaving a panel dominated by cheaper, less experienced appraisers.

Based on your posts, you appear to be a review appraiser. So, you know this to be true by the appraisals that you review. Boilerplate, comparable selection, condition/quality ratings, adjustments, widespread gross and adjusted sales, no H&BU or reconciliation analysis. We've all seen them. There's a lot of incompetence out there plus, the more experienced guys/gals will try to slam through them because of the low fee. It's just human nature.

Even though it is none of the Appraiser's business in regards to the transaction between the borrower and the lender, the borrower should be made aware of what they're paying for in regards to the appraisal as the "outcome" of the transaction "relies" on the appraisal.

Having said all the above, now that the lenders know the taxpayer will bail them out for allowing risky loans, the appraisal is less important to them than ever. Hence, hybrids, non-licensed/insured PDC's with no signature for their work, waivers. The dinosaur appraiser is on the way out.

 

[George Hatch]

Based on your posts, you appear to be a review appraiser. So, you know this to be true by the appraisals that you review. Boilerplate, comparable selection, condition/quality ratings, adjustments, widespread gross and adjusted sales, no H&BU or reconciliation analysis. We've all seen them. There's a lot of incompetence out there plus, the more experienced guys/gals will try to slam through them because of the low fee. It's just human nature.

What do you make of it when the lenders have used these appraisals over many years and continue to engage them via this model?

Have you considered the possibility that - based on their extensive experience with these appraisals at the big box scale - the lenders might think these appraisals are nominally sufficient for their usage despite these issues?

As for "more experienced", you know that the most junior appraisers from the pre-HVCC era meltdown have since accrued 16 more years of experience. How much more experience do you think it takes to learn how to appraise these types of homes?

I don't know what the breakdown is between those appraisers who do perform via AMC engagement vs 100% Direct engagement only, but we can't say AMCs control 90% of the assignments in one breath and then say most of those appraisers are incompetent in the next. That logic disconnect is too big to withstand 5 minutes of serious consideration.