More AMC and PDC Bull

[DWiley]

Why not address the root problem, which is that the lender should pay a hard cost for the AMC service and the check the borrower paid for the apprasial goes to the appariser.

I do not agree with you on the root of the problem.

One core challenge is the rules around lender disclosures of appraisal fees to the borrower. That drives much of the behavior of lenders, and that drives the AMCs. It is those disclosure rules that basically prevent the cost plus model (which most AMCs would greatly prefer as well).

The other core challenge is the 40% reduction in the number of loans being originated. Some who study and apply the effects of supply/demand in real estate every day seem to think that they are (or should be) exempt from the basic rules of supply and demand, even when data shows otherwise.

 

[J Grant]

I do not agree with you on the root of the problem.

One core challenge is the rules around lender disclosures of appraisal fees to the borrower. That drives much of the behavior of lenders, and that drives the AMCs. It is those disclosure rules that basically prevent the cost plus model (which most AMCs would greatly prefer as well).

The other core challenge is the 40% reduction in the number of loans being originated. Some who study and apply the effects of supply/demand in real estate every day seem to think that they are (or should be) exempt from the basic rules of supply and demand, even when data shows otherwise.

The core of the problem is the split fee allows the AMC to charge large amounts of $ for their service that they could not command in the free market. Why not abolish the AMC fee compensation from an appraisal fee split?

Though I support disclosure, the fee is still split in a disclosure, and the cost would still be less, $ reachign the appraiser. Why are you so adamant that the fee split system continue, instead of the deep-pocket lenders paying a hard cost for the AMC service that is not a split of the appraisal fee?

I know why, and so do you - the truth is that the AMC can not survive in a free market without the fee split covering their compensation. Do you really think a lender would pay $200 to an AMC to process an appraisal order if the lender had to pay it as a hard cost? The AMC's would be lucky to get $75 from lenders. Though if a lender could pass it on to a borrower, maybe they would get a bit more.

40% fewer loans originated- more reason why the AMC fee split needs to go. With fewer loans originated, the appraisers need every dollar from the reduced volume. Is it 40% fewer loans originated, or 40% fewer appraisals ordered due to waivers/value acceptance or other alternatives?

Supply demand - that is the problem, with AMC's - the demand is highly narrowed down - even if 300 AMC's are registered in the state of Florida, with perhaps 50 reasonably active - but even if all 300 are active, 300 companies ordering is very narrow compared to thousands of appraisers. Due to prohibiotns on who can order an appraisal unique to regulated loans, the supply/demand is badly skweed in favor of the AMC - and the lender - the difference is that lenders can not fee split with themselves, thus when they engage appraisres direct they pay retial C and R that the borrower covered - but when they use an AMC, the AMC now treats the apprasial as a wholesale product to fee split off of to get compensated. The appraiser gets $550 direct from a lender and $350 from an AMC for the exact same order with the same lender when they use an AMC. I know that personally because I have experienced it ( as have others )

So no matter how many loans are originated, the appraiser makes far less with the fee split system.

 

[Non Sequitur]

I do not agree with you on the root of the problem.

One core challenge is the rules around lender disclosures of appraisal fees to the borrower. That drives much of the behavior of lenders, and that drives the AMCs. It is those disclosure rules that basically prevent the cost plus model (which most AMCs would greatly prefer as well).

The other core challenge is the 40% reduction in the number of loans being originated. Some who study and apply the effects of supply/demand in real estate every day seem to think that they are (or should be) exempt from the basic rules of supply and demand, even when data shows otherwise.

At the end of the day, if the borrower can’t shop an appraisal fee neither should the AMC. The appraisal fee quoted should be the appraisal fee paid out to the appraiser. Let AMC‘s earn their living off of a separate fee and disclose that fee.

 

[DWiley]

Is it 40% fewer loans originated, or 40% fewer appraisals ordered due to waivers/value acceptance or other alternatives?

40% fewer loans. See CFPB data I posted earlier. The best months (volume wise) over the past three years is worse than the worst months in the decade before COVID.

See figure 1A

Origination Activity | Consumer Financial Protection Bureau

Origination Activity

www.consumerfinance.gov

 

[DWiley]

At the end of the day, if the borrower can’t shop an appraisal fee neither should the AMC. The appraisal fee quoted should be the appraisal fee paid out to the appraiser. Let AMC‘s earn their living off of a separate fee and disclose that fee.

The AMCs do separate and disclose the fees; they report that to the lender. When I was in AMCland we worked with hundreds of lenders, and they all required that breakdown. The lenders are fully aware.

The disclosure to the borrower is prepared by the lender, not the AMC.

 

[J Grant]

At the end of the day, if the borrower can’t shop an appraisal fee neither should the AMC. The appraisal fee quoted should be the appraisal fee paid out to the appraiser. Let AMC‘s earn their living off of a separate fee and disclose that fee.

Exactly.
Let the AMC's sink or swim in the free market the way every other business has to. If it is worth it to lenders to pay an AMC a fee per order or a yearly retainer as a cost to an AMC, go for it.

However, for good reason, the AMC's are terrified that the lenders would use their services if they were not covered by the appraisal fee split, or would only do it at a very cheap rate like $50 a pop. Even if the lender could pass the cost on to the borrower, they prefer the present system where they don't; have to do that

The appraisal fee, even when not paid in full for regular orders, averages $500-$600. Combined with lower volumes overall and the uncertainty of steady volume, the appraisal fee is too meager to allow appraisers a livable income with AMC fee splitting in place, leaving the appraiser with perhaps $300.. This is why very few are entering the field despite PAREA and lowering the education barrier, which is a shame.

 

[J Grant]

The AMCs do separate and disclose the fees; they report that to the lender. When I was in AMCland we worked with hundreds of lenders, and they all required that breakdown. The lenders are fully aware.

The disclosure to the borrower is prepared by the lender, not the AMC.

Eliminate the fee split. You keep avoiding that solution- fee disclosure does not solve the problem of far too little $ reaching the appraiser in the fee split system.

Only a small number of states require fee disclosure in the breakdown on the appraisal, and by then, it is too late. The disclosure also fails to explain to the borrower HOW the fee split affects selection via flea market-type fee bids.

If the AMC discloses the breakdown to the lenders, it sure is not benefiting the appraiser. Let the lender pay a cost for the AMC service the same way a lender pays a cost for IT support, accounting, etc.

Let the free market system work with the AMC's if their compensation no longer comes from a split of the appraisal fee. The free market would determine if the lenders would pay a cost for it. We know the answer to that, which is why the appraisers aligned with their interests defend the fee-split system tooth and nail.

It is likely that the lender could pass on a reasonable AMC separate cost to the borrower, but are reluctant to do so.

 

[DWiley]

Eliminate the fee split. You keep avoiding that solution- fee disclosure does not solve the problem of far too little $ reaching the appraiser in the fee split system.

Only a small number of states require fee disclosure in the breakdown on the appraisal. If the AMC discloses it to the lenders, it sure is not benefiting the appraiser. If the lenders are fully aware, they are complicit in starving out the appraisal profession. Let the lender pay a cost for the AMC service the same way a lender pays a cost for IT support, accounting, etc.

Let the free market system work with the AMC and see if the lenders would pay for it. LOL. We know the answer to that, which is why the appraisers affiliated with their interests defend the fee split system tooth and nail.

It is likely that the lender could pass on a reasonable AMC separate cost to the borrower, but are reluctant to do so.

It does not matter what system is used to deliver payment to the appraiser, if appraisers keep accepting/charging "lower fees" then lower fees will persist. That is how markets work.

And, professionals are not exempt. There is a dentist in town who lost me as a patient over her fees.

 

[chad hampton]

It doesn’t make sense to apply free market principles when you are living in a manipulated market. There’s nothing about the AMC lender appraiser combo that’s a free market.

I’d rather government not be involved, but they sure did involve themselves when they created DF which brought massive AMC‘s into existence. Where now a handful that control the market. I don’t think we can argue free markets are in play after that monstrous piece of legislation.

 

[djd09]

It doesn’t make sense to apply free market principles when you are living in a manipulated market. There’s nothing about the AMC lender appraiser combo that’s a free market.

I’d rather government not be involved, but they sure did involve themselves when they created DF which brought massive AMC‘s into existence. Where now a handful that control the market. I don’t think we can argue free markets are in play after that monstrous piece of legislation.