New Bill Would Ban All Settlement Cost "Markups"

[Dee Dee]

C'mon, Joe.
Like I said, the appraisal fee is a small portion of the total loan package, so extra padding is easily hidden in that fee. A borrower is unlikely to jump ship if the other terms of the loan suit his or her needs, and the lenders take advantage of it.
If every lender added $50 onto the the actual appraisal fee it might not seem like a big deal, but when you calculate the number of loans that close every year one realizes that tens of millions of consumer dollars are now padding the lenders pockets. When you add on other padded fees it probably translates into hundreds of millions.
I'm much rather see those fees appropriately put into the appraisers hands, but if that's too much to hope for then at least give it back to the consumer to freely put back into the economy as they see fit.
Everyone is entitled to make a fair profit on their labor, but falsely representing services performed when such staggering cumulative amounts are involved is wrong.

 

[Caterina Platt]

>>What is the difference between the owner of a fee shop taking a split of the fee, versus a management company? <<

Quite a bit. A fee shop generally will provide a workplace, computer, and many other of the necessities in return for a portion of the split. They provide much more than a client referral for the split taken. Basically your comparasion implies your client referral is worth 40-50% of the fee. No one is asking for an accounting of all the expenses of running anyone's business. Merely stating that quality work will not be obtained for bargain basement fees. Can you buy Pepsi at Walmart if the convenience store is too high? Of course because you know the product is the same everywhere. Not so with appraisals.

>>National lenders demand high quality and service, and for all the bashing that goes on about AMC’s, I’ll stack our product up against any other ordered direct from the same number of appraisers in terms of service, quality, ethics, and price. I see the work completed outside of a management structure and frankly it’s very poor.<<

Quite a generalization that all appraisals outside of the AMC structure are poor. Do you think the small brokers who then sell their loans to large investors can work with poor quality appraisals? Not so. If you can get a high quality URAR for 1/2 the normal fee, more power to you. Would you like to negotiate on my behalf on my next vehicle purchase perhaps? For a fee, of course. 8) 8)

>>My perspective is that appraisers cannot focus on fees and fees alone and expect any positive changes. Laws like this one will simply make the job harder and more expensive to do, and who is going to pay the price for it? <<

We are not focusing on fees and fees alone. Please read many other posts here regarding education, regulation, 'hit the numbers' guys, etc. But I would like to ask, how would this legislation make my job harder and more expensive to do? Do you mean make the lender's job harder and more expensive to do? Somehow the lender has found a way to keep their profits level or increasing and pay firms like yours for your services. How was that accomplished? By cutting the fee to the appraiser, surveyor, title company........we've absorbed another layer of profiteers into the picture. Granted, no one will argue that your service is valuable to a lender when he is in Massachusetts and the property is in Wisconsin or elsewhere with virtually no contacts in that market. Your service is also of value to an appraiser who does not have to market at every corner of the globe to recieve this appraisal order. But honestly, not 40-50% of the fee. A reasonable discount in fee, fine, but half?

>>In regards to the “mining” of reports for AVM’s, is this even happening anywhere? Tax information is available for free (see http://pubweb.acns.nwu.edu/~cap440/assess.html) and in many counties includes the entire data set, not the random information that would come back with a sampling of appraisals. And the amount of available data grows each year. In my county not only is complete property information available (subject GLA, age, room count, sales history, etc.) photos of every home are online. For free.<<

Verification of that data would be necessary. We've had this discussion here many times. County information is notorious for being inaccurate in GLA, room count, etc. Not all states and counties provide this information. Some states are non-disclosure where the sales prices and GLA and such are not made public or even proprietary unless a Realtor is used, who then uses MLS. And yes, data mining does appear to be happening. One large lender here who uses strictly thier AMC appraisers and requires a particular type of software to be used has begun using an AVM for it's first and second mortgage products. This is a non disclosure state. No county data available would even begin to power an AVM.

 

[Non Sequitur]

The borrower always has the option to go to a different lender.

The problem with that is the borrower/buyer doesn't know until closing that he/she is getting kicked in the head. Sure the borrower/buyer can get up and leave, but at what expense?

Now don't get me wrong, I have no problem with the title company or anyone else making money. What I do have a problem with is the padding of fee's at closing. If the title company needs to make $1,000.00 at every closing then charge it. Don't put on the HUD statement that the closing fee is $600.00 then smoke the numbers on everything else i.e.;

Fed-ex $38.00 (actual cost $13.00)
Tax certificate $165.00 (actual cost $65.00)
Title search $450.00 (actual cost $300.00)
etc.. etc..

These are just examples but I'm sure you get the picture. And banks/lenders do the same thing with appraisals, credit reports, ect.

The proposed legislation only targets "unearned fee's". The unearned fee's are typicaly surcharges that are charged to the consumer with no disclosure and with no service provided. Its just padding for no other reason than to (in an undisclosed way) increase profits. Its usually the lender and/or closing company thats guilty of this. Basicaly you can charge as much as you want just disclose it and don't piggy back on services you didn't provide.

I don't see how this can affect AMC's. If the bank pays an AMC $400.00 for the appraisal and the HUD statement shows $500.00, thats the bank putting one over on the borrower. And as far as what the AMC pays the appraiser, thats between the AMC and the appraiser. Deny it all day long but AMC's do provide a service and are entitled to a mark up.

 

[George Hatch]

Joe,

Thank you for the rundown on your company, which by the way, enjoys a pretty good repuation on this forum. From your description it does not appear to be a thinly disguised review department of a bank.

I'm not entirely sure, but it looks like you were referring to TRW when relating the history of AMCs. If so, I would have to disagree. TRW was not an AMC. They actually had full-time employees who went out and did appraisals. They provided salary, benefits, E&O, workspace, data, equipment, education, direct supervision, and everything else their employees required to do business. TRW/Redi was a full-on fee shop. They expanded by buying other fee shops in strategic locations. Whatever split of the appraisal fees they retained were reasonably well earned when compared to lending institutions appraisal staffs and other salary-based appraisal entities. If there was a problem with an appraisal, the clients were not referred back to an independent contractor. If Nationwide is doing all of these things, then they are also earning their split of the fees as a legitimate fee shop. If not........

My company offers a single point customer service, on site representatives, spreadsheet reporting, 100% EDI delivery, quality review, 24/7 online reporting, and these are only a few of the services that tie into each order. These have no value?

Of course these services have costs as well as value. The question is how much in costs, and how much in value. Of all the services you mention above, appraisers can already provide every single one of them to their clients with currently available technology, except for the single point contact. And the technology itself is cheap for the appraiser. The only reason its expensive for you guys (if it even is) is because a custom system for a single use requires dedicated programmers and operators. Going the other way, an appraiser, using off-the-shelf software, can solicit bids and accept assignments, transmit or post progress status, communicate and transmit reports online; and for cheap. So cheap its almost free.

As for USPAP and guideline compliance, we already do that. Management of your appraisers and running a spreadsheet is almost completely automated, or it should be. So your company should not be some huge entity requiring acres of office space, dozens of mainframes, and hordes of on-site staff. The size of your operation is probably quite small in relation to the revenues you're earning.

So then there's the single point of contact and the marketing aspect of your business. Fair enough, that deserves compensation and rightfully so. The question is how much? How much to go out and get the business? You aren't dealing with thousands of clients, and if it is in the hundreds of clients, its the low hundreds. For all I know, you may only be dealing with dozens. That's not a lot of contacts, so your company probably doesn't have that many marketing people. If I had a marketing guy, how much would I pay him? 10% of my fee? 15%? Maybe. Over the course of thousands of transactions, your company would still be doing quite well and you would have no trouble getting appraisers of all stripes on board. But when it comes to 35% or 45% of the fee, there's no chance most appraisers are going to be enthused about being on the leash.

I guess my point is that if AMCs or other service bundlers were working for a reasonable split, this legislation would have never come up. The proposed legislation would prohibit you from charging more for our product than it costs you to acquire it. Within the regulatory climate that consumer credit has always labored under, what's wrong with that? Your costs include the costs to actually administer your system, which would presumably include a reasonable profit. Why do you need to make more than that? What's wrong with disclosing that the appraiser's involce covers the appraisal and the AMC's invoice covers the AMC's specific services? If your services truly have the value that you portray, the consumer will have no trouble paying them, just as they pay for every other service they receive.


George Hatch

 

[Pamela Crowley (Florida)]

AMCs market their service to lenders and the lenders are the ones that benefit.

AMCs, when soliciting Appraisers, talk about the 'volume' increase that is supposed to make up for the low fee.

Somebody please explain to me why the Appraiser should pay for this 'service'? Where is the logic for the Appraiser?

More volume = more money???? Sure it does.

More volume = more work time???? Absolutely.

More volume at lower fees = more work time for the same amount of money???? There is no real question here that it brings the per hour pay down.

More volume + time pressure = more working hours + less time for quality????? Yep!

Just where is the common sense in this for Appraisers????? I DON'T KNOW!!!

Why are the Appraisers paying for the AMCs service to the lender????? Because there are too many appraisers out there that are not thinking logically. Or, they are running sweat shops with trainees that don't actually know anything about appraising but they do have a group of trainees working for next to nothing while they rake in the profits.

Joe, I know you run one of the better AMCs and do try to do it well. I would be willing to place a wager that if someone followed your appraisal orders from start to finish you would find that they are rarely completed by the appraiser that signed it. You would probably be surprised by the number of those appraisals that were completed by someone who not only isn't Certified or Licensed but, has no appraisers license at all and have never taken an appraisal course. Trainees or the local MickyD graduates are the ones doing appraisals in those shops.

You get what you pay for.

Let's see.... Do I want 40 hours/week for $1,500+/- or 60 hours/week for $1,500+/-????? What kind of choice is that????

Sorry. I have a real problem with this and cannot understand any self-respecting Appraiser doing this outside of a stepping stone to better clients.

 

[Paulette in Texas]

Is there a place for nationals to mark up our fees over what we are receiving? You betcha. The key is that they are offering a service for something over and above our service: ordering, co-ordinating, reviewing our work, feed back, etc. After all, if we agree to work for the nationals, where do we get off telling them not to cover their costs and they do have them. Will we work for all??? #$@$^ NO. But we will work for those that offer fair fees that allow us to move on. It's the money, honey. Where it does get sticky is when brokers try to turn our fees into a profit center for them. They don't do anything but place the order with us and then mark it up $50-$125 over that. Fortunately for us, we have #$%@canned those guys and work for straight lenders, non-mark-up brokers/dealers/banks or mortgage companies. Remember: if you agree to work for that client regardless of the fee, then ship a quality product and just keep on trucking. You don't like the fee, then don't accept the assignment. Works for me and mine. Paulette in Tx
go w...
Rotts rule and Shih tzu is fine too.

 

[BarbaraNJ]

Find myself (yet Again) agreeing with Pamela/Florida.

It has been my observation that AMC's do not mark up the appraisal fee when billing the lender. The AMC sells convenience for the Same money.
Would a lender use an AMC if they were paying $100. more for every appraisal, $50 more for every flood search, etc?

To remain competetive in the market most lenders charge about the same for closing/settlement costs (except for the high risk lenders). So if they pay a local appraiser $250 for a residential appraisal, they aren't going to give an AMC $350. because they can't pass it on to their applicant and expect to get a good market share.

Pam is correct---the AMC makes its money on the backs of the people it subs out to. That's one of the reasons why everyone on this forum has a bad attitude regarding AMC's.

I have heard exactly what Pam has: We pay a lower fee, but make it up in volume. I got so tired of hearing this that I finally felt compelled to explain it to one of the (AMC) callers. I asked her to "do the Math".

If I get $150 for a single from the AMC and $250 from a lender for the same job, I have to do TEN jobs for the AMC to make the SAME as doing SIX for the lender. Six (per week) is a part-time job and Ten is more like full-time. So they are asking me to work "full time" for NO MORE money.

If Starbucks, or WalMart or Sears or Microsoft or General Electric or the Board of Ed or DPW asked you to do that, there would likely not be enough profanities in your vocabulary to adequately tell them "NO".

The MarkUp laws everyone speaks of is to protect the applicant, who is commonly not aware (even in the land of full disclosure) of all of the application and closing costs heaped on them until the dust settles and the loan closes. Sometimes not even then, if they have wrapped up all the costs into the loan.

Note that the objections to any changes are NOT comming from the appraisers.

I have a suggestion.

There should be a law that if a lender has an office or branch in the state where the loan is being made, they cannot use an AMC as they have access to appraisers and other services right in their own state. If a New York lender, due to Internet advertising, makes a loan in Florida and does not have a branch or office in Florida, go ahead and use a "service"(AMC)

Then, the AMC will REALLY be providing a service, not just trying to cut out local appraisers from local business.

Keep up the common sense, Pamela!!!

 

[Robert]

When I started appraising in 1987 clients were much more fee sensitive than they are now. These days they want speed and resposiveness and will pay to get it. The lender will not see any significant backlash to $50 difference as the borrower ultimately pays for it. The AMC's gain ground because they try to, and often succeed, in policing the service habits of the appraisers. Too many fee appraisers fail to discipline themselves. Many lenders I work for are more concerned about calling the borrower right away to book the appointment than they are about what it costs. They want to feel comfortable that things are moving along and they get tired of calling to find out if that's the case. The AMC's capitalize on this service aspect by providing the lenders with this information BEFORE they call for it. Many independents are not up to speed on this topic. I know first hand that very few people provide proactive statusing. When I provide this service I get some great lender feedback and more orders - I also get comments that "nobody else does this". Why not? I make one call to a lender to tell them the appointment is set and they will have the report in a few days. I meet the deadline as promised and the lender is happy and I avoid endless faxes and phone calls for updates. The only thing I can't do that the AMC can is cover the whole country.

 

[JM2187]

"There should be a law that if a lender has an office or branch in the state where the loan is being made, they cannot use an AMC as they have access to appraisers and other services right in their own state. If a New York lender, due to Internet advertising, makes a loan in Florida and does not have a branch or office in Florida, go ahead and use "service"(AMC) "

AMC's do a lot more than simply provide "access" to appraisers. I think that misconception is probably at the heart of the concerns that prompted the appraisal side to this proposed legislation.

Joe

 

[Roger]

George,

TRW purchased an existing Appraisal/Title company called Record Data. It was started in Cleveland, OH, and had both company owned and franchised offices in a number of large cities.

Individual offices would invoice the lender, but the main office would do all billing and collections, for a portion of the billing. It actually seemed to work quite well, untill TRW brought in their high powered managers and experts, attempted to centralize everything, they were control freaks, and, at least from my point of view, destroyed the operation.

It went trrough a couple of other reincarnations before First Americian bought the remaining company.

It seems to me that the AMC's owe much of their success to the fact that we have not been able to police our own ranks. Large lenders, with local branches, are afraid that their local management will influence their chosen appraisers to provide bogus reports. The upper management feels that they have more control when going through a third party, an AMC.

When the big lenders, Citicorp comes to mind, realized how much profit there was in an AMC, they started their own in house AMC's.