Posted by Jonathan J. Miller -Tuesday, June 28, 2011, 12:01 AM
actual AMC (car) factory
AMC Factory For a year and a half, our firm tangled with the bureaucracy of Landsafe, the poster child for the appraisal management company (AMC) industry. While not all AMC’s are bad, their relationship to the mortgage process is fundamentally flawed. The estimation of market value of mortgage collateral to enable lenders to make informed decisions has been commoditized to the point where most mortgage appraisals are generally not worth the paper they are written on. This series is from an appraiser’s perspective, about a profession left to die by the side of the road.
The Good Appraiser AMC Bait And Switch Technique
I believe that there are generally 1-3 good appraisal firms in most markets. A “best and all the rest” list. (Blowhard hyperbole warning: I consider our firm to be one of the “good” firms in our market.)
The proliferation of AMCs used by lenders has exploded since HVCC came to be in May 2009.
AMC’s continue to fight their poor reputation for quality – they generally only require state licensing, inconsistent reviews of sample reports, agreement to fees that are half market rate, 24-48 hour turn times
irregardless regardless of valuation difficulties, etc. In order to combat this AMCs use the following marketing technique:
- Call an appraiser who has a “good” reputation and invite them to be on your panel (approved list)
- Promise them they will be paid their regular fees, not 50% as is common; promise to ease up on typical 24 hour turn time requirements and be more realistic about how long the assignment will take to be done correctly.
- The “good” appraiser decides to join the panel and their name appears on the list to be touted to lenders who are being marketed by the AMC and are familiar with “good” local appraisers on the list.
- The AMC never uses the “good appraiser” for actual appraisals (or perhaps use them one time to say they did).
And voila, your AMC now has a more effective marketing technique to solidify quality concerns with potential lender clients.
My firm and those of my colleagues get calls or emails like nearly every week so we make sure not to be added to any list whenever possible to be used as marketing “bait.” I’ve had many AMCs say they really “need” me on their list.
Clueless, politicized, ineffective, non-existent, risk management
Upper bank management executives whose institution uses AMCs can’t do the simple math. Pay someone half the market rate from outside the area and the accuracy of the collateral being valued is no longer reliable. The reason for their disconnect? Bank turnover is high and problems generally don’t appear for several years down the road. The executive has no “skin in the game” to be incentivized to have higher standards.
One other point – bank underwriting is so tight now that meaningless clerical drivel is defining the mortgage application process. Can you imagine if the same zeal was applied to the valuation process of the collateral used for the mortgage?
NEXT on the AMC Factory: An errant email prompts appraisers to say what they really think.