Posted by Jonathan Miller -Sunday, February 21, 2010, 5:30 PM
Since appraisal management companies are now responsible for the super majority of appraisals being ordered through lenders for mortgage purposes due to HVCC and AMCs are not a regulate institutions, the consumer is exposed more than ever to the potential for low quality appraisals, continuing to undermine the public trust in the appraisal profession. I suspect trend this has the potential to push errors and omissions insurance rates higher and provide more exposure to the mortgage lending system.
I firmly believe that 5-7 years from now we will be looking back to today’s AMC trend and will be saying: “if we only did something about it.”
Admittedly I know very little about surety bonds and this is no sales pitch or a solution to the AMC problem. I am more interested in understanding ways to protect the consumer against negligence and instill confidence in the appraisal process. To require AMCs to pay for surety bonds in order to operate in a state sounds like it provides an easier way for consumers to go after AMCs for negligence. Feedback or suggestions welcome.
According to Wikipedia, a surety bond is a contract among at least three parties:
- The obligee – the party who is the recipient of an obligation,
- The principal – the primary party who will be performing the contractual obligation,
- The surety – who assures the obligee that the principal can perform the task
I was contacted by Jay Buerck of SuretyBonds.com who wrote provided the following post on surety bonds and appraisal management companies. He indicated that 6 states brought about new AMC legislation last year and it is expected to grow in the coming years. His article is simply trying to make everyone aware of this fact.
States nationwide are introducing tougher oversight and regulation of appraisal management companies. The push is part of a growing effort to bring more consumer protection and transparency to the home-purchasing process.
In all, six states: Arkansas, California, Nevada, Louisiana, Utah and New Mexico Ã³ ushered in new AMC legislation in 2009. Industry officials expect another 15 to 20 states to consider adopting similar measures this year.
Appraisal management companies are becoming increasingly important because of sweeping changes to regulations for home valuations nationwide. The stricter regulations are geared toward boosting consumer safety and stabilizing the housing market.
“There is a significant belief out there that mortgage fraud played a significant role in the meltdown in the housing market, and any unregulated entity that is out there presents the possibility for mortgage fraud to creep back into the system,” Scott DiBiasio, manager of state and industry affairs for the Washington, D.C.-based Appraisal Institute, a global association of real estate appraisers, told Insurance Journal this winter. “I think legislators recognized that this was a gaping loophole that needed to be corrected.”
Taking consumer protection a step further, Arkansas became the first state to add a surety bond requirement to its appraisal management statutes. The new legislation requires that AMCs post a $20,000 surety bond with the stateÃs real estate appraiser board.
Surety bonds are essentially three-party agreements that ensure businesses or people follow all applicable laws and contracts. A surety bond also provides consumers and tax payers who are harmed by the business with an avenue of financial recourse.
Most of the new AMC legislation requires companies to make sure their appraisals are in line with the Uniform Standards of Professional Appraisal Practice. TheyÃre also responsible for ensuring they use certified and licensed appraisers only.
There are also some financial disclosure and transparency requirements in some states.
“We need to have and the public deserves to know who owns, operates and manages these appraisal management companies,” DiBiasio said. “I think the $20,000 surety bond is really there to provide some minimal protection to consumers.”