TheMReport — News and strategies for the evolving mortgage marketplace.
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Feature AMCs Not as Simple as Your ABCs AMCs have a complex relationship with the industry. They're designed to help, but according to some insiders they're doing more harm than good. By Bob Calandra I f anyone in the mortgage industry had any lingering doubts about the future of Title XIV: Mortgage Reform and Anti-Predatory Lending Act of the Dodd-Frank reform legislation, the 2012 presidential election should have erased them. Dodd-Frank is here to stay and has already remade the mortgage industry, forcing it to adjust and adapt to a multitude of new rules and regulations. One of its mandates positioned appraisal management companies (AMCs) as a buffer between lenders and appraisers. Adding AMCs to the mix ended the traditional lender/ appraiser relationship and cut into appraiser fees. "Appraisers aren't thrilled with AMCs by any means," said Mike Tedesco, CEO of North Carolina-based Appraisal Nation, with more than 4,000 appraisers nationwide. "They think the AMC is coming in and taking their money. Appraisers have a bad taste in their mouth when they see their fee is being cut." Even though Dodd-Frank requires appraisers to be paid "customary and reasonable fees," rates in many cases have been reduced, causing a divide between AMCs and their appraisers. Now AMCs like Appraisal Nation and California-based LRES are working hard to assuage those bad feelings and create a relationship based on mutual respect. "Having strong relationships with your appraiser vendors is very important for an AMC," said Roger Beane, CEO of LRES, a national commercial and residential financial services provider offering property valuations. "And that is what successful AMCs do. They create those strong relationships." Other AMCs, many operated by former appraisers, are also busy building relationships, but in a much different way. "Most of our clients are appraisers who didn't like what was happening," said Vlad Bien Aime, CEO and co-founder of Global DMS, a developer of Web-based appraisal process management software located in Lansdale, Pennsylvania. "They didn't like the traditional AMC model and are trying to do something better." Whatever the approach AMCs and appraisers still share common ground: To be successful, each must provide their customers with appraisals that comply with the law and are fast, accurate, and reliable. An AMC or appraiser who doesn't do that on a consistent basis will quickly become a former AMC or appraiser. As Dodd-Frank continues unwinding—another 2,400 pages are expected to be released in January—the industry almost assuredly will see more changes. So the time seems ripe for a little détente between the two sides. "From the time we picked up this call to this very second [the business] has evolved," Tedesco said. "It is constantly evolving. Everyone thinks this is an easy way to make a living. It's a very cut-throat business." Total Transformation I f the mortgage industry has gone through a makeover in the last four years (and it has), AMCs have been completely transformed. Historically, AMCs were designed for an entirely different purpose. "If we go back all the way to 1980, AMCs were initially started as a cost saving model," Tedesco said. "AMCs were designed to take employee production that would be spent managing appraisals and have it outsourced." But that changed in 2008 when the housing bubble burst. Seeking a way to end mortgage programs that contributed to the collapse of the market, Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency (FHFA) created the Home Valuation Code of Conduct (HVCC) for single-family residences. HVCC went into effect in May 2009 and employed a disinterested third party to act as a buffer between the two groups. That disinterested third party was the AMC. Overnight, AMCs became the clearinghouse for appraisal requests. On October 2010, HVCC was replaced by Section 1472 of Dodd-Frank. AMCs kept the same responsibilities of accepting and assigning appraisal requests. But now it was the law. In just a few years, AMCs went from a cost savings tool for lenders to the cop on the beat. Lenders, appraisers, and even AMCs were suddenly under a lot more scrutiny. "There is a lot of regulation that we've earned, a lot of compliance that we've earned, and oversight that we've earned," Beane said. "So it's adapting to the overall rules and regulations of the industry, and we're doing that." The Cost of Compliance U nder Dodd-Frank, every state is responsible for passing its own set of lender/ appraiser regulations. That means nationwide companies like LRES and Appraisal Nation must keep up with rules from each state The M Report | 21