TheMReport — News and strategies for the evolving mortgage marketplace.
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Th e M Rep o RT | 17 Feature W e use the word "era" to separate different time periods in our lives. An era is marked by distinctive characters, events, and changes. In colloquial language, an era denotes longer spans of time, before and after which the practices or fashions change to a significant degree. Appraisal management com- panies (AMCs) have been a part of the mortgage lending industry for a long time, and their busi- ness model and services have changed radically since their inception. AMCs have adapted their service models to meet changing market demands; these adjustments can be grouped into "eras" that summarize systemic changes in valuation manage- ment. I define these as "The Place and Chase Era," "The Independence Era," and now "The Oversight Era." "The Place and Chase Era" T he first generation of ap- praisal management was the "Place and Chase" era. In the beginning, AMCs supplied a very small portion of the appraisal management space. AMCs began as a bundling of services. Large title companies, already providing title, credit, and other closing services, sought to add appraisal to the package. These title companies found a niche in the market- place that was particularly attractive to national lenders. Managing the appraisal selec- tion process was unwieldy over large geographic areas. AMCs were the solution to finding an appraiser and making sure they completed the assignment in a timely manner. During this time, the em- phasis was on order placement and fulfillment. Lenders by and large still conducted the bulk of their review and quality control internally. AMCs would provide some basic quality control cen- tered on the completeness of the report. Reports were verified for the necessary photos, whether certain boxes were checked, and if the appraiser filled out all of the sections fully. In the begin- ning, basic management was outsourced; however, lenders performed the majority of the quality control process. "The Independence Era" I n May 2009 the "Independence Era" was thrust upon the industry by the Home Valuation Code of Conduct (HVCC). This private agreement between the New York Attorney General's Office and the two largest GSEs, Fannie Mae and Freddie Mac, was a real game changer. The result of a lawsuit, this agreement required Fannie and Freddie to institute new policies regarding appraisal independence. No longer were any parties whose compen- sation was dependent upon the closing of the loan to be involved in the selection of the appraiser. Many lenders that had originally managed appraisers in-house or had always left the ordering of appraisals to mortgage brokers made a decision to outsource the process. National lenders may have already been doing this, but regional and local lenders, saddled with the new requirements, de- cided AMCs were the way to go. Suddenly, there was great demand for outsourcing of the appraisal management process. In response, AMCs popped up like mushrooms—and some of them were poisonous. Many of these new entrants lacked the necessary capitalization, knowl- edge, and resources to meet the task. Some were formed by regional appraisal firms reacting to the sudden migration of business. These AMCs possessed the valu- ation competency but may have been short of capitalization and resources. Others were instituted by individuals who had no his- tory and valuation at all, seek- ing to capitalize on the market demand for appraiser indepen- dence. This proliferation caused a whirlwind of controversy as real estate agents, appraisers, mortgage brokers, and local lenders began to complain about the appraisal management process. After the dross burned off, competent AMCs focused on providing appraisal management services promoting appraiser independence as well as timely order placement and fulfillment. The majority of appraisal volume moved away from direct place- ment to the AMC sector. The lion's share of appraisal orders were now placed through AMCs, and lenders began to escalate their service level agreements to include more and more quality control as well as other management services. The "Independence Era" resulted in unprecedented growth in the number of AMCs but also