The last point Ostrowksi makes may be the most ironic in this post HVCC world: that because of the consolidation among lenders/AMCs, appraisal orders flow from far fewer sources, making it harder and more costly for an appraiser to “fire” an AMC (and exercise their independence) for what they deem to be inappropriate requests. The “restraint of trade” issue and its consequences is one not found in a quick skimming of the GAO report. There are numerous stories appraisers tell of refusing to make a change they believed would result in a less accurate report and then not getting paid and not getting future orders. Appraisers say, in some ways, they have less independence than ever. Others we have interviewed and featured in stories say they never feel pressure from AMCs to hit numbers or alter reports (see survey results below).

We know that while fees have been cut in half, appraisals have grown more complex and involved- “scope creep.”  We know that another serious issue is what appraisers describe as a relentless stream of requests for changes and additional information coming from AMC reviewers. Some see this as a failure by AMCs to provide the “gatekeeper” function that they are being paid for. AMCs, some say, simply forward lender requests to appraisers without reviewing their legitimacy. A common complaint by appraisers is receiving requests for information that is already in the report. Many appraisers attribute this to incompetence and negligence on the part of ill-trained AMC staff.  AMCs say good appraisals don’t have problems and that there are just too few properly trained appraisers capable of providing consistently good reports.

We know that some appraisers earn higher fees when they dig in and refuse to work for less, while others say refusing an AMC’s low-bid fees means never having to cash a check. Many believe that fees will rise only when appraisers band together and refuse to work for less than market rates. Others say no one is forcing anyone to work for less than a fair wage.  

We know this unfortunate irony: HVCC, created and imposed in supposed support of appraisal independence and consumer protection, has had the opposite effect, according to appraisers, which continues even after the Code has been terminated: appraisers have less independence and control of their businesses, pressure and undue influence remains, consumers are paying more for appraisals (while appraisers make less) and appraisal quality has declined (see survey results below).

Many Fixes, One Problem

These are the fixes we hear most often: a customary and reasonable fee threshold, like Congress intended, similar to the VA Fee Panel, except with a minimum threshold that leaves room for variable pricing based on the complexity of an assignment and/or the greater expertise and experience of an appraiser. Most every appraiser knows what “customary and reasonable” fees are in their market. The OREP/Working RE Customary and Reasonable Fee Survey surpassed 15,000 recently- ironically, right around Independence Day (July 4).  As of this writing, the number is closer to 16,000- a strong response and valid sampling by any measure (Click to find results). Many appraisers ask why we need surveys at all: aren’t customary and reasonable fees what consumers pay for appraisals today?
 

A “cost plus” model is another solution, where lenders pay AMCs for their services (rather than appraisers “paying” for the services lenders enjoy), as is greater transparency, clarity and honesty for consumers by separating fees paid to appraisers and AMCs. You may be among those who believe that a boycott is the only tactic that will work. No matter which of the many solutions you favor or which you debunk, it’s disingenuous to say that nothing is wrong: appraiser fees began declining virtually overnight after the imposition of HVCC and the rise of AMCs. One does not have to be an economist to know that this is not the free market at work.

Appraisers: 68% Satisfied
There has been a lot said recently about appraisers intending to leave the profession. Indeed the HVCC Talkback Survey – which has taken the industry’s temperature since April 2010 and continues through the present (Closed), finds 46 percent of appraisers answering “Yes,” they are “making plans to leave the profession.”  But here is a surprise: 68 percent of survey takers say they are “generally satisfied with appraising.”

GAO Report Released

Many of the points addressed in this story were heard by the GAO and acknowledged (rather matter-of-factly) in its recently released report, including lower appraisal quality, continuing pressure, low-bid ordering, etc. The bottom line recommendation of the study seems to be for Federal Regulators to develop minimum standards for the state registration of AMCs, reinforcing this as the new battlefield. Here is the Recommendation for Executive Action from the Report: To help ensure more consistent and effective oversight of the appraisal industry, we recommend that the heads of FDIC, the Federal Reserve, FHFA, NCUA, OCC, and the Bureau of Consumer Financial Protection—as part of their joint rulemaking required under the Act—consider including the following areas when developing minimum standards for state registration of AMCs: criteria for selecting appraisers for appraisal orders, review of completed appraisals, and qualifications for appraisal reviewers.

According to California appraiser Andy Anderson, the study should be of concern to every real estate professional. “It seems that the GAO believes the findings in this study to be reliable and credible as long as the GSEs, major banks and major AMCs participate.  How many individual ‘in the field’ loan officers, appraisers, underwriters and consumers were actually interviewed and participated in the study?  NONE were mentioned by name in the report. How many professionals realize the negative impact that the new mandatory form filling and delivery requirements (Uniform Mortgage Data Program – UMDP and the Uniform Appraisal Dataset - UAD) for loan packages and appraisals will have on small businesses and the American public?  Soon after this system is in place, I predict we will see many underwriter, loan processor and review appraiser positions suddenly become unnecessary, replaced by the convenience of automation,” said Anderson, CEO and Founder of Integrity, an Association for Real Estate Professionals. (Click for the GAO study.)

No Choice = Low Quality/Higher Fees for Consumers
The last word goes to a Wisconsin appraiser who sent this note to Working RE last week, which highlights a trifecta of issues: appraisers and local banks are losing independence, fees for consumers are rising and quality is worsening. All of these assertions, by the way, are in dispute according to the GAO report. This appraiser says, “Local banks are being forced to use specific AMCs when selling mortgages on the secondary market and are unable to use an appraiser, like me, who they are familiar with. One local bank I work for has a rotating roster of appraisers for locally-held loans and pays C&R fees with turn times of two plus weeks. I have had exactly one stipulation call in dozens of appraisals for them. But they are given no choice in appraiser selection if they wish to sell the mortgage on the secondary market. I told the banker that $200 is the max the AMCs (they are forced to use) will pay local appraisers and that I have heard offers as low as $175 and even $125 per appraisal. The banker’s response was, ‘you don't want to know what we are paying.’ This AMC is charging $600 plus. Suddenly I know why the local bank misses my customary and reasonable fees compared to AMC fees! They pay me about $350, if they order straight through me, for a loan they hold, and the borrower pays the same $350. With the AMC, I (the appraiser) get $200 to $240 and the bank/borrower is charged around $600, on the loans that are to be sold through the secondary market. This is because the bank is required to use that AMC. And this is why I rarely, if ever, take AMC work. The problem with AMC fees is that they are unreasonably high to the borrower and unreasonably low to the appraiser, so, instead of the majority of the money staying in the local economy, it moves out of state. The secondary lenders are forcing local lenders to work with specific AMCs and denying them the ability to choose the appraiser. This bank sells a good chunk of loans to the secondary market. Therefore, they are seeing a wide disparity in both fees and quality of reports, with the local roster appraisers having lower costs to borrowers and higher quality and the appraisals for the secondary market (through AMCs), generally having lower quality with higher cost to the borrower.”

HVCC Talkback Survey One Year On Results
Data collected from April 2010 through today. (Closed)

Since HVCC, you’ve seen appraisal quality in general:
Worsen: 60.5%
Stay about the same: 23.0%

Unsure/don’t know: 11.4%
Improve: 5.0%

Your appraisal reports are more accurate, complete and free of outside influence today than before HVCC:
Disagree: 71.9%
Agree: 20.0%

Unsure/Don’t Know: 8.1%
 

Since HVCC, you’ve seen the cost of appraisal services paid by consumers:
Increase: 63.1%
Decrease: 16%
Unsure/don’t know: 11.2%
Stay the Same: 9.8%

Low fees are the main criteria for your receiving appraisal assignments from AMCs:

Always/Often: 46.6%
Sometimes: 21.3%
Hardly ever/never: 13.9%
Don’t accept AMC work: 11.0%

Unsure/don’t know: 7.2.%

You are experiencing less pressure today to alter your appraisal reports, for any reason, than you did before HVCC was implemented:

Disagree: 50.1%
Agree: 40.9%

Unsure/Don’t Know: 8.9%
 

You feel pressure from AMCs “to make a deal work”:
Hardly ever/never: 49.4%
Sometimes: 32.3%
Always/Often: 6.4%
Don’t accept AMC work: 9.1%
Unsure/don’t know: 2.8%

You have been “dropped” from an AMC roster for not meeting conditions placed on you that you felt were not in the best interests of an accurate appraisal:
Sometimes: 36.4%
Hardly ever/never: 22.9%
Unsure/don’t know: 18.7.%
Always/Often: 13.4%
Don’t accept AMC work: 8.5%

You believe accurate and professionally prepared appraisals are vital to the health of the real estate industry/U.S. economy/home buyers/tax payers:
Agree: 99.4%
Disagree: 0.4%
Unsure/Don’t Know: 0.3%

You believe that delivering a consistently reliable appraisal product is dependent on being compensated “customary and reasonable fees” (CRFs):
Agree: 66.4%

Disagree: 26.5%

Unsure/don’t know: 7.1%

You are receiving what you consider to be “customary and reasonable fees” (CFRs) from AMCs for appraisal assignments:
Hardly ever/never: 56.3%
Sometimes: 25.7%
Don’t accept AMC work: 9.4%