Presented by Scot M. Rose President, Chief Valuation Officer Urban Lending Solutions Appraisals, LLC

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1 Presented by Scot M. Rose President, Chief Valuation Officer Urban Lending Solutions Appraisals, LLC

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3 Q3 Total Volume; all values are in millions Total

4 Studies show less risk with transactions channeled through AMCs E&O Insurers MI companies Mortgage Originators Look to legislation for the answers (Appraiser Independence Requirements (AIR)) Dodd-Frank State AMC registrations Interagency guidelines GSE guidelines

5 THE EFFECTIVENESS AND IMPACT OF VARIOUS APPRAISAL METHODS Appraisal methods Three approaches to value Appraisal valuation models Licensed and certified appraisers Broker Price Opinions (BPOs) Automated Valuation Models (AVMs) Appraisal Distribution channels HVCC AMCs Independent appraisal operations within mortgage originators Fee for service appraisers ASC functions pursuant to title XI of FIRREA

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7 Appraisal Management Company means a person that, for compensation, acts as a third party intermediary by contracting with independent real estate appraisers to perform appraisals for other persons.

8 A. Maintains an approved list or lists, containing 11 or more independent contractor appraisers licensed or certified pursuant to this part, or employs 11 or more appraisers licensed or certified pursuant to this part. B. Receives requests for appraisals from one or more clients. C. For a fee paid by one or more of its clients, delegates appraisal assignments for completion by its independent contractor or employee appraisers.

9 "Appraisal management company" does not include any of the following, when that person or entity directly contracts with an independent appraiser: A. Any bank, credit union, trust company, savings and loan association, or industrial loan company doing business under the authority of, or in accordance with, a license, certificate, or charter issued by the United States or any state, district, territory, or commonwealth of the United States that is authorized to transact business in this state. B. Any finance lender or finance broker licensed pursuant to Division 9 (commencing with Section 22000) of the Financial Code, when acting under the authority of that license. C. Any residential mortgage lender or residential mortgage servicer licensed pursuant to Division 20 (commencing with Section 50000) of the Financial Code, when acting under the authority of that license. D. Any real estate broker licensed pursuant to Part 1 (commencing with Section 10000) of Division 4 of the Business and Professions Code, when acting under the authority of that license.

10 Appraisal Management Company (AMC) means a person that performs the actions necessary to administer a network of state-licensed appraisers to fulfill requests for appraisal management services on behalf of a client including but not limited to recruiting appraisers; contracting with appraisers to perform appraisal services; negotiating fees with appraisers; receiving i appraisal orders and appraisal reports; submitting appraisal reports received from appraisers to the company s clients and providing related administrative and clerical duties.

11 Appraisal management company means a corporation, partnership, sole proprietorship, subsidiary, unit, or other business entity that directly or indirectly Performs the following appraisal management services: 1. administers networks of independent contractors and/or employee appraisers to perform residential real estate appraisal assignments for clients; 2. receives requests for residential real estate appraisal services from clients and, for a fee paid by the client, enters into an agreement with one or more independent appraisers to perform the real estate appraisal services contained in the request; or 3. serves as a third-party broker of appraisal management services between clients and appraisers. Appraisal management services means the process of directly or indirectly performing any of the following functions on behalf of a lender, financial institution, client, or any other person to: 1. administer an appraiser panel; 2. recruit, qualify, verify licensing or certification, and negotiate fees and service level expectations with persons who are part of an appraiser panel; 3. receive an order for an appraisal from one person, and deliver the order for the appraisal to an appraiser that is part of an appraiser panel for completion; 4. track and determine the status of orders for appraisals; 5. conduct quality control of a completed appraisal prior to the delivery of the appraisal to the person that ordered the appraisal; or 6. provide a completed appraisal performed by an appraiser to one or more clients.

12 "Appraisal management company" means a business entity that (i) administers a network of certified and licensed appraisers to fulfill real estate appraisal assignments on behalf of mortgage lending institutions, as well as other entities; (ii) recruits, qualifies, verifies the licensing of, and negotiates fees and service level expectations with a network of third-party appraisers; (iii) provides administrative duties including order entry and assignment, tracking and status updates, pre-delivery quality control, and preliminary and hard copy report delivery; and (iv) involves ongoing quality control, accounts payable and receivable, market value dispute resolution, warranty administration, and record retention.

13 PROTECT APPRAISER INDEPENDENCE!!!! Insure appraisals and the appraisal management process comply with USPAP, GSE, FHA, other investor, client and Interagency guidelines. Insure the intended user is provided with a saleable report Provide a professional environment to manage the communication with their client and appraisers Technology

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15 Lenders Investors Servicers Due Diligence Providers Quality Control Firms Forensic Audit Services Fraud Investigators Appraisers?

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18 100% of their administrative reviews are performed overseas or onshore by non-appraisers One appraiser had a reviewer call to inquire about a comparable noted as a Foreclosure and asked, was there four closures? Extended pay cycles upwards of days No appraisers on staff No communication or flexibility for complex assignments Very poor compensations both for Staff and contractors Always assign to the lowest bidder Forced changes to your appraisal which may affect the credibility of the appraisal (No discussion and coming from non-appraisers) Unrealistic automated reviews which require changes to the report that may affect the credibility of the appraisal. Requests changes to the value conclusions!!!!!

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20 Very demanding turn times with no flexibility Aggressive fee structures to push appraisers for high volume Systematic delivery of appraisals to the lowest bidder (Should go away with Dodd-Frank mandatory compliance 04/01/2011) Lots of ffollow up phone calls and s before the assignment is even due Lots of wasted time on communication with conditions that were actually already met within the original report (Mostly due to lack of understanding of the appraisal process by the reviewer)

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22 Owned or Operated by an appraiser An identified Chief Appraiser A staff of licensed or certified appraisers by which all appraisal related communication is handled Favorable pay frequency (Twice monthly or better) A very formal appraisal reconsideration process which protects appraiser a independence All reconsiderations should be vetted internally at the AMC prior to sending it to the appraiser in order to ensure the requests are reasonable and to do not waste the appraisers time. All reconsiderations should be addressed within the appraisal report

23 Requested changes to a report should not be related to the amount of adjustments or the value within the report, but more regarding the level of supporting information, commentary, explanation, conformity to USPAP, client, investor, or interagency guidelines Licensed and in good standing in all applicable states they operate in. Even if your state does not have AMC registration or licensing, check the other states as a point of reference

24 The most important reason is to Protect Appraiser Independence Help both the appraiser and the lender/in meeting all requirements to protect them from any downstream repercussions. Legal recourse to the appraiser Potential buybacks for the lender Provide more effective geographical use of an appraiser by funneling orders from multiple lenders/clients to appraisers in a more consolidated area. Saves extensive amount of time and cost for the appraiser Gas cost, wear and tear on their vehicles, time, increased knowledge or more specific market areas. This can be proliferated by working with multiple AMCs which will substantially increase the pool of lender/clients you receive orders for.

25 According to one of the largest providers of appraiser E&O insurance, appraisals completed during the years 0f created the largest spike of claims in history. The majority of claims were from engagements between appraisers and brokers or someone else within the loan production staff. Transactions completed during this same time frame processed through AMCs saw substantially less claims. According to one of the largest lenders in the nation, investors are invoking their buyback provisions due to appraisal violations. These buybacks were also substantially more where the engagement g was yet again between the appraiser and the broker or someone from the loan production staff. Loans channeled through AMCs were substantially less.

26 The use of AMCs can be a great way to insure appraisers are able to function in their profession appropriately by insuring they perform appraisals truly as an independent and objective third party The ideal appraisers world: An environment with a flow of assignments in close proximity to the appraisers home or office, reasonable fees, turn time extensions when appropriately warranted and supported and the ability to complete these assignments without undue influence. We can only hope that the industry responds to the recent legislation l changes in the way it was intended. d

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