A Loos Blog

The new rule Home Valuation Code of Conduct "HVCC" does not require banks to use Appraisal Management Companies.  The rule states that the bank must separate the person who sells the loan from the person who approves (underwrites) the loan.  If you walk into a bank and talk to Mary Loanagent, Mary can not order the appraisal.  But, Sally Underwriter can!  The Bank can control the quality of the appraisal and does not have to pass control over to an out of state third party Appraisal Management Company.

The Appraisal Management Companies can charge the borrower $400 and pay the appraiser $200.  The borrower thinks they are getting a $400 appraisal when in fact they are getting a $200 appraisal.  It gets better.  The Appraisal Management Companies do not have to disclose this fee split to anyone! 

The Appraisal Management Companies look for the cheapest and fastest appraiser and do not have any responsibility for the quality of the appraisal.  I have personally challenged Appraisal Management Companies on the poor quality of appraisals and get the standard response "it is the appraisers responsibility to provide a quality appraisal, not ours." 

The Appraisal Management Companies can work in any state and are not regulated by any State or Federal Agency.  They are not real estate appraisers or real estate brokers.  An Appraisal Management Company in Oklahoma can order an appraisal for a home in San Jose. 

The Appraisal Management Company can send an appraiser 100 or miles away to do an appraisal.  Sadly, the appraiser who accepts this appraisal order is probably new, poorly trained, or simply trying to feed their family.  The appraiser probably does not know that working in an area you aren’t familiar with is not a good idea. 

The appraiser may also not remember that working in an area you are not familiar with can be a violation of appraisal regulations if you don’t follow the rules – Google “geographic competency” and read all about it.  

And, here is the really sad part.  The Appraisal Management Company is not liable in any way for sending the appraiser to an area with which they are not familiar.  The Appraisal Management Company makes a 100% profit on the back of brand new appraisers who do not have enough experience to push back on these companies.

After 20 years as an appraiser I am well aware there are bad appraisers, loan brokers and lenders in the business.   But remember, it was the Federal Government that forced the sub prime lending practices down the banks throats.  The Feds said “make the loans, make them work, give them to anyone and everyone, the sun will shine forever.”    So, if Bank of America did not make the loan, Washington Mutual would.  The Feds stepped in and changed the rules for everyone, not the banks. 

Do you remember the news reports 6 years ago when banks were complaining that too many bad loans were being made?  The Feds response was “well, maybe we are making a few bad loans, but overall many people who could never have afforded a home now have one, and that’s a good thing, right?

Right.