N. Carolina AMC Registry Comes with Hefty Price
[Update 1: Corrected to report bank-owned AMCs are required to participate in the registry.] The latest state law to create an appraisal management company (AMCs) registry comes with a stiff price tag and has some businesses questioning if it makes sense to do business in North Carolina. North Carolina Gov. Beverly Perdue signed Senate Bill 829 into law Thursday. It amends the state's general statutes to require AMCs operating in North Carolina to register with the newly created North Carolina Appraisal Board. The law requires AMCs register by Jan. 1. Companies must pay $3,500 for their first license, which expires on June 30, 2012. After that, the license must be renewed at a cost of $2,000 per year. The initial fee is causing some sticker shock to some AMC executives. Brian Coester, CEO of Maryland-based national AMC Coester Appraisal Group, said the new fee is the highest of any enacted by a state legislature. Coester said his company does as many as 200 appraisals each month in North Carolina, and said the fee is a burden to the industry. "That's going to drive costs up," he said. " It's something where you're going to have to determine if it's worth the cost of doing business." Coester said the regulations in multiple state laws legislate items already covered by the Home Valuation Code of Conduct (HVCC) and the Federal Housing Administration's valuation guidelines. HVCC is set to expire within 90 days. "There's nothing the state is providing as a service that would justify the cost," he said. "You're paying $3,500 for a piece of paper that doesn't do anything, and there's no benefit." Other states to enact AMC registries include California, New Mexico, Nevada and Arkansas. Fees range anywhere from $500 to $2,000 per year. Some states set surety bond requirements that also drive up the cost of operating in a state. The registry fee in Arkansas is $500, but an AMC pays approximately $2,000 to secure a bond that meets state requirements, said Jennifer Creech, president of Orange, Calif.-based InHouse Solutions, an AMC that's also the developer of an appraisal management software platform. Creech said the state laws go hand-in-hand with federal regulations, including the newly enacted financial reform legislation. "The state law covers the penalties and fees to operate your business, while the Wall Street reform covers how you operate your business," she said. "They're bringing some regulation around the AMCs, which it probably needed to make sure the right people are working in the industry." Creech said the new fees will increase the cost of doing business, and that will ultimately get passed to the consumer. But she doesn't think that's necessarily a bad thing because accurate appraisals are paramount to a home purchase transaction. "Is a fee of $350 or $400 appropriate when it's going toward the most important purchase of your life?" Creech asked. "That's someone everyone has to look at and evaluate." The law requires the board to conduct criminal background checks on applicants, and provides the board the authority to deny applications if an owner, manager, director or other AMC executive has a felony conviction or any other mortgage-related criminal conviction within the past 10 years. But Coester said criminal background checks haven't stopped convicted felons from working in the mortgage industry in the past, and the new law won't either. "I know of people that own mortgage companies that are convicted felons, and they just have someone else's names on the paper, but they are still in control the company," Coester said. "That's not going to stop someone from opening an AMC and being in business." Many large banks have their own in-house AMC subsidiaries that conduct tasks and responsibilities similar to that of third-party AMCs. Those institutions are required to register with the state board. Exempt from registration are lawyers, real estate brokers, independent appraisal boards and appraisers that co-sign appraisal reports. The bill's sponsor, Democratic Sen. Clark Jenkins, is the recipient of thousands of dollars in campaign contributions from banks including Bank of America, Branch Banking & Trust (BB&T) and First Citizens Bank — all based in the state — as well as individuals employed by banks, according to campaign finance records published by the National Institute on Money in State Politics, a nonprofit group that aggregates this kind of data. According to the most recent documents published by another nonprofit, Project Smart Vote, donations from individuals and companies in the finance, insurance and real estate sectors accounted for nearly 10% of Jenkins' campaign contributions in 2008. The law prohibits AMCs from putting undue pressure on appraisers. AMCs can't give appraisers target valuations, ask appraisers to provide preliminary valuations before a report is complete, withhold, or threaten to withhold, payment, promise future business and other actions that could impact the quality of the appraisal. The law requires AMCs to pay appraisers within 30 days of the date when the appraisal is submitted. Fines for any violation can be as high as $10,000. The law requires each AMC to have a dedicated compliance manager. In addition, the law tasks AMCs to report individual appraisers it believes are acting outside of legal and ethical requirements to the state board, but it doesn't allow AMCs to remove an appraiser from its list of appraisers without first providing written notice to the appraiser, with proof of improper or substandard performance. Chris Williams is president of Chapel Hill, NC-based AIMSdashboard. Like InHouse Solutions, AIMSdashboard is the developer of an appraisal workflow software product. He supports the law's efforts to regulate AMCs and make it harder for less responsible companies to work in the state. "These quality controls will benefit the reputable appraiser because the regulated AMCs will more likely look for competent local appraisers," Williams said. It's unclear if software developers like AIMSdashboard will have to register, and Williams said he is still seeking guidance from the state. Even though the HVCC will sunset in less than three months, executives believe appraisal independence regulations will continue in some form. The Wall Street reform legislation calls for new appraisal independence standards to be written 60 days from last week's signing of the law, but those new regulations will allow the industry to apply the parts of the HVCC that work well and re-evaluate more challenging requirements. "Bottom line is that appraisal independence is here to stay," Williams said. "Lenders will once again have a moment of introspection to determine what the best fit will be for them." Write to Austin Kilgore.