If there’s anything we can say about our industry – the more it changes, the more it seems to stay the same.
The truth is, appraisal management has been changing for a lot longer than just the financial crisis. The financial crisis of 2008 simply cemented the growth of appraisal management firms within a regulatory framework.
The rise of AMCs was already baked into the cake as mortgage lending moved from the local broker to lenders that needed to support consumers nationally.
Now with the latest twist, Fannie Mae released Collateral Underwriter, and we’ve all read opinions about how it will affect AMCs.
Some are certain that now that there’s an automated foolproof way to check and score an appraiser’s work, there is no need for AMCs.
This is an erroneous assumption for two reasons.
First, this is based on the premise that the largest banks and GSE’s weren’t already using black box analytics to determine appraisal quality all along – of course they were.
Secondly, that the only value an AMC brings to the table is providing quality control at the very end. That’s like saying an the entire appraisal that can take days to produce boils down to the last few minutes, which we all know it doesn’t.
Howard Schultz, CEO of Starbucks once said, “We’re not in the coffee business. It’s what we sell as a product, but we’re in the people business—hiring hundreds of employees a week, serving six million customers a week, it’s all a human connection.”
I’m just going to put this out there: AMCs are not in the appraisal business.
Yes, AMCs facilitate the production of quality-controlled appraisals, but are not necessarily appraisers. Appraisal management begins long before the order, by cultivating and preparing an appraiser panel and ensuring that the most qualified appraiser is used.
Once the order is placed, AMCs bridge communications between all the parties to ensure a seamless and compliant appraisal assignment. Last, but not least, they ensure that quality control exceeds the client’s requirements and expectations.
To AMCs, Collateral Underwriter is the slam-dunk of a very long journey. Collateral Underwriter is a robust piece of technology, but it’s not going to manage the entire process.
If the argument is that a lender can now more easily manage appraisers on their own because of Collateral Underwriter, that may be true if you believe AMCs were simply throwing appraisals against the Collateral Underwriter “wall” to see if they pass.
Not even close.
I’m sure that lender clients would love to hear, “we promise to get it right the fourth time.”
Lenders who decide to take appraisal management in-house are committing to their lending staff and consumers to facilitate the appraisal experience. That means with the ebb and flow of business, lenders are responsible to staff appropriately to ensure efficient loan closing. This results in either underutilized or overworked staff, depending upon whether the tide is in or out.
Many appraisers dream of the demise of the AMCs. That’s not without merit, because I’m sure that everyone can think of a few that have historically been unfair to their appraiser panel. Like the old adage, you get what you pay for; lenders that and work with AMCs that drive down appraiser fees are just ensuring one thing – a race to the bottom. The result is also a race to the bottom in quality, service, and turn times. Like I said, we’re in the people business as an AMC. If we compensate our appraisers poorly, our relationship with everyone (including the borrower) suffers.
Since Collateral Underwriter doesn’t effectively change the vast majority of the management process, what advantage does a lender have in bringing management in-house? Conceivably, could it be to cut out the middleman and return higher fees to the appraiser? The facts don’t seem to support this.
Lenders choosing to move their services in-house will use cost savings to either:
a) Reduce lending costs because of competitive reasons,
b) Cover the additional internal staffing and management costs,
c) Put that extra profit to the bottom line.
A good business case can be made for the lender to bring services in-house, but I’ve yet to hear of lenders raising appraisal fees once an AMC is removed, and Collateral Underwriter is not going to change that.
Now, if Fannie Mae can find out how to make a better cup of coffee, we would all be in trouble.