While I generally frown on profiling humans, I learned in engineering school that some comparisons between people can be genuinely useful.
For instance, what was your favorite building toy as a child? You’ll find that folks who enjoyed Lincoln Logs generally prefer ready-made solutions more than someone who enjoyed Legos or K’nex. Future engineers, I found, were the only class of human to really enjoy erector sets. Now that I’ve learned about mortgage lenders, I wonder if many executives working in our space were also closet erectors.
Unlike other building toys, the pieces in an erector set can go together in many ways, few of which are obvious upon first glance. That’s exactly the way the mortgage business is. There are tens of thousands of third party loan originators (and more every day as large banks continue to quietly woo back brokers—as always happens as we move up out of a downturn) who can write a loan for hundreds of mortgage bankers (well, maybe not that many have survived the downturn, but they’ll be back) who will call upon tens of thousands of appraisers across the country to provide a valuation and so on through the process with title agents and closing agents and what have you. Many, many moving parts, most of which the mortgage borrower never sees.
Appraisal management was once such a function, hidden within the machine and invisible to most borrowers. That all changed when New York AG Cuomo cut his deal with the GSEs and advanced the Home Valuation Code of Conduct, which is less of a code in terms of something that people adopt voluntarily to be part of a club or organization, like a chivalric code of honor, and more of a regulation written by someone without the authority to regulate you but which you will follow under penalty of banishment.
Anyway, now everyone knows what an AMC is, or what they think it is. This has put some pressure on the companies that operate in this space to do a better job of explaining to the general public what it is they really do. In most cases, this is proving to be quite difficult.
One step in the right direction was taken by the Title/Appraisal Vendor Management Association
(TAVMA) when the industry group—which speaks on behalf of AMCs and other vendor managers—released its TAVMA Standards of Good Practice in Appraisal Management
. I do some writing for TAVMA, but I didn’t write this and I think it’s brilliant. Anyone can come out with a set of best practices and almost no one really believes that they are best practices, but a paper devoted to good practices might be a good read. And it is.
A number of AMCs throughout the industry have already come out in favor of the document and its recommendations, which, if they handle it correctly, could send a strong message to a public that hasn’t a clue about what they do.
But ultimately, someone from this group is going to have to sit down with Joe and Jolene Borrower and spell it out for them. Rich Kuegler, vice president of Customer Relationship Management for MDA Lending Solutions
, might be that guy. I recently shot him some questions, to which he promptly responded. (I don’t do any writing for MDA).
Q: What benefits do AMCs bring to borrowers, if any?
A: In managing the appraisal process, AMCs are responsible for providing a high level of service and an accurate valuation for the lender. The quality and process reliability introduced by the AMC model impact the lender's ability to quickly and efficiently approve the borrower's loan application. The lender and, indirectly, the borrower both benefit as a result.
Q: Do AMCs have a responsibility to make home valuations more affordable for borrowers?
A: Like other providers of products or services used, AMCs and appraisers alike have a responsibility to their customers to deliver a quality product at a fair price. In some cases, AMCs can help to make property valuations more affordable for borrowers, but this may not universally be the case. The major advantages delivered by an AMC are the management of the process and the higher consistency of the reports, evidenced by the improved performance of the loans underwritten since HVCC, according to Freddie Mac. This helps to make the cost of home ownership more affordable.
Q: Is HVCC really making appraisals more expensive or is something else the cause? Are they even getting more expensive?
A: While it is difficult to comment on the cost of appraisals nationally, I can confidently say that our organization has been very focused on delivering a reasonable market price for the products and services we deliver. The perception of higher costs may really be recognition of the transfer of process costs in the origination process. Regardless of whether they are borne by the lender or AMC, there is a cost to manage the process, support technology platforms and ensure compliance in delivering these very detailed and critical pieces of information during the origination process. To ensure that we are reasonably priced in the market, we have improved productivity internally and worked closely with our supplier partners to better manage costs. Our customers appreciate our approach to fiscal responsibility and the experience we provide in delivering the appraisals that enable them to close more loans.
What about you? Are you ready to tell borrowers why you deserve your fee? The new GFE and HUD-1 may make it a necessity before you know it.