Appraisal management companies are fighting back against criticisms leveled at them in the two and a half months since the Home Valuation Code of Conduct took effect.
The companies argue that they provide a needed firewall between loan originators and appraisers, preventing the former from bullying the latter to overstate home values. They are also rebutting a claim made by appraisers and mortgage brokers that appraisers hired through management companies do not come from the areas where the properties are located and thus are unfamiliar with the local area.
Tom O'Grady, the chief executive officer of Pro-Teck Services, said his Waltham, Mass., appraisal management company goes to great efforts to send someone who is familiar with the local market. "We share metrics with our clients about proximity," he said. "Our order process weights those who are more proximate heavier, so they are more likely to get the order."
Jeff Schurman, the executive director of the Title/Appraisal Vendor Management Association, said sending appraisers out of their home areas is "economically not feasible." It is a myth, Schurman said, that appraisers are driving 100 miles to do an appraisal. That is not practical, given the travel time and costs involved versus the fee received, he said. Also, Schurman asked, why would an appraiser risk his or her license by working in an unfamiliar location?
O'Grady also offered a rebuttal to the claim that since the code took effect May 1, the quality of appraisals has suffered.
Pro-Teck, he said, has a rigorous vendor approval process and tests appraisers before putting them on its panel. For example, Pro-Teck validates their licenses and insurance. And once a vendor is on the panel, Pro-Teck performs automated quality control on every report that comes through. The report gives the appraiser feedback for possible problems.
Once an appraiser passes that screening, senior staff appraisers at Pro-Teck review the vendor's work. These senior appraisers are in the various metropolitan areas across the country, so they know the local markets, and they usually have a banking quality control background, O'Grady said.
Critics of management companies have said they pay such low fees that only inexperienced appraisers are willing to do the work. But O'Grady said both traditional appraisal shops and management companies have a fee split. "We support appraisers by covering business costs like sales, marketing, customer service, insurance, quality assurance, appraisal review, billing and collections — leaving more time to perform appraisals."
The code, which applies to all home mortgages purchased or guaranteed by Fannie Mae and Freddie Mac, forbids commissioned loan officers or mortgage brokers to order appraisals. This has given lenders an incentive to send more business to the management companies, which order appraisals on lenders' behalf.
O'Grady and Schurman pointed out that management companies are not a new phenomenon created by the code. Schurman said that despite the story being told that appraisal management companies are "the new kid on the block," they date to the late 1950s and early 1960s. Today, he said, there are about 200 such companies of various sizes.
Schurman also noted that when the original version of the code was circulated early last year, as part of a deal Fannie and Freddie were hammering out with the New York Attorney General's Office, his trade group sent a 23-page letter criticizing it. (The code was later amended.)
"We're not advocates for HVCC as the be-all and end-all that solves all the problems out there," Schurman said, but in its present form it keeps the originator at arm's length from the appraiser, and that is the most important part of the agreement.