As we move into this century’s third decade, change remains the constant for the mortgage and real estate industries. That’s especially true for the valuation space, where increased innovation, regulation and demand may bring greater change than other areas of lending.
We’re already seeing the impact with Appraisal Management Companies (AMCs), both in terms of their operational structures and their perceived value for lenders. The well-run AMC already serves the lender as an integrated business partner. Beyond being a resource for valuations expertise, they provide immediate access to a network of vetted appraisers, which allows the lender to focus on its own core competencies rather than allocating resources to managing appraisers and the property valuation process.
The AMC model has been around for some time. However it was jolted into greater prominence by the mortgage crisis of 2007 to 2010. In the wake of the crisis, as blame was leveled at every part of lending, including appraisals, the AMC proved itself a great ally in securing compliance. From that functional relationship, AMCs have since evolved into true partnerrelationships.
Best Case for Best-in-Class
The services that AMCs offer are perfectly suited for larger lenders with broader regional or national footprints. AMCs’ national networks are also beneficial to any lenders looking to expand the number of states they serve. On the other hand, aretail lender focused on a smaller region can probably get by dealing directly with a reduced roster of local appraisers with whom they are familiar. For them, the compliance side is less of a concern.
More and more lenders are relying on AMCs to keep them at the forefront of evolving valuation trends and capabilities. By farming out the finding, recruiting and vetting of appraisers, as well as monitoring their credentials, these lenders can focus instead on loan processing.
There are some larger lenders that prefer to build their own in-house appraisal management department. They may hire internal staff members to manage appraisals, or delegate the task to their processors, who may find they’re spending too much of their time onboarding and managing appraisers instead of processing loans. Those internal costs are seen as justified because of the mistaken perception that control of the function leads to better performance and more closed loans.
Where the AMC Builds its Case
Among the key incentives that partnering with an AMC offers lenders is their push, in an ever-shifting landscape of accepted practices, to streamline the process with new valuation services and technology investment. The following five key points summarize how AMC-lender partnerships have become essential to loan processing:
- Turnkey compliance – Since the crisis, stringent safeguards have been established that must be maintained by any company ordering appraisals. If audited, a company has to prove those safeguards are in place. If the process is farmed-out to an AMC, it provides an arms-length relationship, or buffer, for lender compliance. The AMC maintains the safeguards for audits. In addition to the experience, investment, and manpower the AMCs provide, some of the larger AMCs have entire compliance management systems.
- Riding the rise and fall – Because the AMC maintains a large reliable network of appraisers, when the market rises and volume increases, it can meet changing demand while an in-house appraisal management department must scramble to hire additional managers and potentially lay them off as soon as volume recedes.
- Ability to bill – A lender with in-house appraisal management is prohibited by law from adding staff time and overhead expenses associated with an appraisal order when charging the borrower. On the other hand, when utilizing an AMC partner, the lender has the option to charge the borrower for the appraiser fee and an appropriate amount for management of the appraisal order, thus reducing its internal operating expenses.
- How appraisers are appraised – While each state is required to license appraisers and maintain current records of insurance coverage and disciplinary history for appraisers, the supplemental layers of oversight an individual AMC adds for each appraiser in its network vary from company to company. What differentiates the top AMCs from the others are the systems of review they have established to rate performance against current regulations, and the effectiveness of these processes.
- Quality control – AMCs also have very robust quality control processes and each appraisal must pass the review before an order is completed and returned to the client. With in-house appraisal management, appraisal review is left to internal staff, often including an underwriter. The underwriter, who is one of the most scarce and critical members of the lender’s loan origination team, benefits greatly from having a business partner looking out for the quality of the appraisal and thus allowing the underwriter to remain available to work any underwriting concerns with the appraiser. AMC partners have a chief appraiser or assigned staff available for the underwriter to contact immediately. That becomes a huge savings of both time and resources.
As lenders continue to work to stay ahead of new valuation guidelines, compliance requirements and technology innovations, more and more will be assigning the management of their appraisal needs to an AMC with which they build a strong partnership.
Brandon Melanese is an expert sales executive with over 25 years of experience in real estate valuation. He brings a wealth of expertise, with particular strengths in areas such as best practices and current industry trends. With an abundance of valuation consulting experience, Brandon has a strong understanding of retail lending, servicing, portfolio management, and loss mitigation. Before joining Valutrust Solutions, Brandon worked with large and small appraisal management firms, where he was responsible for product and business development. His expertise and commitment to traditional and alternative valuations has allowed him to be recognized as a trusted industry expert. Throughout his successful professional life, Brandon has honed the skills and expertise necessary to provide top-notch service and guidance to lenders, banks, and credit unions.