Starting May 1st, third-party Appraisal Management Companies (AMCs) will be charged with eliminating pressure applied to appraisers by lenders - urging them to inflate housing values.
Under the new Home Valuation Code of Conduct - drafted under the "supposed" watchful eye of James B. Lockhart (left), director of the Federal Housing Finance Agency, which oversees Fannie and Freddie - Florida lenders and Florida mortgage brokers will be prohibited from communicating directly with appraisers. Instead, appraisals will be ordered via AMCs, who will farm the work out to appraisers they have either contracted or retained on staff.
Is it a Buffer? Or a Sponge?
In theory - at least thus far - I'm fine with AMCs being put in place as a third-party "middle man" type buffer between lenders and brokers and the appraisers working on any given loan. It's warranted, and we need but look at the way Banks (Washington Mutual) and Appraisal Companies (See Cuomo vs. First American Appraisal Group) cajoled and pressured their way through numerous deals in order to get appraisal numbers where they needed to be in order to close deals.
But what really stinks is that there is at least one case where and AMC - Lender's Service, the country's largest AMC - is reported to have passed along statements to appraisers from lenders and borrowers urging for higher valuations in order to close loans. Ex-squeeze me?
AMCs Won't Be Regulated! Where are the Watchmen When We Need Them?
Hear me on this folks - AMCs as they move forward will not be under any sort of formal regulation. Yup. You heard it here. Zip, Nill, Nada Zilch. Not even Freddie or Fannie - who will then try to make lenders pay them back for toxic loans sold for cash down the line.
Don't get me wrong - lenders shouldn't be approving or passing along or passing forward bad loans. It just strikes me as odd that Lockhart, the FHFA, and Fannie/Freddie worked to pass the Good Conduct act - will only accept loans that have been duly certified by its measures, yet haven't bothered to set up any sort of formal oversight body to make sure things are done properly on the side of the AMCs.
Forget ongoing oversight! What about the "Driver's License from a Cereal Box" - like approvals they are at least tacitly granting by letting a bunch of "Known Entity Dopes" form and run these AMCs?
Oh yes. As the BusinessWeek article linked below sates - there's nothing to stop former sub-prime mortgage companies and even appraisers who lost their licenses for erroneously reporting home values from... are you ready? RUNNING AMCs THEMSELVES!
Hello Fox? Meet Mrs. Hen and Mr. Rooster. You'll be watching over them for a while.
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Kevin, interesting read. Is this going to be country wide or targeted to Florida? I think that you are correct that too much pressure has been placed upon appraisers in the past to inflate the value. We have seen a few times where the underwriter has sent the appraiser back out because they felt the home was inflated. Will be interesting to see if this is merely another level of bureaucracy.