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Mercury Network -- the best way for RE appraisers and lenders to cope with the HVCC

Real Estate Agent with a la mode

Complex Problem, Simple Solution

Employing an age-old constant in a period of unprecedented chaos

by Dave Biggers

Dave Biggers is the founder and Chairman of a la mode.  With a REALTOR® mother and an appraiser father, he was pre-destined to be holding "the dumb end of the tape" with his dad while still in high school, and paid for college as a residential and commercial appraiser.  An engineering and economics major, Dave used his technical background and understanding of appraising to start
a la mode while still in school in 1985.

With each issue of The AppraisalPress, we find ourselves discussing how dramatically things have changed in the short span since the last issue. While we originally thought we'd be dealing with a rapid comment-and-revision cycle on the proposed HVCC a year ago, we never envisioned it dragging out this long (the "final" HVCC takes effect May 1st), nor did we think there would be so much chaos and tumult along the way. It's an understatement to say that things have been out of control. It's certainly made our jobs harder, but even more importantly, it's made yours almost completely unpredictable.

Even with a final set of HVCC regulations out, there's still not a definitive view of what will happen from a regulatory perspective in the industry. Both the final HVCC and the "new" Federal Reserve guidelines (see "Our official response to the new Federal Reserve regulations") are so riddled with loopholes and exemptions that, even if we had a stable overall governmental outlook, there would be no way to accurately assess how the regulations will be implemented on a day-to-day basis.

The only constant thus far has been that the damage to appraiser independence is already done, a tragic "fait accompli". Starting just a few weeks before the HVCC was announced in early 2008, Fannie Mae released a memo to lenders which contained much of the core structure of the HVCC itself, in particular the "firewall" language which caused a rush to AMCs, along with a September compliance deadline. After it morphed into the official HVCC document, nothing was ever publicized telling lenders that the September deadline was moot. Not surprisingly, our data shows that by August, lenders were shifting much of their work to AMCs, and more and more appraisers were being forced to accept severely reduced fees as a result. And then by the widely published yet subsequently delayed January 1st deadline, even more business had shifted.

The chart below is testimony to the process. The blue line, showing total appraisals delivered directly to AMCs via custom XSite plugins, shoots up from August 2008 to January 2009, almost doubling in those few months to just under 200,000 reports in January from under 100,000 reports in August. At the same time, the red line, showing the number of appraisers who used plugins to send reports to those AMCs, also shot up by 75%. The consequence, of course, is that a larger and larger portion of appraisers are taking a huge haircut on a larger portion of their fees by being forced to go through AMCs. (Refer back to our story on the fee loss caused by the HVCC for a dollar value to attach to that shift to AMCs: "Economic Impact of HVCC", June 2008.)

Click the image to view a larger version.
Shift to AMCs over the past year.

Steep increases consistent with the HVCC deadlines over the past year are seen in both the number of appraisers using one or more of their XSite AMC-specific plugins, and the total number of reports they delivered to those AMCs.

All is not lost however. There will always be lenders who don't fit the AMC profile or who want to manage the process themselves, but with better protection from potential liability. Even if the regulations were scrapped tomorrow, the economic and legal climate faced by lenders, along with their fear of increased scrutiny under a new administration, would drive them to still seek some sort of protection from claims of coercion.

As we've said before, that's where Mercury Network comes in. We know you believe us, because you've signed up for Mercury en masse, and you've granted us permission to use more than 240,000 of your database contacts as leads for our Mercury salespeople. So why haven't we publicized it and sent out those e-mails? After all, we're the "marketing machine", right?

The answers are pretty simple - because of all that change we referred to, we decided to let the dust settle a bit on the regulatory front while we polished up the final firewall components of the Mercury Network. Even more critical however was the need to get our own firsthand research under our belts before massively marketing Mercury to lender clients who've been operating in an ever-evolving environment too. If our "message" was off, we'd be wasting the precious attention span that those lenders grant us in reading emails, faxes, or taking calls.

We did that by creating a new dedicated Mercury-only sales department and letting them loose on the phones, making exploratory calls to lenders, trying different combinations of marketing and advertising angles, and tweaking the product and its presentation in response to their suggestions. What we know now about "what works" is light years beyond what we knew just 90 days ago. We've been able to very carefully narrow down the optimal client angles depending on the size of the institution, and we've gotten crystal clear insights into their personas and buyer behavior. Our sales and marketing will be much more effective now, and we believe we're ready to pull the trigger on it.

While we can't reveal detailed strategies in a public article read by vendor network competitors - and they're popping up like mushrooms these days - we can share with you two key discoveries, which will drive our process from this point forward, and which we want you to employ as well.

First, there's clearly a definable segment of lenders who absolutely do not want to abdicate control of this key process to AMCs.

Some don't want to move to AMCs because they've created positive relationships with an internally managed panel of appraisers whose professional opinion they consider crucial. So long as they're able to show that they've exercised prudent judgment and built reasonable safeguards into an in-house appraisal management function, which is exactly what Mercury lets them do, they'll stay with the appraisers they have and shun the outsourced AMC option.

Others want to use Mercury and retain internal control, while still documenting clearly that they're not applying pressure, precisely because they're one of the lenders who've already engaged one or more AMCs - and they're hating how it's working out. We've heard some horror stories. So, even the activities that drove that blue line of AMC transactions up so fast on the cover page's chart may work in our favor in the long run.

It's only after the lender switches to an AMC that they see the difference between the sales pitch and the reality. The simple fact is that some AMCs just aren't very good at implementation. Some will sell blue sky on the golf course all day long, but when the back office is a jumbled mess of antiquated technology that's brittle and breaks on rollout, it turns to rain pretty quickly. That's when we sell umbrellas.

The second important conclusion we've derived from our testing process should come as a surprise to no one: The single most important factor in successfully landing a lender client is the level of involvement of the appraiser.

We can send emails, faxes, and phone calls all day long to lenders, but the leads we get from appraisers who call our sales line and tell us that they've been personally talking to their clients about Mercury are many orders of magnitude more likely to get on board. It can be as simple as just calling your key clients and asking them what they're planning to do, telling them to consider Mercury, and then calling us to follow up with them. They then take our calls and they know why we're calling.

It's a simple personal introduction, and it's a sales technique as old as the hills and twice as powerful. In this case, we've found that it's crucial and can be the difference between success and failure. Just call your client, then call us. You don't even have to be good at selling. You just have to tell them briefly about us and tell them to expect our call. We'll take it from there.

In a time of unending chaos and confusion and pervasive technology, especially in the real estate sector, it's nice to know that the simple sales technique used by your parents, your grandparents, and every generation before them, is still the most effective way to achieve an important goal. And there's no goal more important to us than preserving your fees with the Mercury Network.



Alix Pinzon
Open Mortgage, LLC NMLS # 2975 - Downey, CA

Hi Scott,  I've used a la mode software for around 10 years.  I'm still waiting for business through the mercury network.  Obviously you're an employee of theirs, and you have a lot riding on it, but don't hold your breath.  The lenders are going with companies that handle the process from start to finish, not a computer system that claims to be HVCC compliant.  The banks are dirty, and they want to have control, and right now the banks are holding all the cards.  They just got infused with billions of our tax dollars, and yet all the mortgage brokers are using them because their rates are the best.  As a result, appraisers are screwed, and over-priced appraisal software vendors like a la mode are going to suffer along with us.  I like the software, but the bells and whistles have been a joke, and a complete waste of time and effort.  Tell Mr. Biggers that if he wants to be an ambassador to the appraisal industry, to start his own "full blown" AMC, and stop relying on companies to use his mercury network just because it's already established. 

May 10, 2009 03:23 PM