The appraisal industry’s hidden hand
[ad_1] After attending the eponymous university of pioneering televangelist Oral Roberts, David DeZarn decided that his life’s calling was to be a pastor. DeZarn became an ordained minister – “I married them and I buried them,” he said – and immersed himself in youth church services by the early 1990s. The church never quite paid the bills, and DeZarn needed a flexible second job. He started contracting with home mortgage lenders to appraise the value of the property tied to a loan. “It fit well. I have always been good with numbers, and I enjoy looking at houses,” he said. But DeZarn was an independent contractor business of one, and he lost his clients in 2008 when the housing market imploded. He reentered the appraisal business through a different door. Today, DeZarn is chief appraiser of Appraisal Management Services of America, an Irvine, California-based business that is one of more than 1,000 appraisal management companies across the country. Appraisal management companies, or AMCs, quietly exploded following the lender reforms that came amid the Great Recession. But a decade later, AMCs are utterly anonymous to the actual person buying or refinancing a home. Appraisers decry them as counterproductive, even exploitative middlemen, while lenders offer a pat on the back for keeping them one step ahead of government auditors. “AMCs have been terrible for appraisers, mortgage originators, and the public,” said Jeremy Bagott, appraiser at Bender Rosenthal. For a person of principle like DeZarn, explaining his role leading an AMC made him defensive, apologetic, proud, and uncertain. Ultimately, DeZarn concluded, “We don’t know where this industry is going.” Andrew Cuomo’s medium-sized idea “AMCs have existed since the late 1960s,” explains a 2018 report by the Federal Housing Finance Agency, entitled “Are Appraisal Management Companies Value-Adding?” “But they did not become key players in the home valuation industry until the recent housing bubble.” That bubble was when, “Morally flexible lenders worked with morally flexible appraisers,” said Jonathan Miller of appraisal firm Miller Samuel. Appraisers would overvalue homes, and lenders would then originate loans, knowing mortgages would be ushered to their seats by government-sponsored enterprises Fannie Mae and Freddie Mac. Appraisers who didn’t play the game “were blackballed by lenders,” said Joe Bryant, who today is the president of AMC TriServ Appraisal Management Solutions. In 2008, the state attorney’s general office of New York — led at the time by current Empire State governor Andrew Cuomo — launched an investigation into compromised appraiser reports. The outcome was a settlement, the Home Valuation Code of Conduct, or, as appraisers swiftly dubbed it, havoc. Under the conduct code, Fannie Mae and Freddie Mac would only securitize mortgages from lenders that had a firewall between writing the loan and selecting an appraiser. A variation of the conduct code was inserted into the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, and the modern AMC was off and running. “Soon, AMCs went from being involved in 10% of all appraisals to 90%,” Miller said. “It started off rough,” said Mark Skapinetz, owner of What It’s Worth Appraisal Services in Marietta, Georgia. “Before the recession, I was doing appraisals for $500. Then, I was making $200 to $250.” “What AMCs did was they made it all about competition,” DeZarn said. “Hey, if you do this appraisal for me for $200 instead of $400, you can get it.” AMCs have since expunged such flagrant squeezing of the appraiser, DeZarn said. But tension, as they say, remains. The firewall in action When the pandemic hit, appraisal management companies retreated from offices in the likes of Troy, Michigan; and Buffalo, New York. The remote work was a further dislocation for an industry tied up in a most concrete transaction – the home sale – and yet abstracted in its duties, unclear in its worth. AMCs business model is to snare contracts from mortgage lenders, and serve as their appraiser middleman. The AMCs appraisal selection today starts with a list of appraisers, with all the different AMCs invariably drawing from the same appraiser. “There is no special sauce,” Bryant said. “We all use the same appraisers.” It’s a fairly big list that includes much of the U.S. residential appraiser workforce: San Francisco-headquartered Axis Appraisal Management Solutions, for example, put the number of appraisers on its list at 9,000. If a lender wants an AMC to appraise a home in, for example, Lincoln, Nebraska, the AMC will check their roster of Lincoln appraisers, and select the one they believe to have the quickest return rate and lowest potential for errors that later bottle-up the mortgage origination. The AMC will quote beforehand how much the appraiser will get paid, though with more experienced appraisers, and more difficult jobs, there is often negotiation, Bryant said. Typically, Bryant said, the AMC calls the appraiser’s cell phone or emails them, and gives a window of one business day to accept a job. If the appraiser says ‘no’ or never gets back to them or haggles too much about the fee, the AMC simply moves to whoever is next on the list. After an appraisal is completed, the lender pays the AMC, who then pays the appraiser and keeps a cut. Perhaps due to the shared labor pool – picture Uber and Lyft competing with hundreds of other rideshare apps – the food chain among AMCs is profoundly unclear. Hundreds of AMCs are registered in each state. For example, California has 227. But no AMCs appear filed as publicly traded companies with the Securities and Exchange Commission, and no AMCs seem to have a public profile. The next AMC branding campaign will be the first. “It is a very sleepy profession,” Miller said. One AMC generally acknowledged as a larger outfit is TriServ, which has a physical headquarters in Roswell, Georgia. TriServ, Bryant said, processes 18,000 appraisals a month. For each appraisal, the lender pays a $109 flat fee, regardless of whether the appraiser is valuing a 30-year-old single-family home that looks like every other home on
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