HUD Appraisal Independence: Is the AMC Working
Michael G. Branson 3/24/10 8:10pm
Back on September 18, 2009, HUD issued Mortgagee Letter 2009-28 declaring a new Independence Day! Well, it actually set new guidelines and procedures for Appraiser Independence for FHA Insured Mortgages. The new procedure, while not being an exact mirror of the Home Valuation Code of Conduct or HVCC, holds many similarities and many in the lending industry commonly refer to the HUD program still as HVCC.
was the law of the land for Conventional loans originated for sale to
FHLMC starting May of 2009. What the
HVCC requirements basically did was to require brokers to order
through lenders utilizing Appraisal Management Companies instead of
with individual appraisers. The thought
process was that appraisers would be
much more free to bring in an "honest" value if they did not feel
pressured by brokers and other sales people whose incomes depended on
closing and therefore, certain values on appraisals so the loans would
Sounds reasonable enough,
right? After all, many people seemed to
think that appraisers were forced to bring in values higher than
were actually worth for fear of losing assignments and subsequently
were lending more money on homes than they should be as a result. So
Appraiser Independence sounds like it
would be a good thing...or does it?!
was apparent that the legislation for the change that was introduced by
York Attorney General, Andrew
that was designed to mitigate fraud in the valuation process of lending
to a rocky start very early on. The
program that severed communication with the appraiser sounded logical,
created an extra layer of bureaucracy, increased costs and processing
decreased customer service, created much more potential for
and delays which cost some borrowers thousands of dollars as lock
missed and they were forced to re-lock loans at higher rates and fees.
And the worst part of it all is that most sources did not report any increase in the consistency or the quality of the appraisals being completed under the new guidelines. So far, Appraiser Independence on the regular or forward mortgages did not appear to be gaining anything for lenders and it is really hurting borrowers.
fact, appraisers were now being given assignments from Appraisal
Companies (AMC) who, under FNMA guidelines, cannot charge the borrower
fees for their services. Since the AMC
cannot charge the borrower, they cut into the income that the appraiser
make on the appraisals he/she performed.
Now instead of an appraiser
charging $375 to $425 for an appraisal and making $375 to $425, the
is often being charged $450 or more, the appraiser is often being paid
less and the AMC pockets the rest!
What you get are disgruntled appraisers and many of the best with years of experience are now either refusing any assignments that are not completely "cookie cutter" deals that they can't complete in an hour or two, or you get inexperienced rookies who are absolutely unfamiliar with the area in which the property is located and the only reason they got the assignment is they were the first to respond to a blasted email that went out to a roster of appraisers. Even though they don't know the area or the property values, they jump on the chance to get another assignment as they desperately need to augment their income which has been so drastically cut.
Enter HUD and Appraiser Independence. In the wake of HVCC and all of the problems associated with it, HUD issued Mortgagee Letter 2009-28 which was to be effective with all loans receiving Case Numbers on January 1, 2010 and after, but implementation was later delayed until February. HUD's Mission Statement is "HUD's mission is to increase homeownership, support community development and increase access to affordable housing free from discrimination. To fulfill this mission, HUD will embrace high standards of ethics, management and accountability and forge new partnerships--particularly with faith-based and community organizations--that leverage resources and improve HUD's ability to be effective on the community level."
HUD apparently didn't notice all the problems with HVCC and how many borrowers it was hurting, not helping when they implemented Appraiser Independence. AMC's work most often with appraisers they do not know, do not supervise and in many cases perform no quality control over whatsoever. Just the first month Appraiser Independence has been in place for us in the reverse mortgage industry has been extremely perplexing for senior homeowners.
Case in point, we ordered an appraisal with an AMC in Fort Lauderdale Florida. The AMC assigns an appraiser with just a couple years experience who made a mockery of the appraisal process. Without going into the entire issue, the borrower who is just steps from the ocean has had to wait through a delay of almost a full month already while we cannot even contact the appraiser and the novice appraiser (once we finally did get the appraisal we were then able to check on credentials) stands firm on the choice of land locked comparable sales over those in the same neighborhood which all support higher values.
also received an appraisal today from an appraiser who made the
disclaimer in right on the appraisal:
In accordance with HUD Mortgagee Letter 2009-28 (Appraiser Independence) FHA appraisers are not prohibited by the lender, AMC or other 3rd party, from recording the fee the appraiser was paid for the performance of the appraisal in the appraisal report. Appraiser will be paid $120. (bold emphasis is from the appraiser) $120 for an appraisal for which the borrower paid $440 and the AMC did absolutely nothing. The appraiser went to the borrower's home, performed the work and because HUD has this requirement, the appraiser just received a pay cut of 73%! And this is how HUD believes they will get better quality appraisals?
have all former lending associates working in our company, some with 20
or more experience and some with as much as 33 years of mortgage banking
experience, working for direct lenders. We may have had one or two loans with appraisal conditions which
considered serious and possibly one or two suspended loans due to
issues all last year because we take the time to resolve appraisal
our customers before we submit the loans to the lender for underwriting,
the borrowers time and money. Now we
don't get to even see the appraisal until after the loan has been
and we have had 3 serious appraisal problems, two resulting in suspended
in the first 5 loans the lenders underwrote with the appraisals supplied
That equates to 60% of the loans so far having poor appraisals since being forced to use lender AMC's for FHA reverse mortgages for us so far. I guess most of the time you get what you pay for - the appraiser who wanted to tell the world he only received $120 to complete his assignment actually did a very thorough job on his appraisal, but I wonder at that fee how long he can afford to keep putting the effort in to keep his appraisals at that quality or if he will have to throw up his hands and cut corners to increase volume.
appraisers genuinely want to do a thorough and valid job but they can't
for $120 per assignment. We also have to
be fair and say that this is written after working with only two
AMC's and their appraisers. However, we
have also gotten other feedback so it appears the quality of the work is
under this system, and may be sinking fast so the intent behind the
Appraiser Independence is becoming appraisal nightmare for all HUD borrowers and the senior borrowers who rely on the reverse mortgage product are feeling it the worst. We are looking forward to finding and working with AMC's who utilize and pay experienced appraisers well and we will follow up if we find that the experience changes. If the quality and appraisal issues do not improve and HUD does not take positive steps to alleviate these issues, all borrowers may be subject to some very tough lending ahead.
Read our first blog post on appraisal independence dated 12/07/2009
Please share with us your comments below!
Michael G. Branson, CEO - All Reverse Mortgage Company
Phone: (888) 801-2762