Monday, September 20, 2010

Appraisers and Fee Splitting with AMCs.

I just sent the letter below via snail mail to Sandra Braunstein, who is working with others in her department of the Federal Reserve Board considering the portion of the Dodd/Frank Financial Reform Legislation dealing with home appraisal fees. We'll see if I get any response and/or if any response I receive will be anything other than a form letter.

For non-appraisers looking this over, this likely makes little sense and, doubtless is of little concern to you. However, if anyone who reads this happens to be an appraiser, or is in some manner connected to the mortgage lending industry - including any working for appraisal management companies - I'd appreciate it if you would read this through and make any comments - pro or con - which you may have. Especially let me know if you disagree or find any egregious errors in my letter. I won't mind hearing from you if you agree either. :)

Also, I would encourage other appraisers to send letters off to Ms. Braunstein in the hope of strengthening our position as regards AMC fee splitting. I think it's well past the time when we should stop being given the shaft by AMCs. Note that I obtained Ms. Braunstein's name and mailing address from the latest on-line edition of Working RE.

Sandra Braunstein
Division of Consumer and
Community Affairs
Federal Reserve Board
1709 New York Avenue
Washington D.C. 20006

Ms. Braunstein:

I am writing this regarding the consideration currently being given to the portion of the Dodd/Frank Financial Reform Legislation concerning residential appraisal fees and the bill's language which indicates that those fees should be "customary and reasonable."

I agree with TAVMA (Title/Appraisal Vendor Management Association) that the language is vague. However, Appraisal Management Companies or AMCs are standing in opposition to any regulation or directives concerning appraisal fees.

First, a bit of history: AMCs are a relatively new phenomenon. They first appeared either in the late 1970s or sometime in the 1980s. They developed in response to changes in the mortgage lending industry - mainly its movement away from generally local and locally owned banks and other mortgage lenders to regional and national institutions. As it stands today, there are few local lending institutions. As this movement increased, it became less desirable for lenders to maintain local offices and staff and contacts with local appraisers. During the past 25 years or so, it gradually became more common for lenders to seek the services of AMCs from which to order appraisals. That, in and of itself, is fine.

However, in the early years, the change to AMCs was slow. Old habits die hard. It was often a hard sell. The chief problem was, of course, cost. Lenders did not want to pay any more for an appraisal ordered through an AMC than if they had contacted the appraiser directly. "No problem," said the AMCs. "We’ll simply take our portion out of the appraisal fees you are currently paying."

Observing this formula AMCs generally made contact with primarily younger or more accurately, less experienced appraisers who were perhaps having difficulty establishing a clientele. Many such appraisers were willing (if not happy) to accept lower fees in order to obtain work. More established appraisers were outraged at this. Fees for residential appraisals had developed over many years and were, for the most part, reflective of the time and expertise required to properly and professionally complete assignments. The lower fees being paid by AMCs were rightly seen as a threat to an appraiser's ability to be competitive, to continue to do professional quality work, and frankly, to make a living. This has been an ongoing fight within the appraisal industry for years.

The advent of the HVCC (the Home Valuation Code of Conduct) originally negotiated between Fannie Mae and the State of New York and then adopted nationwide, effectively mandated that lenders could no longer have direct contact with appraisers which then had the consequent effect of opening the flood gates for AMCs. When the HVCC officially went into effect in May of 2009, many appraisers literally lost all of their clientele overnight. They were left to scramble about, searching for and signing on with AMCs in the hope of getting work. Many gave it up and left the business entirely. There are today, fewer licensed or certified residential appraisers nationwide than at any time since the early days of nationally mandated licensing in the early 1990s.

What it comes down to is what constitutes "customary and reasonable" fees? Obviously, the AMCs want that figure to reflect what they generally pay appraisers for their work. The question then is: Why should the appraiser be expected to take less for the same work ordered by AMCs than he or she was normally receiving directly from lenders?

The services provided by AMCs do nothing to enhance the appraiser's condition. The AMCs would argue that they provide a major work source. That is a strawman argument as, if AMCs did not exist, lenders would still require appraisals. The work would still be there.

The fact is that ALL of the benefits of services provided by AMCs accrue to the lender. Lenders using AMCs, both before and since the HVCC, were and are provided the convenience of using just one or perhaps two or three AMCs as sources for most or all of their appraisal needs rather than maintaining long lists of appraisers across the country. As time passed, the AMCs developed reviewing capabilities which had the effect of reducing the work load for lenders. They could either eliminate staff and/or redirect their efforts in other, perhaps more profitable, endeavors. Again, all of these and other services which AMCs provide benefit only the lender. Why then should the appraiser be expected to pay for these services out of his or her fee?

It should be noted that some AMCs often receive as much as 60% or more of the total fee collected from the lender for an appraisal leaving what is often far less than half of the fee for the appraiser - the individual who actually performs the work.

It is my opinion, and one that is, I believe, shared by many in the industry, that if lenders elect to use AMCs (and it is still technically an election, not a mandate) that any monies paid to AMCs should be a separate fee, not connected to the appraisal itself. It is the appraiser who performs the inspection, who performs the research, who completes the report, and who is primarily liable for its conclusions. The lender should pay for services received. The days of "fee splitting" should end.

I understand in your capacity your primary concern is rightly for consumers, with what is best for them, and perhaps, what is best for the housing and mortgage lending industry as a whole. I also understand that appraisal fees are of little concern to the average mortgagor except insofar as they are obligated to pay them. But, there are other considerations.

Recent surveys conducted by various appraisal organizations and publications, of which I expect you are aware, have found that many appraisers feel that quality and reliability of appraisals have declined since the implementation of the HVCC. This decline is largely owing to lower fees with AMCs often awarding assignments to the lowest bidder, coupled with pressures on appraisers brought to bear by AMCs for quick turn-arounds of reports. Completed reports are considered due often as little as 24 hours after the inspection which doesn't allow for careful consideration of assignments. Well considered and accurate appraisals are vital to the current and future health of the mortgage and housing industries. A bit of justice regarding appraisal fees could be a small, but not insignificant step toward that goal.



Tuesday, September 14, 2010

Honey Nut Clusters - Redux!

As some may know, I have waged an on-going, and oft-times fruitless effort to find what has become my favorite breakfast food - General Mills' Honey Nut Clusters cereal. I have written, I think, at least three separate articles here in this regard. This, then may be number four.

Someone recently added a comment to one of my earlier "Clusters" posts stating that he (or she) had heard that GM had discontinued production of Honey Nut Clusters. Well, the latest information I received is that is NOT the case. I took it upon myself to once again contact GM and get the latest 'scoop' on Clusters.

According to the good folks at General Mills, they STILL make Honey Nut Clusters. I received essentially the same response to the same query a couple of years ago. They went on to say that shelf space in groceries is limited, and that the various grocery chains and individual stores must make the hard decisions as to what products they provide for sale. I find that a bit disingenuous in that the average cereal aisle in most of the larger grocery chains runs for about a city block with what seems literally hundreds of choices. It just seems that these stores could come up with the 8 or 9 inches needed to accommodate most cereal boxes for one little row of Clusters, but alas, apparently not. They have no trouble carrying volumes of "Chocolate Frosted Sugar Bombs," and their many variants which our increasingly pudgy and rotten toothed kids eat by the barrel full, much to the chagrin of nutritionists and dentists.

As I noted some time ago, I happened to find Honey Nut Clusters at a local Meijer store. I was thrilled and made periodic trips there usually buying 2 or 3 boxes at a time. No more. Meijer stopped carrying Clusters a few months back.

There remains only one store anywhere in the Indianapolis market where I can still get a fix for my Clusters 'Jones;' that being the Safeway store at 56th St. & Illinois on the north side of Indy. As it happens, I am a real estate appraiser, and I drive all around central Indiana about everyday. I find myself near the Safeway store probably a couple times a month. Other Clusters aficionados may not be so fortunate. If any other stores around here carry Clusters, I haven't found it or them. I even tried another Meijer store to no avail. I also filled out a product request card  at our local Kroger store, which is where we normally shop, but never received a reply - and NO Honey Nut Clusters on the shelf! I recently filled out another such card. We shall see. Just as a suggestion, some of you Clusters junkies might try bugging your local grocer - fill out a few of those cards or whatever. You might have more luck at an independent or small chain store than at one of the gargantuan monolithic monster chains.

I believe Honey Nut Clusters can be purchased on-line through Amazon and perhaps other sites, but you must purchase an entire case at a cost of around $65. for what I believe is a dozen boxes. That comes down to $5.41 a box plus shipping. I think I pay around $4.75 per box at Safeway. They are, in any event, kinda pricey. But, hey, who cares when it comes to eating all that crunchy, honey, nutty, flakey goodness, right?

One not initiated to the wonders of Honey Nut Clusters might deservedly wonder what all the fuss is about? Well, just let me tell you...uh, not much really. There is really nothing particularly spectacular about Honey Nut Clusters. Yet, they are like anything people get a hankering for. For some it's beer - perhaps a certain brand of beer. For others, maybe it's some kind of chips, or chocolate, say specifically Godiva, or maybe just a good old Snickers bar. I'm not much of a beer drinker, but I certainly can joyously eat most any kind of chips and most any kind of chocolate. Yet none of that comes down to a specific item for me. Nothing does, but Honey Nut Clusters. Go figure. :)