Prior to 2008, if you walked through the halls of any mortgage business, you would hear loan officers on the phone with appraisers cajoling them to give them a value they needed for a refinance or a high purchase price.
Most appraisers pushed back, but they also knew that if they didn’t play ball, they might not get more orders.
There were also appraisers who never pushed back and would push values to a ridiculous degree, sometimes committing outright fraud with fake photos of pools, remodeled kitchens, and more.
So, it was for good reason that regulators pushed for new regulations around appraisals.
Home Valuation Code of Conduct (HVCC) Rules Surfaced in 2009
New appraisal regulations first surfaced in 2009, requiring lenders to use Appraisal Management Companies (AMCs) instead of going directly to appraisers.
Lenders would simply place an order with an AMC and the AMC would in turn randomly place the order with an appraiser in their pool.
And – it was a huge boon for some incredibly incompetent and slimy AMCs.
For starters, they would keep large portions of the appraisal fee and share far too little with the appraisers who did ALL of the work.
But, worse, they often hired totally incompetent appraisers, and we had appraisal after appraisal come in way under value, due to sheer incompetence, and there was nothing we could do about it.
Yes, we could formally rebut values, but the AMC managers would push back every time simply because it was easier, they had a captured market, and they knew we had little recourse.
This is a major reason we left the broker channel in 2015 (for the mortgage banking channel). We were losing too many deals and it was severely damaging our reputation.
Mortgage Banks Can Build Out Their Own Pools of Appraisers
Mortgage banks are allowed to build out their own pools of handpicked appraisers – and that was essential for us.
That does not mean, though, that lenders can still go to individual appraisers with orders. They must still randomly select appraisers from their pool.
That also does not mean that loan officers (or anyone involved in “originating” or getting paid for loans) can speak with an appraiser.
Only individuals in an appraisal department, completely removed from the origination channel, are allowed to speak with appraisers – and they, of course, cannot ever “push” for a value.
They can discuss concerns after appraisals come in, but even those situations are tightly regulated (requiring borrower involvement).
So, yes, lenders can talk to appraisers, but loan officers (and anyone else getting paid when loans close) can’t. And even when lenders can talk to appraisers, it is under tightly regulated and controlled circumstances.
Sidebar #1: Several years ago, we were partnered with a mortgage bank that forced us to use an AMC instead of our own pool of appraisers (for reasons we could never discern), and the AMC was horrific. In the DFW area in particular, we had numerous appraisals come in under value, and it severely impacted our reputation. It was so bad in fact that we could no longer work with that mortgage bank. It was also a nice reminder of how effective it is to have our own pool of appraisers.
Sidebar #2: Not all AMCs are bad, and some are absolutely excellent. These are the AMCs where the founders/owners are appraisers themselves and still very much involved in operations and concerned about appraisal quality.
