Owner Occupancy Ratios; Appraisal Management Companies – Problems & Solution
Reminder: Owner-occupancy ratios for condos are irrelevant if a buyer plans to occupy the unit; owner-occupancy ratios can be well under 50%.
One of the primary reasons we left the broker channel in 2014 was appraisal issues. The wholesale banks forced us to use large appraisal management companies (AMCs), and it was a nightmare.
Prior to the meltdown, lenders could engage appraisers directly, and not all of the appraisers were honest and above-board. As a result, new appraisal rules were enacted that set up AMCs. Lenders were forced to order appraisals through the AMCs, and the AMCs would randomly choose an appraiser on their panel.
There were two issues: (1) The AMCs often paid the appraisers far too small of a portion of the fee. This was blatantly unfair and it created a disincentive for appraisers to do their best work; and (2) AMCs often could not control (or could not care about) quality, using unskilled and inexperienced appraisers.
Numerous transactions blew up during our broker days solely b/c of incompetent appraisers, and there was nothing we could do. It was infuriating.
Now that we are in the “mortgage banking channel,” we do not use the large AMCs, but instead use our own internal AMC that is still compliant but staffed entirely by highly skilled, competent and local appraisers of our choosing. This is a key to our success and it is why many mortgage banks have much better track records when it comes to appraisals.
This Washington Post article explains how the AMCs are retaining large fees, and how they blame appraisers when borrowers complain.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167