February 3, 2010
Representative Paul Holvey and the Consumer Protection and Government Affairs Committee
RE: HB 3624
I attended the hearing today at the Capitol. It seemed to me that a general overview of the history of Appraisal Management Companies (AMC) and how this HB 3624 came to be before you would be helpful.
Appraisal Management Companies provide a useful service to lenders. The AMCs have been in existence for about three decades. When the Federal Financial Institutions Reform Recovery and Enforcement Act of 1989 (FFIREA) was passed to bail out the Savings and Loans, it mandated that all states maintain a licensure program for appraisers. Oregon was progressive in this area, having already a program in place for licensing of appraisers. As a result of FFIREA the Appraisal Certification and Licensure Board of Oregon was created.
FFIREA dictated that lenders had to maintain a list of appraisers that the lender approved to do the lenders appraisal work. And, the lenders had to keep copies of appraisers’ licenses and other documentation. This was a large burden for many lenders. So, they sought to outsource this responsibility. The AMC’s were there to fill this need.
Over the years AMCs grew into larger and larger companies that handled a very large percentage of the appraisal ordering in the United States.
The business model of many AMCs is to require a fee from the lender (paid by the consumer) to cover the cost of the AMC’s activities and to pay the appraiser. The AMC’s business model includes creating the largest spread they can between the money submitted to the AMC by the lender and what the AMC pays the appraiser.
This business model is the primary cause of the friction felt in the daily business of appraisers providing appraisal services, and the escalating cost of appraisals to the public. Although AMCs provide a useful service, their urge to create a larger and larger spread between what they collect from lenders (paid by the consumer) and what they pay appraisers has increased greatly.
The Home Valuation Code of Conduct (HVCC) which went into effect last May 1st resulted in a sharp spike in the use of AMC’s by lenders. Now the AMCs have much larger control over the industry. They admit that they now handle over 60% of ALL APPRAISALS ORDERED IN THE UNITED STATES. That statistic represents ALL APPRAISALS, NOT JUST APPRAISALS FOR FINANCE.
I don’t agree with the idea, presented to you today in testimony, that because the AMCs are the only group in the food chain that is not regulated that they ought to be. I feel that regulation should not be imposed unless the subject of the regulation is acting badly and refuses to self manage.
I suggest that the AMCs fall into this “bad actor/non self manager” category. In their zeal for profits they are weakening the relationship between the appraiser and the borrower and eroding the “Public Trust” that we appraisers are required by law (USPAP) to maintain. Our Uniform Standards of Professional Appraisal Practice (USPAP) are about 350 pages of documentation that describe what it is that we are charged to do, when conducting an appraisal, so as to protect the public and maintain the public trust.
The AMCs, by their controlling the appraiser population have become quite manipulative, as you heard in testimony today. They are building huge profits for themselves at the expense of the consumer. And, they are eroding the quality of appraisal practices performed by licensed appraisers.
The ultimate looser in this relationship between consumers, lenders, AMCs and appraisers is the consumer. They pay more and get less.
Thank you for your time. I hope this has been helpful.
Ralph K. Olsen, MAI, SRA, IFA
Pacific West Appraisal Services, Inc.
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