When I speak to executives at appraisal management companies, they often say that one of their main concerns is maintaining profitability. Running a compliant and profitable business is difficult enough in any market, but with the current state of the appraiser pool and new regulations, escalating operational costs are really reducing the AMCs' profit margins.
There are a few main culprits that are impacting their profitability. First, there are the new valuation-focused regulations, which are causing many AMCs to spend more time scrutinizing and reviewing each file.
There's also the rising cost of goods. As with any trade, veteran professionals are retiring and leaving the appraisal industry. However, there isn't an influx of new appraisers to balance out the loss. This constricting talent pool means that good, qualified appraisers can command a higher fee. AMCs needing to improve overall profitability may use an appraiser that has less experience and thereby costs less. Needless to say, this business practice can seriously impair overall quality and future business opportunities with the customer.
It follows then, that AMCs are looking for new ways to maintain good client relationships, deliver a quality product, save costs and at the same time ensure that they are compliant with the new regulations.
So what's an AMC to do? How can AMCs generate high quality, compliant appraisals while protecting their profitability? If an AMC wants to maintain success both short term and long term, they need to be lean, flexible, and prepared. They need to create and follow a program that minimizes operating costs, leverages technology, maximizes staff and vendor performance, and keeps them abreast of industry changes and regulations.
First, they need manage fixed costs. It's absolutely imperative in today's market to have a flexible, scalable model to be able to quickly adjust to market's volume demands. In today's interest rate sensitive environment, it's amazing how an interest rate fluctuation will make your staffing plans inefficient within days of the rate change.
AMC's must stay compliant and protect the quality of the appraisal product. An AMC can build a variable cost quality assurance team that maintains a 20-hour review process supplemented by manual review. It is also possible to partially automate the quality assurance process using innovative technology. This allows for the AMC to reduce fixed costs, yet improve efficiency and quality.
Just as an AMC should maximize performance from staff, it's important to create a high performance environment for vendors. All customer/vendor SLAs have contractual agreements that clearly define performance metrics.
It is good to work with partners who focus on continuous improvement in these reporting metrics and not just meeting the requirements. While you go about tracking transformational initiatives with your partner monthly, it is also needed to build a process task management team to assist day-to-day operations with automated communication between the lender, AMC and vendor partner.
Remember, no industry is static. The mortgage industry, especially lately, is a maze of regulatory twists and turns.
AMCs are required to stay apprised of the industry's compliance requirements and changes. Being caught unaware may lead to potential fines and lost revenue. Each AMC should have access to compliance experts.
However, to optimize fixed costs, most AMCs will find it much more cost effective to utilize a partner compliance team rather than paying year-long salaries for skills they only need periodically. The partner's compliance team will then act as an extension of their compliance department. Partners will typically invest in relationships with compliance experts and will also build technology based knowledge-base that they can refer to readily, while managing day to day operations.
AMCs have a lot of new challenges on their plates. It's important to remember that challenging markets are great times for AMCs to grow. Those that manage their operations well and work with the right partners will be able to survive and thrive, while the others fall by the wayside.
Corey Hulbert is assistant vice president and head of appraisal business at SLK Global, a leading business process and software services provider. Corey has 18 years of experience in the appraisal industry, and is USPAP certified. SLK Global focuses on providing BPO services to mid-sized and large financial services organizations in the U.S. banking, mortgage lending, title insurance and other financial services sectors.