The volume of appraisals being completed within the last year has slowed down due to new regulation that has been imposed for the industry. And one executive at a national appraisal management company thinks the rule changes are good for the housing market, but businesses are having a difficult time adjusting to keep up with all of the regulatory oversight.
Brad Froehlich, chief appraiser at US Real Estate Services, said his responsibilities have changed drastically in order to remain in compliance to all of the new rules that have been issued on a federal and state-by-state basis. In an interview with National Mortgage News, Froehlich said he used to do more work on the quality control side of the operation and escalated the appraisal review, but his focus has basically shifted now entirely to compliance.
Some of the common changes appraisal management companies have to adjust to that didn’t exist back in 2007 include higher state fees, changes to the engagement letters that are sent out to appraisers, warranty insurance and third party audit reviews.
Another problem is that just over half of the states have any sort of formal AMC policy. Additionally, every state has slight nuances in their rules compared to another. For example, some have third party review oversight while others don’t, as well as continuing education requirements for AMC staff members vary in every state.
“We’re now in the Dodd-Frank era of regulatory oversight and there is going to be a tremendous amount of energy centered around rules, regulations, and guidance regarding third party oversight as it relates to the mortgage industry,” Froehlich told this publication. “At this point, we’re just trying to get a handle on not just a state-by-state, but where the direction of focus of regulatory reform is going to align not only in the laps of an AMC, but also appraisers.”
Also challenging appraisal management companies is that many states are currently requiring background checks on the appraisers that are getting certified.
“Obviously, we want our appraisers to be good players and having a background check is a necessary implementation in ensuring that we have the right people entering a person’s house for an origination appraisal,” Froelich said. “So it’s important, but in token, when you have four or five different lenders asking for a different background check, you now have to go back to an appraiser and get multiple background checks.”
Froehlich mentioned that these rules don’t help appraisers—where the profession’s average age is 50 years old—do their jobs in a timely manner. Most appraisers that might have previously been able to finish two inspections a day now can only complete one.
Furthermore, with the background check rule, appraisers constantly now have to get life scans and fingerprinted depending upon what a particular client is asking for. Therefore, they’re not in the field as often doing an actual appraisal.
“The criteria along the actual requirements within the body of the appraisal have extremely been tightened. So appraisers are taking, which is necessary, longer to develop a well-supported appraisal,” Froehlich added.
Overall, compliance will continue to be a major driving force for the entire mortgage industry, in particularly appraisers, to adhere to. If AMCs are successful in adjusting to these changes, it will help solidify the valuation products that originators use to make sound collateral decisions.
“I’m not saying this is not a necessary process, but it’s just more time and energy to the extent in securing the vendor panel than what was previously applied in year’s past,” Froehlich said. “It requires a lot of hands-on due diligence.”
