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Lawmakers Call Appraisal Management Firms Into Question

At a House of Representatives hearing titled ""Appraisal Oversight: The Regulatory Impact on Consumers and Business,"":http://financialservices.house.gov/Calendar/EventSingle.aspx?EventID=300543 Thursday, Congress reviewed testimony on recent and impending changes in the appraisal industry. One issue of focus during the hearing was the rise of appraisal management companies (AMCs) and their validity and necessity in the market.

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According to a recent report by the Government Accountability Office, AMCs have grown from 15 percent market share to between 60 and 80 percent market share over the past few years.

Defending the role of AMCs, ""Don Kelly,"":http://financialservices.house.gov/UploadedFiles/HHRG-112-BA04-WState-DKelly-20120628.pdf executive director of the ""Real Estate Valuation Advocacy Association,"":http://www.revaa.org/ stated that these companies serve as barriers between lenders and appraisers to prevent lenders from coercing appraisers into altering their objective view of a property's value.

""Overzealous mortgage brokers and lenders were partly to blame for overvalued properties and inflated appraisal values, as they used the promise of future business in a booming market and higher appraisal prices to influence the ultimate valuation conclusions made by licensed and certified appraisers,"" he stated in his testimony.

AMCs prevent this ""by acting as the sole point of contact between the lender and appraiser,"" Kelly said.

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Kelly explained that AMCs function as centralized appraisal sources for large mortgage lenders that operate nationally or in several geographic regions.

While his testimony insisted that AMCs verify their appraisers' credentials and select appraisers based on expertise and geographic proximity, other witnesses argued that AMCs largely base their assignment decisions on two factors: fee and turn-around time.

""Instead of selecting the best appraiser to complete the appraisal assignment on the basis of experience, knowledge and competency, the assignment is often awarded to the vendor responding first to an email blast sent to dozens or hundreds of appraisers that happen to be on the AMC panel in that state,"" said ""Fancois K. Gregoire,"":http://financialservices.house.gov/UploadedFiles/HHRG-112-BA04-WState-FGregoire-20120628.pdf speaking on behalf of the ""National Association of Realtors (NAR)"":http://www.realtor.org/.

Gregoire also suggested that AMC personnel ""are often non-appraisers with only a cursory knowledge of valuation,"" who ""interfere with appraisal independence by asking or insisting that specific observations about the property, comparable sales, or market be excluded from the appraisal report.""

Gregoire also asserted NAR's view that ""all AMCs should be required to register with state appraisal regulatory bodies where they are providing appraisal management services."" Currently, AMCs owned by federally-regulated financial institutions do not have to register with their state appraisal regulatory bodies.

Congress also looked to witnesses for their views on the progress of the ""Appraisal Subcommittee (ASC)"":https://www.asc.gov/Home.aspx. Consensus was that there is room for improvement, but the committee is making some progress.

""The ASC is a much different organization than it was just seven months ago,"" stated ""David Bunton,"":http://financialservices.house.gov/UploadedFiles/HHRG-112-BA04-WState-DBunton-20120628.pdf president of the ""Appraisal Foundation."":http://www.appraisalfoundation.org/ ""I attend every single one of their meetings and the difference between now and then is night and day.

However, Kelly said, ""We'd like to see the ASC move a little quicker.""

About Author: Krista Franks Brock

Krista Franks Brock is a professional writer and editor who has covered the mortgage banking and default servicing sectors since 2011. Previously, she served as managing editor of DS News and Southern Distinction, a regional lifestyle publication. Her work has appeared in a variety of print and online publications, including Consumers Digest, Dallas Style and Design, DS News and DSNews.com, MReport and theMReport.com. She holds degrees in journalism and art from the University of Georgia.
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