The TAVMA Blog

The New Bifurcation of AMC Oversight

noreply@blogger.com (Jeff Schurman) — Thu, 19 Aug 2010 14:50:00 +0000

What does not kill me, makes me stronger.
Friedrich Nietzsche
Twilight of the Idols, 1888

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Two years later, Nietzsche died, insane, attributed by some scholars to an earlier date with "Old Joe." If Nietzsche was alive today, sure, he’d be 166 years old, uncomfortable, and (still) insane. But he’d also witness validation of sorts of his now-infamous observation. That’s because State appraisal (transaction) management-company (AMC) registration will drive some AMCs insane and probably kill them; others will be made stronger.

The recently-passed Dodd-Frank bill (H.R. 4173) amps it up by exempting bank-controlled AMCs from state AMC registration. They are made stronger. Now the independent AMCs need to make the case for parity.

Appraisal law has been uniquely federal since the adoption of FIRREA in 1989, and registration of AMCs ought to be similarly tied to the federal oversight system. State-by-state registration will prove wildly inconsistent and labor-intensive for AMCs and state boards, administration- and compliance-wise. The fact that there are less than fifty “national” AMCs in the country virtually assures that registration fees will fall far short of the cost to administer these programs. There aren’t enough single-state AMCs to make up the shortfall.

I’ve not come around to see the cost/benefit of state-AMC registration on the valuation eco-system. A federal framework would result in a more efficient national registration process for AMCs (one time versus fifty times). As I’ve argued before, it offers benefits to the system that state-by-state registration simply can’t. So the exemption of bank-controlled AMCs from state AMC registration is a step in the right direction.

But only if bifurcation (division into two) of the AMCs regulatory system leads to a single federal oversight system for all.

And even if we disagree on this point, consider: Several states’ registration statutes exempt bank-controlled AMCs. Dodd-Frank seems not to be precedent-setting.

AMC Registration Fees: Beating the horse one (hopefully) last time

noreply@blogger.com (Jeff Schurman) — Fri, 13 Aug 2010 20:38:00 +0000

Regulatory agencies charged with overseeing states' appraisal management company (AMC) registration program are challenged to decide how much is too much when it comes to registration fees.

Some states, like Arkansas ($500) and California ($150), aren’t pushing the envelope too far. Others are. AMC registration fees in several states approach $2,500 to $3,000 per year. That’s way too much. Unless their objective is to keep small and mid-size AMCs away.

For the record, I have only a wee indirect stake in the great fee debate, as it relates to membership dues not earned if an AMC folds; not enough to whine about fees as one commenter put it. So why bother writing about it here (and here and here and here)?

My main purpose is to point out, through reasoning backed by 5th grade mathematics, that high AMC registration fees will prompt AMCs to seek alternatives to becoming registered. Thus states with high fees will fall short of revenue projections, harming taxpayers, consumers, appraiser board budgets, and politicians sold on the notion that AMC registration fees will cover expenses, which they won’t.

Consider two reasonable alternatives to registering in high-AMC fee states.

The math behind the claim
Some estimates put the number of AMCs at around 300 firms, although I think there are fewer. Using 300 as the number of AMCs, and assuming that each of them registers with a state sporting a $2,500 registration fee, the state would collect $750,000 in fee income ($2,500 x 300 = $750,000). If only one-half register, that’d still be a big number ($2,500 x 150 = $375,000). So far so good, right? Wrong.

At $2,500 a year an AMC doing say 25 orders in the state would pay the equivalent of a $100 registration fee per order ($2,500/25 = $100). That’s in addition to the $25 per in-state appraiser on its fee panel paid to the federal government. An AMC doing 75 orders a year there would pay $33.33 per appraisal ($2,500/75 = $33.33) plus $25 per in-state appraiser on its fee panel to the feds. By comparison an AMC working in California would pay $6 per order in registration fees for 25 orders per year, and $1.50 for 75 orders per year. That’s a big difference. Especially when we consider that bank-controlled AMCs are exempt from state registration fees. The higher the per-order registration fee paid by independents the more the competitive advantage bank-controlled AMCs have.

What’s likely to happen in states that charge big-dollar registration fees is that maybe ten (10) AMCs will register. Some may say, “Nirvana! No AMCs in my State!” However, regulators probably will see this circumstance as a big deal. Legislators who sponsored or voted for AMC registration might be miffed. It may also concern consumers. To the extent that AMCs stay away consumers will be left with fewer choices among mortgage providers: 1) Lenders that don’t utilize AMCs; 2) Lenders that rely on in-state AMCs that pony up the fees; and 3) Big banks that own or control AMCs.

Many states don’t have any in-state AMCs and as a result their options are limited to number(s) 1 and 3. And it is this option, Option #3, that suggests a second alternative for AMCs to explore and consider.

(Note: What follows is not a legal opinion. I’m not a lawyer, have not consulted one, and am happy in the decision to pursue a liberal arts rather than a law degree. AMCs and inquiring minds on all sides should obtain legal counsel and check with authorities in the state(s) before making any alternative arrangements to registering as an AMC.)

One guy’s alternative is another’s unintended consequence…
One way to tell if a statute or regulation is workable in real life is to consider both the alternatives and unintended consequences. If for instance, a state was to enact a law requiring out-of-state drivers to obtain an in-state driver’s license to traverse the state’s highways an obvious and perfectly legal alternative would be to take an alternative route, one that doesn’t pass through the state. For the state it is (probably) an unintended consequence. Officials don’t want drivers to stay away; just follow our rules and pay our fees. But drivers will pass.

Travelers who don’t want to invest time and resources in obtaining and keeping current a license have yet another choice. They could invite someone who has the required license along for the ride. Or arrange for a driver to meet up with them at the state line.

The same alternatives seem reasonable for an AMC in high-registration fee states. If I was running an AMC, even one of size, my first thought would be to explain to my clients that I don’t cover the state. Why not? Insurance companies, mortgage lenders, and title agencies do this all the time in areas they don’t cover. Unless I was a big AMC, I’d give a lot of thought to passing on the business.

My other thought would be to “pass on” the business – literally. I could pass it on (or pass-through) the order to a bank-owned AMC. How out of whack is that? A small-time operator hiring a mega-competitor to work for me? Shouldn’t it be the other way around? Not when it is cost-beneficial to let someone else manage a transaction rather than doing it oneself. (This is the same mental gymnastics lenders deploy to assess whether it makes sense to manage their fee panels in-house or hire AMCs to do it for them.)

But why hire bank-owned AMCs? As mentioned, they don’t have to register; I do. So it ought not be a big deal to process my transactions even though I’m a (much smaller) competitor. I wouldn’t be placing the order with an appraiser; they would.

A few AMC contacts have asked, wouldn’t I worry that a bank-owned AMC might poach my client? It’s possible. But unlikely. These AMCs are managing thousands of orders a day so my one- or two-off client probably won’t be a big game target for them. Besides, these sorts of arrangements happen all the time. Vendor management companies, for instance, often sub-out title work to underwriter in states where they can’t operate. I’ve never heard of poaching being a widespread problem. And of course I’d ask for a contract.

If I was worried about my client being poached I’d sub the work out to 2 or 3 different bank-owned AMCs. This way I’d mask the true size of my client’s book from each. And I’d remain vigilant for signs of trouble. But I wouldn’t obsess.

So what to do?
If I’m a small or mid-size AMC that is given the choice to either become registered at $2,500 or $3,000 a year, decline work in the state, or hand off the occasional assignment to a duly registered competitor, I’d either turn down the work or sub it out. I wouldn’t spend the big money to register. I’d concentrate on low-fee states where my clients mostly do business.

Alternatively, if a state charged my AMC $150 a year, and it falls within my regional or national service area, I’d register.
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Comments on the specific topic of this post are welcomed. Remember though, the TAVMA Blog picks and chooses to post comments and doesn't post rants, off-topic rants, or rants about off-topic topics. For those you'll need to get on your own soap box... not mine. JS
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A few thoughts on bank-owned VMCs

noreply@blogger.com (Jeff Schurman) — Tue, 20 Jul 2010 17:41:00 +0000

I’ve learned over the years that certain topics have a way of fanning the flames of passion among some readers. This is one of them. The topic: Bank-owned Vendor Management Companies (VMCs). The passion: That they’re bank-owned.

Many people don’t like the idea of banks owning or affiliating with VMCs. Their reasons are numerous, and I know better than to try to tackle them all in 850-words. So I won’t even try. Instead, what I'll present here are my thoughts about why some mega-bank mortgage lenders might choose to own their title and appraisal supply chains rather than manage independent fee panels and suppliers, or job panel management out to independent VMCs.

It might help to put yourself in the mind frame of the title and appraisal supply chain manager, at say Wells Fargo & Company, as you work your way through this post. Playing an active role in the decision-making process vis-à-vis alternative ways to acquire title and appraisal products might add a new perspective to the exercise.

Mega-banks and daily title/appraisal order volumes
Mortgage data on the National Mortgage News website, specifically Residential Lenders by Total Volume for 1Q 2010, suggests that about fifty-nine percent (59%) of the mortgages that WF originated last quarter were retail loans. That equates to around 212,000 loans. Let’s suppose that each of these loans was originated through some combination of the banks 5,000 plus branches, its B2C website, and other consumer interfaces. Let’s also suppose that each transaction involved a title and appraisal order facilitated by WF’s VMC arms, Rels Title and Rels Valuation respectively.

This means that Rels processed around 3,500 title orders and 3,500 appraisal orders per day throughout the quarter based on an average of twenty (20) working days per month. That’s a combined 7,000 orders per day!

As a supply chain manager you’re always worried about the production pipeline seizing up due to order volume overload. It’s what keeps us up at night and on edge throughout the day. At 7,000 orders-per-day that’s a lot of production pipeline and vendor management to worry about.

So as WF’s supply chain manager what are your options? As I explain elsewhere a lender has exactly two options for managing their title/appraisal supply chains: Do it ones self or hire someone else to do it. So these are your options. Choose one.

Do it yourself
This option means finding, engaging, qualifying, and overseeing fee panels of upwards of 20,000 each of appraisers, title abstractors and closing agents. You’d need to rent a large building and a sea of cubicles, telecommunications and advanced information technology, hire and train staff, monitor their performance, staff up when volume spikes, lay off when volume drops. Your staff would be responsible for managing supplier relationships, workflow, accounting, customer service, quality control, and related functions.

At 7,000 combined orders per day you’d need a very large staff. Consider that Rels on its website states that it employs over 1,000 people! As a lender going it alone you’d need at least that many people and with no guaranty they’d be anywhere near as productive as an in-house supplier would be!

Hire someone else
This option means hiring someone else to manage the fee panel. This entails hiring several large independent VMCs or creating an in-house VMC; perhaps a combination of both. You might also choose to hire a large number of small VMCs, each handling specific markets on your behalf. Either way though, you’ve outsourced direct fee panel and order management to someone else and freed your staff of say 25 or 50 people to manage these multiple VMC relationships. And that is precisely the route that many mega-lenders have taken.

Own or buy
So why would a mega-bank that’s opted to outsource supply chain management prefer an ownership stake in an in-house VMC? Why not buy from independents? There are several reasons, including a profit motive, but one obvious benefit to ownership is that you’d have greater oversight and workflow control than you’d have with independent third-party sources.

For one thing, you’re transaction management systems would be compatible from end-to-end. This alone is a huge consideration that makes a strong case for owning a VMC versus buying. Why suffer connectivity issues when you could manage the production continuum on a single IT platform? For another, you’d lock in your supplier forever, eliminating the very real possibility that they’d be bought out by someone else. I wouldn’t want to be the supply chain manager who explains to the boss why my third-party service provider is now owned by our largest competitor!

Certainly owning a VMC requires substantially more human resources, capital, and blood, sweat and tears than outsourcing, as the Rels employment figure suggests. However, they’d be headcount and overhead on the books of a subsidiary of the bank rather than the bank itself. Moreover, the subsidiary is able to convert what would be a cost center in each of the “buy” scenarios above into a profit center. What owner of a free market enterprise wouldn’t at least take a look at that?
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Ten characteristics of meaningful AMC regulation… Take 2

noreply@blogger.com (Jeff Schurman) — Mon, 21 Jun 2010 20:17:00 +0000

Several readers have asked why I’ve not posted anything in a while to the TAVMA blog. Not to worry; all is well. What happened is that I started getting very un-neighborly late night calls (and an email via my Google/Blogger account… probably traceable) from an irate appraiser. In fact, several fell in the legal gray matter between terroristic threats and death threats. My employer asked me to do something else for a while. Which I am.

I’m working on a white paper that explains the original business case for the 3-day turnaround time in the VMC space. L.P. Hartley said, “The past is like a foreign country: they do things differently there.” The 3-day convention has been around for some 30-years now; much has happened since then. So why not learn where it came from as a beginning to understanding if it still makes sense, huh?

Today though, I ran across an excellent article entitled The Fool’s Gold of AMC Licensing that I want to refer you to, breaking my vow of blog-silence. It is not a rah-rah AMCs-are-great article. Nor is the blog it appears in (the writer is a guest blogger) one that agrees with much about the AMC business model. But it fairly assesses the unlikelihood that state AMC registration will make much difference for the good. And it reminded me of a blog post I wrote a while back entitled Ten reasons why federal AMC oversight is the better solution.

My thought is that, if the Fool’s Gold article brings people around to the notion that state AMC registration probably won’t work in practice as it was purported to in the legislative selling situation, I could tailgate my ideas about what meaningful AMC regulation might look like on that article’s success. It’s also a way to ease back into the blogosphere with something that (hopefully) won’t incite the type of ill-will that the TAVMA blog has never (never, never) intended to incite.

What follows is an updated and slightly word-smithed over time version of the original list. I removed references from the original that could be perceived as self-serving; notably the one that promoted the TAVMA Standards of Good Practice in Appraisal Management. And, I ditched the original post’s title and the emphasis on federal oversight as the better solution (although I truly believe it is the better solution). Doing so, I believe, allows readers to focus on the benefits of meaningful regulation (by whatever entity) rather than the merits of the suggested overseeing entity.

Ten characteristics of meaningful AMC regulation

Meaningful AMC regulation would:

1. Compel the regulator to create a single uniform set of standards and guidelines for AMCs;

2. Compel AMCs to improve quality and/or risk management as may be needed to meet the agency’s rules and regulations and existing FFIEC guidance on third-party risk management;

3. Flag educational and compliance gaps in AMCs’ systems that they can duly address;

4. Encourage AMCs to invest in IT to meet reporting and compliance rules (compliance, record-retention, performance report generation, etc.);

5. Provide compliant AMCs with a competitive advantage over those that lag in the compliance area;

6. Put AMCs – which at the core perform functions that the lender would otherwise do (and be responsible for even if they use AMCs) – under the regulatory auspices of the same entity tasked with overseeing, auditing, and supervising the mortgage lending industry;

7. Ensure compliance of AMC product development efforts to consistent and reasoned standards and guidelines; regulatory clarity encourages innovation;

8. Provide mortgage lenders meaningful standards and guidelines upon which to assess current and potential AMC partners;

9. Level the competitive field in the AMC industry while weeding out bad actors; and

10. Eliminate the oft-cited objection that AMCs are unregulated.

State AMC registration does none… maybe one… of these things. Therefore, to the extent these characteristics reflect “good practice” at the AMC regulatory level, it signals the need for something better than state oversight. I’m not arguing against AMC regulation and oversight. I can absolutely live with the list of 10 above, not just for AMCs, but for every component of the soon-to-be enacted banking reform bill. Meaningful and workable.

Warning: What you are about to read could be career-ending.

noreply@blogger.com (Jeff Schurman) — Mon, 01 Feb 2010 14:33:00 +0000

For me that is. But only if those who intend to drive a stake in to the heart of the AMC (Appraisal Management Company) industry win the day.

It’s worth it though, if it brings some people around to the genuine threat facing the mortgage lending ecosystem that state AMC registration laws pose. I remain convinced that federal AMC oversight is the safest, most effective, and least costly alternative, and is far better than the state-by-state approach underway. In fact, I wouldn't even be too worked up if there was a single, federal overseer, with states taking on the enforcement role. It's the 50 states crafting their own legislation that's worrisome. What some state legislatures propose to rein in AMCs will put them out of business.

But before it goes that far a few points are worth noting. I’ll use New Mexico’s proposed AMC act as just one example of what can happen when states attempts to regulate entities that they don’t understand on the advice and counsel of populist outrage.

Lenders have two (2) choices when it comes to managing appraisal panels.
They can do it themselves or have someone else do it. Each choice has advantages and disadvantages; and each involves tradeoffs. By outsourcing to an AMC, the lender avoids appraisal coordination costs that it would otherwise incur.

Appraisal coordination includes the cost of hiring, equipping, training, and supervising people to find and qualify appraisers, place and track orders, perform underwriting reviews of finished products, among other duties. By outsourcing, lenders avoid certain technology investments, labor burden, order volume fluctuations, and keep the appraiser and originator at arms-length.

Significantly, AMCs enable lenders to convert the numerous fixed costs associated with fee panel management into variable costs. Lenders managing fee panels themselves must invest in all the requisite resources to perform these functions on a mostly fixed-cost basis. And it adds yet another cost center managing non-core functions.

Hence we arrive at critical point number 1: Appraisal reports don’t just show up; someone must invest in IT, facilities and carbon-based resources to acquire them; the lender… or AMC.

Production cost + coordination cost = the total cost of any good or service.
Few would dispute that it costs something to coordinate appraisal transactions. We can debate the amount of the cost. But surely we’d agree that there is some coordination cost. Someone has to find the appraiser, perform a background check, negotiate fees, turnaround times, and delivery methods; handle customer complaints, status updates, and underwriting reviews; pay the appraiser and bill the customer.

Charlie Elliott, who operates one of the nation’s largest appraisal firms, put this cost at $100 per appraisal. My own pro formas support his estimate. And it’s important to consider that that’s the cost to an AMC; the cost to a lender self-managing a panel will be even greater. Why? Because, while an AMC approaches supplier management as a core-competency, a lender necessarily does not. AMCs spend tons of time and resources organizing their value chains to maximize productivity and innovation, and reducing overall operating costs. Cost saving is another advantage for lenders that use AMCs.

Thus we come to critical point number 2: There’s upwards of $100 in transaction coordination cost to an AMC above and beyond the cost of the appraisal; even more to a lender self-managing suppliers.

New Mexico proposes to cap AMC fees at 10 percent of the appraisal cost.
That’s the poison pill at the center of Senate Bill 138, which was introduced this month by Senator Mark Boitano. If it carries, an AMC that pays an appraiser say $250 would earn $25, just one-forth of its internal coordination cost; at $400 it would earn $40, a not much better two-fifths of its cost.

Therefore, a 10% fee cap would mean one of two things. The AMC would either need to pay the appraiser $1,000 per appraisal, to cover the $100 cost to coordinate the transaction, or leave. This would mean NM consumers would pay more than twice what they pay today, which won’t sit well. Or AMCs will bail on the state.

So here are critical point(s) 3 and 3.1: Arbitrary fee caps will put AMCs out of business, harming the mortgage lending ecosystem, and raising administrative costs. 3.1: Such clauses demonstrate a stunning lack of understanding of the economics of the business model being regulated.

All this is stacked atop a $1,000 AMC registration fee.
Last year, New Mexico passed an AMC registration act requiring AMCs to pay a $1,000 registration fee the first year (and $550 annually thereafter). Of course, this won’t much matter because few AMCs will make it past the one-year mark. But regardless, coupling the $1,000 registration fee with the 10% fee cap means an AMC that earns $25 (in fee-cap imposed earnings) needs to do 40 appraisals that year; at $40 they’d need 25 orders in year-one, or 2.1 per month. Not huge order numbers relatively speaking. But given that the fee cap guarantees a loss on each order it’s understandable why the better option is to bail.

This suggests critical point number 4: High registration fees only add to the twisted cost-benefit equation for doing business in a state; adding a fee cap is lethal poison.

The problem is clear. Someone must pay to coordinate the transaction. The coordination cost -- to AMC is upwards of $100 per order; to the lender potentially much more. Unable to pay premium appraisal fees to cover coordination costs under the cap, and having also to pay a $1,000 registration fee, and the specter of a large loss on each transaction, means that enacting NM SB 138 as-is will cause AMCs not to serve lenders that do business in New Mexico.

Four likely outcomes if I turn out to be right.
If I’m right there will be four (4) outcomes… beyond ridding the state of AMCs. The first is that other states will unwittingly adopt similar poison pills. Not understanding the unintended consequences of such a clause on not only AMCs but also mortgage lenders and mortgage availability to living, breathing, and voting taxpayers state legislators will view the fee cap poison pill as aspirin. It won’t be.

The second outcome will be that lenders who formerly used AMCs will suddenly have to manage appraisals themselves. This is significant given that 17 of the top 20 lenders use or own AMCs. Trouble is they won’t have the resources to tackle this new responsibility, at least for a while. And assuming they finally get their act together it is unlikely that lenders will replicate the productivity, innovation, cost controls and strategic advantage that the AMC industry – whose core competency after all is managing appraiser contracts and workflow – achieve currently.

The third outcome will be that lenders, faced with the prospect of building an AMC-light operation, will pass on the additional costs to consumers. These costs will prove significant. Beyond the coordination costs mentioned already, lenders would now need to reserve for risks they’re taking on. Some of these risks include HVCC compliance risk and reporting risk. Way more significant will be risk (and cost) associated with order volume volatility. Today, many lenders mitigate order volume volatility simply by placing more or fewer orders with AMCs. Absent that outsource safeguard, they’ll need to forever staff up and lay off workers in response to often wild swings in volume. Capacity will be constant anchor on profitability.

The forth outcome -- and there surely are more than just these -- is that we’ll quickly discover a disparity between the laws of various states with regard to bank-owned AMCs. Many states exempt banks from their AMC registration laws. I suspect this is to avoid going head to head with the existing federal bank exemption. Other states, including New Mexico, do not carve out banks from their AMC laws.

I’m not sure about how this bank-exemption thing will play out. However, in states that exempt banks, I suspect, bank-owned AMCs will claim the exemption. Should that strategy ultimately fail in a handful of states they’d simply bring the subsidiary AMC in-house as a department of the bank: the appraisal management department.

An opportunity for meaningful registration lost.

Ten reasons why federal AMC oversight is the better solution

noreply@blogger.com (Jeff Schurman) — Fri, 29 Jan 2010 17:45:00 +0000

Any chance I get, in conversation with reporters, presentations to appraiser groups, regulators, and colleagues, I share my conviction that federal oversight of AMCs is superior to state-by-state registration all the way around. In my view, state-by-state registration is a misuse of state resources and taxpayer money, and misses an opportunity to do something really meaningful to influence the AMC industry of the future.

So here is my list of what federal AMC regulation would accomplish.

Federal AMC regulation would:

Compel the federal regulator to create a uniform set of standards for AMCs, which may include or build upon TAVMA’s own Standards of Good Practice in Appraisal Management;
Compel AMCs to improve quality as needed to meet the agency’s rules and regulations;
Flag educational and compliance gaps in AMCs’ systems that they can duly address;
Encourage AMCs to invest in IT to meet reporting and compliance rules (compliance, record-retention, performance report generation, etc.);
Provide compliant AMCs with a competitive advantage over those that lag in the compliance area;
Put AMCs – which at the core act as agents of the lender conducting functions that the lender would otherwise do and be responsible for – under the regulatory auspices of the same entity tasked with overseeing, auditing, and supervising the mortgage lending industry;
Ensure compliance of AMC product development efforts to consistent and reasoned standards and guidelines; regulatory clarity leads to innovation;
Provide mortgage lenders a meaningful set of standards against which to assess current and potential AMC partners;
Level the competitive field while weeding out bad actors; and
Eliminate the oft-cited objection that AMCs are unregulated.

Looking at the list I can’t see even one point that state regulators, appraisers, or reputable AMCs would challenge as undesirable. Frankly, the biggest challenge to federal oversight is figuring out which agency – OCC, OTS, FED, FDIC – would do the regulating; or maybe the proposed federal consumer protection agency, if that ever comes together.

Regrettably, comparing the list to legislation and regulations that many states propose, I don’t see where state AMC registration can lead to any of the above bullet points happening; other than maybe point #10.
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Why the AMC business model is here to stay.

noreply@blogger.com (Jeff Schurman) — Fri, 18 Dec 2009 18:04:00 +0000

I’ve just finished reading the appraiser survey in the current issue of Working RE magazine. My takeaway is this: A lot of appraisers view AMCs as the fundamental problem facing the appraisal industry, and if they’d just go away, appraisers would be better off. But what is the likelihood of the AMC industry going away?

To be fair not all appraisers feel this way. I suspect the majority of appraisers could live with AMCs under certain conditions. Paying more and not banging on appraisers so vigorously for turn times would go a long way to changing the perception of AMCs in the minds of many. However, even that wouldn’t bring AMCs universal esteem. For some, AMCs simply need not to exist. Go back to the way it used to be, say to the good old days. But that’s probably not going to happen.

In this post, I’ll offer my sense for why, if the AMC industry did go away, it’d be replaced by… (drum roll)... the AMC industry.

How lenders manage fee panels
Mortgage lenders have two choices when it comes to managing fee panels: self-manage, or hire someone else to do it. The decision depends on several critical factors, including the lender’s loan volume, information systems, and mindset and experience with vertical integration versus outsourcing as the preferred means to control production.

A community bank, mortgage broker, or credit union with steady but manageable volume, a transaction management system for tracking vendors and orders (or even an Outlook and Excel based system), and a keep-it-in house mindset will typically go the self-managed fee panel route. When they do outsource, locally based lenders tend to prefer small-shop AMCs to out-of-town behemoths. Nevertheless, for most local lenders the self-managed fee panel model seems to work best. Up to a point.

Every system has its limits. Even McDonalds with its renowned system for processing consistent quality and service at an affordable price has its limits. And we all know it. Who hasn’t driven on when a busload of tourists beats us to the parking lot? Regardless of the processes or technologies, every system hits a capacity wall. Appraisal management is no different; any do-it-yourself vendor management system works until it doesn’t. For-profit AMCs have limits too, although book of business diversity tends to flatten out order volume fluctuations.

Unpredictable volumes, lending footprints, and suppliers under management can quickly swamp an under-resourced operation. That’s when productivity drops like a rock and operating costs explode as management throws bodies at the problem. Meanwhile disgruntled customers walk, and then recount their experience to every Tom, Dick and family member without caller-ID who will listen.

Dissatisfied customers affect not only origination revenue, but often, servicing as well. In addition, loan originations (and deposit accounts) have long seeded cross-selling opportunities. Too many bad home buying or refinancing experiences can wipe out a lender’s credibility. Lenders have too much on the line to suffer substandard products, services, or delivery systems for long.

Big regional and national mortgage lenders understand the hazard. They know a reliable appraisal management system and operation that can handle large and constantly fluctuating workflows is an absolute must. The fact that seventeen of the top 20 mortgage lenders outsource appraisal vendor management to AMCs suggests that AMCs have become an integral tool for centralized mortgage production. Lenders choose AMCs for the very reason that they improve productivity and quality, reduce overall operating cost, and provide a lender with strategic advantage that translates to customer value. If they didn’t lenders wouldn’t use them.

What would lenders do without AMCs?
With AMCs gone, what choice would a lender have but to build their own appraisal management division? Actually, they’d have three choices. The first would be to go ahead and invest in an appraisal management operation. Like small local lenders, this would involve infrastructure building, albeit on a far larger scale. And the cost would be staggering. One company I’m aware of invested $10 million in a proprietary vendor management system. Others contract with a transaction-management technology provider. The cost doesn’t end there. There’s hiring and training employees, bringing on FTEs as volume spikes, and laying them off as volume declines. Any way you look at it, self-management is a pricy proposition… and with no guarantee of success.

The second choice, for some lenders, might be to contract with one or more competitors that have invested time and resources to built an appraisal management division. Thus, the lender can reduce its upfront and ongoing coordination costs. Typically, however, production costs rise as coordination costs fall, and vice-versa. Therefore, the per-appraisal cost will almost certainly be higher for these lenders. Another downside is that a competitor now earns a fee on each valuation order processed. Moreover, there’s also the concern that the competitor may put its own work first. Or that the competitor is sold or goes out of business; add risk to the cost equation.

As I think about it, I’m not sure we can even consider the second choice – contracting with a competitor – in a world without AMCs. That’s because the competitor, in this case, would be an appraisal management company. Doesn’t it make sense though that some lenders would contract the work out to avoid having to do it themselves? Of course it does. And that is why AMCs are inevitable in the Information Age.

But we’re not done yet. Given the choice of a) investing big money on an in-house AMC, and b) hiring a competitor to manage the fee panel, it wouldn’t take long before some astute operations (or finance) person to dream up a third alternative: An AMC subsidiary.

Hiring a relative to manage the fee panel
Some might argue that time and resources invested in an appraisal management division is justified, that gains in productivity and competitive advantage, and reduction in operating costs, is worth the effort. The derailer is that, even if designed with maximum productivity and innovation the result – the self-managed appraisal management operation – would be yet another cost center for lenders already stacked with cost centers. Somewhere along the line, someone would have to ask the question, “Why not convert this cost center into a profit center?” And that is exactly what they’d do.

Converting the appraisal management division into an appraisal management subsidiary would have a couple of advantages. One clear advantage is the aforementioned conversion from a cost to profit center. This conversion would start quietly at first. The appraisal management operation pulls in business from a few competitors that are unwilling to deal with the hassle and expense of self-managing fee panels. Then more competitors come calling. All of a sudden, the lender has a profit center on its hands. As an added bonus, they’d also reduce their own cost center expense through economies of scale realized by processing competitors’ orders.

But why settle for only a partial profit center when spinning the division out as a lender-owned subsidiary would be so much more, well, profitable? This way, the appraisal management cost center becomes a profit center for the subsidiary, paying dividends to the parent. In addition, as a freestanding subsidiary with appraisal management as a core competency, and multiple clients assessing its performance over time, the AMC would do a far better job managing the fee panel than the lender(s).

Conclusion
As long as lenders have the choice to have someone else manage their fee panels, AMCs will remain a viable alternative to the lender-managed appraisal management business model. It's inevitable.

If AMCs are inevitable, perhaps the highest and best use of our collective industry-shaping efforts ought to focus on elevating the perceived value of appraisal in the minds of the mortgage lending community. Only when lenders perceive appraisal and the whole valuation industry as returning superior value for their investment will residential appraisals avoid the commodity trap.

I’ll talk more in my next post about what this might look like.
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Editor's Note: Reasoned and respectful comments are always welcome. Data to support claims are highly regarded and encouraged. Tirades, insults, and advertisements will not be posted. Combinations of the above will also not be posted.
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AMC lists: Should you buy one?

noreply@blogger.com (Jeff Schurman) — Wed, 04 Nov 2009 14:15:00 +0000

Should you buy a list of appraisal management companies (AMCs)?

I get a lot of emails from appraisers asking if a list is a good buy or not. My response is that it really depends on how the appraiser plans to incorporate such a list in their sales and marketing plan. Here are some things to consider.

We've all received advertisements about AMC lists for sale. Some of the lists I've seen claim to include upwards of 250 to 300 AMCs. And that seems reasonable. My own list has around 200 so far, although I haven't done much more than run a few Google searches. What I've found, using key words "appraisal management company" and setting the Returns per Page to 100 hits per page (10 per page takes way too long), is that the majority of AMCs are listed within 3 or so search pages. An appraiser who wants to avoid the $35-$75 cost of a list can do the same thing for the price of a few hours work.

An added benefit to the do-it-yourselfer is that compiling a proprietary list a good way to gain competitive intelligence on prospective clients. I use an Excel spreadsheet to record information such as the customers the AMC serves, its geographic coverage area, website address, and anything else that might help the sales effort. Intelligence gathering almost always bears fruit so it's time well spent. Moreover, it is research you're likely to do even if you opt to buy a list.

Another consideration in the buying versus build decision is that many of the companies you'll come across may not be your target clients at all. For some appraisers a list of 50 firms may be more valuable than one containing 300 firms. AMCs come in three basic sizes: Very (very-very-very) large, medium-large, and small. In fact, the Top 20 AMCs represent 80 to 85 percent of AMC industry market share. These are the ten or so industry heavyweights plus another ten or so national or super-regional AMCs. Most others are relatively small regional and single-state providers covering a few counties within a state or a handful of states. Some are AMC-shops operated by fee appraisers building an AMC presence to augment their direct-appraisal business. Depending on the demographic of target clients an appraiser may or may not need a comprehensive list.

On the topic of small AMCs, don't overlook smaller firms as potential sources of client business. While it's true that the bigger competitors capture the lion's share of the market there's still a lot of order volume going through small-shop AMCs. And who knows, the mortgage industry shakeout may create new opportunities for community banks and branch-based mortgage companies looking to grow their mortgage businesses. The large-shop AMC model is most attractive to centralized lenders doing big-time volumes. Smaller lenders are often more comfortable working with small AMCs. So keep the small-shop AMCs in mind as you develop your sales and marketing strategy.

Here's another consideration in weighing the pros and cons of buying an AMC list: The AMC members of TAVMA, the Title Appraisal Vendor Management Association, have approximately 75 percent market share in the AMC industry. And if you send me an email I'll send you a free list of our AMC members and their website addresses. You can also check out Mortgage Resource Information Services, industry veteran Vicky Cassens Zillioux's consulting website. Click the link on the left side of the home page (without specifying a particular AMC) to access a free alphabetical list of AMCs and basic contact information. Between the two organizations you'll have a pretty good list going. The $35-$75 you save would make a wonderful donation to No Paws Left Behind, the non-profit organization working to raise awareness to the most helpless victims of foreclosure. Or maybe even consider adopting a displaced pet?

Some appraisers may really want to buy an AMC list, and that's fine. I won't talk you out of it. But when you do be sure you're clear on the quantity and quality of the contact information of individuals or departments at the AMC(s) that you'll need to get in touch with to secure a fee panel slot. The TAVMA list has only company names and website addresses which is a drawback; Mortgage Resource Information Services offers more in the way of contact info. A commercially available list that's deep with contact information may save time spent hunting around websites looking for names, addresses, phone numbers and email addresses.

The decision to buy a list, to obtain a free list, or to compile a proprietary list is up to the individual appraiser. All three options work depending on the circumstances. What is more important is the approach you use to engage prospective clients once the list is in hand. I'm not big on email solicitations when it comes to winning a spot on crowded fee panels. You may want to check out an article I wrote a few years ago, titled Marketing to Vendor Management Companies. There I offer a few pointers on identifying and getting in touch with the person or persons you'll need to talk to in order to get on the AMC's fee panel.

Good luck and great marketing success!

High AMC registration fees penalize small-shop AMCs

noreply@blogger.com (Jeff Schurman) — Tue, 27 Oct 2009 18:40:00 +0000

I’ve been writing about the appraisal vendor management industry long enough to anticipate the passions this post could stoke in some who would like AMCs dead and gone. If this is you please don’t read this as you’re not "the intended user of this report,” as they say. The intended user of this post is the small-shop AMC owner, state legislator, and AMC regulator. So here goes.

A 3-part quiz: 1) In no particular order name the top 10 appraisal management companies (AMCs) in the country in terms of order volume. 2) Name the next five largest AMCs using the same criteria. Pencils down. The top 10 AMCs shouldn’t be too tough to identify; the next five probably more so. However, the third part of the quiz – 3) Name number 16 on the list – is even more challenging. That’s because, for every large AMC there are around ten very small AMCs. Identifying them by volume or many other measures is a tough row. But equally tough is overcoming the misperception that AMCs are all large firms.

Looking across the AMC spectrum, we can surmise that big AMCs make up the lion’s share of the business. My own extensive research indicates that the 20 largest AMCs represent 80 to 85 percent of AMC industry market share. As such, AMC executives, state legislators, appraiser board administrators need to consider this significant statistic as they contemplate AMC registration fees. The wrench in some state’s plans is that many small-shop AMCs don’t do anywhere near the appraisal management volume needed to cost-justify registering in high-fee states. They’ll simply stay away.

The best laid (financial) plans
A growing number of states are considering AMC registration statutes. So far in 2009, Arkansas, Nevada, New Mexico, Utah, Louisiana, and California have passed legislation requiring AMCs to register with a state finance agency or appraiser board. Next year, by some accounts another 30 or so states will take up AMC registration proposals of their own. Most of these proposals will include AMC registration fees; some as low as $100; others are as high as $5,000. Trouble is that at $500, let alone $5,000, these fees won’t make sense to small businesses from an economic standpoint.

True, at $5,000 states stand to generate lots of fee income to help fund their AMC registration programs. Suppose only one-third of the estimated 250 AMCs register in $5,000 fee states like the proposed statutes in North Carolina (See SB 829) and Missouri (See HB 967). If so, each of these states would generate about $400,000 in fee income; if one-half register fee income jumps to $625,000. Moreover, both NC and MO propose annual renewal fees of $2,500 and $2,000 respectively, perpetuating the windfall into forever!

I almost feel applause at the prospect of forcing smaller AMCs out of prime states. But where’s the economic fun in that? Sure, there are lots of small AMCs out there. Yet crushing them with a legislative gavel won’t amount to much in terms of financial windfall for appraisers, larger AMCs, or state coffers. Here’s why.

The cost-per-(full) appraisal of AMC registration
A typical small-shop AMC generates between $150,000 and $300,000 in gross annual revenue from appraisal management operations. Take the example of an AMC that grosses $250,000 one year. Let’s say for fun that 75% of its gross is derived from managing full-appraisals; that’s around 500 full-appraisals per year give or take. By doing the math using my figures, or yours if you prefer, paints a picture of what this AMC would pay to North Carolina, Missouri, and/or the next state that considers assessing high fees. This is how the math works out.

What we know so far is that the AMC in this example grossed $187,500 in full-appraisal fees ($250K x 75% = $187,500). The second step is to deduct what the AMC pays its appraisers each year. Charlie Elliott, JR, MAI, SRA, the CEO of Elliott & Company, one of the largest appraisal companies in the U.S., said in a recent article that after paying the appraiser an AMC has about 30 cents on the dollar left over to pay all other expenses. Using Charlie’s figure it means that this AMC has about $56,250 ($187,500 x .30) in full-appraisal revenue left over the course of a year to pay all other expenses – including AMC registration fees. Dividing the result by the 500 full-appraisals per year previously noted equates to $112.50 per full-appraisal to pay for all of the AMC's other expenses (*see below) and earn a small profit.

Hang in we’re almost there.
Now that we've monetized the AMCs gross margin we need to break down the distribution of full-appraisal orders for this AMC by state. Suppose our AMC is a nationwide provider that generates its entire revenue stream servicing 25 or so major metropolitan statistical areas (MSAs). According to HMDA reports, MSA’s in North Carolina and Missouri produce about 3.5 percent and 2 percent respectively of total residential mortgage volume. As a result, it is realistic to suppose that this AMC might do eighteen (18) appraisals in NC and ten (10) appraisals in MO per year. You can see the problem.

The obvious problem for this AMC and others like it is that high registration fee(s), as measured on a per-appraisal basis, is cost prohibitive. At eighteen NC appraisal orders the AMC’s registration fee equates to $278 -per-appraisal ($5,000/18); at ten MO appraisal orders in MO it’s an eye-popping $500 per appraisal ($5,000/10). Given the cost of registration versus the economic benefit of doing business makes the decision to go elsewhere academic. Appraisal management is a volume-based enterprise and a net loss per order isn’t easily made up for in volume.

An alternative for small-shop AMCs to think about
Even though there isn’t enough volume for a small AMC to operate in every high-fee state all is not lost. One way for a small-shop AMC to justify a $5,000 registration fee is to focus all of its appraisal vendor management efforts in just a single high-fee state and perhaps one or a few low- or no-fee states. Paying out big-time fees to both NC and MO, and the next state(s) looking to charge high registration fees is pretty much out of the question, as the preceding example illustrates.

At the same time, if an AMC were to do half of its volume in NC or in MO, and the other half in low- or no-fee states – say 250 appraisals in NC or MO and 250 in low- or no-registration fee states – the per-appraisal registration fee would dive down to $20 per appraisal ($5,000/250 = $20 per appraisal). Even this is a very high number for a small business given the expenses an AMC incurs servicing clients, the geographic dispersion of orders that AMCs of all sizes tend to get, the competitive advantage big AMCs have due to economies of scale, and the additional sales and marketing cost that a single-state strategy will undoubtedly dump into the small AMC expense bucket.

An invitation to small-shop AMCs, legislators and regulators
I haven’t done research around the feasibility of some of the other alternatives available to small AMCs. If you’re a small-shop AMC owner/operator, I’d be interested to hear from you about how you’re handling high registration fees in states that you service. My plan is to compile a booklet or e-book containing ideas and strategies to help others in the same boat to compete in high-fee states.

I’d also like to hear from state legislators, legislative aides, and AMC regulators who have questions about the AMC industry or AMC business model. Send me an email and I’ll be happy to talk it over.

Unintended users itching to lob a flaming comment at AMCs are asked to wait for a post intended for you. Comments about the writer being a putz are too late: I have teenagers who've mentioned it already... again... and... again.
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* Administrative management costs: Sales & marketing, client services, customer relationship management, pre- and post-delivery quality control, exception management, electronic interfaces for report delivery, market value dispute resolution, process and technology firewalls to assure appraiser independence, accounting, tracking special instructions, productivity and workflow management, risk management, compliance with lender service level agreements, product development, and more.
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Freddie Mac weighs in on appraisal quality post-HVCC

noreply@blogger.com (Jeff Schurman) — Wed, 21 Oct 2009 13:36:00 +0000

An article on the Bank Investment Consultant.com website, by Brad Finkelstein of the National Mortgage News, titled Freddie Mac: Home Valuation Code Has Improved Appraisal Quality, reports that Freddie Mac has seen a "tangible improvement in the quality of appraisals of loans it buys since the Home Valuation Code of Conduct took effect."

Should I... or shouldn't I... say it?

You'll find the article at the adjacent link.

Link:

http://www.bankinvestmentconsultant.com/news/freddie-mac-home-appraisal-quality-2664257-1.html

Appraiser Supply and Demand

noreply@blogger.com (Jeff Schurman) — Wed, 30 Sep 2009 19:08:00 +0000

Here's an interesting chart showing the relationship between mortgage originations and the number of certified and licensed appraisers in the U.S. The mortgage origination figures come from the Mortgage Bankers Association; the appraiser statistics from the Appraisal Subcommittee Registry.

The results suggest that the current issue with appraisal fees, the distances some appraisers travel to complete appraisals, and the decision of some appraisers to exit the business may be as much a reflection of the current supply of appraisers as it is other causes.

Among the most cited of these "other causes" has been the appraisal management industry, which has been accused of causing all three of these factors. Recently though some very credible and experienced appraisers have stepped up to dispute that AMCs pay unreasonable fees and explain why it makes little or no economic sense to spend 2-4 hours in the car for less than a premium fee. They and others continue to make the case for working -- or at least considering working -- with AMCs. Send me an email (jeff@tavma.org) and I'll send you a list of TAVMA's AMC members for you to check out on your own.

And, although I've not written an article on the topic, I'd say that the HVCC has to some extent forced some good appraisers – and bad and in-between appraisers too to be fair – out of the market. My theory about where HVCC may play a role involves appraisers who built their marketing strategy around direct-orders from mortgage brokers and Realtors. Banning broker- and Realtor-ordered appraisals abruptly severed these appraisers’ direct marketing ties to some long-time clients. Some were able to acquire new clients and join one or several AMC fee panels. However, it is likely that others lost their traditional client base (i.e. brokers) without an immediate alternative or perhaps the business development acumen to sustain the business.

Yet if demand for appraisers has dropped by half over the past 6 years as measured by mortgage originations, and the number of certified and licensed appraisers has trended upward during that time frame, wouldn't it make sense that there'd be shakeout in the ranks of appraisers?
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Trusted advisor or obstacle to commerce?

noreply@blogger.com (Jeff Schurman) — Tue, 09 Jun 2009 17:30:00 +0000

An appraiser emailed to chide me about the coverage of AMCs (appraisal management companies) in an article today in The Wall Street Journal. The article, Appraisals Roil Real Estate Deals, reports on home sellers and those trying to refinance mortgages in an environment of allegedly low appraisals. The e-mailer called me out on what is said to be endemic of AMCs, sending appraisers’ out-of-area to complete appraisals in neighborhoods with which they are unfamiliar. And to the extent this is the practice, he's right. An AMC – or anyone else – should not send an appraiser over 100 miles away unless there is a total of zero appraisers closer by. Likewise, an appraiser should not take on such an assignment and the liability it brings along for the ride. Better to turn down the order or make a referral to another appraiser.

This is but one of several issues raised in the article for appraisers, AMCs, and lenders to be concerned about, and illustrates the challenge the industry faces in raising the perception of the value of appraisals and of the appraiser as a trusted advisor rather than necessary inconvenience.

Take the first line of the report: “Appraisals are becoming one of the biggest obstacles for Americans trying to sell… refinance… or tap into home equity….” The premise is that the appraisal, and by extension the appraiser, is the obstacle. As I see it, the intent of an appraisal is to reflect the goings-on in the market, and if so, the so-called obstacle is not the appraisal but the real estate market. To be viewed as an obstacle cannot possibly help the industry regain its stature in the mortgage transaction.

Also alarming is the notion that lenders, “burned by huge losses from defaults” are pressuring appraisers to lowball appraisals. I personally haven’t heard of any lenders pressuring appraisers to lower values. Even in a rancorous real estate economy that doesn’t sound like something lenders would do. From a systemic standpoint, the more risk-averse course for the lender would be to tighten up its underwriting standards than to lean on appraisers to understate a value opinion. In fact, if this turns out to be the case, and lenders are pressing appraisers to undervalue homes, we’re facing a messy systemic problem. If before, lenders pressured appraisers to raise values with impunity, and appraisers complied, and now, lenders are pressuring appraisers to lower values (and they comply), all the talk about the HVCC (Home Valuation Code of Conduct), regulating AMCs, and cleaning up the industry will be dealt a body blow that could doom the valuation profession. Appraisers and AMCs need to be more assertive in challenging such lender requests whenever they arise.

One way for appraisers to raise awareness of problems such as these, at least where an AMC is involved, is to take advantage of the so-called appraiser hotlines that many AMCs have implemented to deal with just these sorts of circumstances. Whenever problems arise, it is always good to bring in an ombudsman or hotline representative to help sort things out. In fact, I field numerous calls from appraisers looking for a point in the right direction for resolving client-service-meets-USPAP-compliance matters. I know that LSI, eAppraiseIT, and RELS all have hotlines to report matters of concern to appraisers in the field. Many others do as well. So take advantage of the appraiser hotlines any time you’re asked to do something you feel may not be in your best interest or the best interest of your client.

Remember, it is never in your client’s best interest to violate USPAP, state appraiser licensing and certification statutes, GSE or banking agency appraisal guidelines. Never.
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Screening Out The Bad Fit

noreply@blogger.com (Jeff Schurman) — Wed, 27 May 2009 14:22:00 +0000

“Why should I work for these companies (AMCs) who

have no education, liability, responsibility,

accountability or regulation?”

~ One appraiser's perspective in a recent

Valuation Review appraiser poll

2009

_____________

In qualifying potential providers of goods or services the buyer measures the value of the prospect against a set of criteria. These criteria usually involve some measure of four characteristics: knowledge, skill, price, and organizational “fit”. This last characteristic -- organizational fit -- came to mind when I read the above quote. That's because how a vendor and client mesh is critical to both sides of the transaction. Therefore, appraisal management companies (AMCs) are well served to consider how prospective vendors "fit" during the pre-engagement due diligence process.

Weighing a prospect's knowledge, skill and price is pretty straight forward in the appraisal industry. Resumes, references, work samples, license or certificate copies, and rate sheets are usual pre-conditions to winning a spot on a fee panel. Organizational fit, though, is not so easily assessed. "Who knows what evil lurks in the hearts of men?” Sure, The Shadow knows; the rest of us probably don't.

Whenever a client hires a vendor -- or an employer hires an employee -- there is a risk of a negative attitude not mentioned in the interview; an attitude say, that one's new client or employer is uneducated, unaccountable, irresponsible, and operating beyond the legal framework. Not a good start to a lasting and mutually beneficial relationship. Too often though, organizational fit is not addressed in pre-engagement screening, only to surface as a problem later on, after the vendor is in the system. Therefore, clients need to develop and implement procedures aimed at discovering what lurks in the hearts of their vendors. One way to do this is to adopt a pre-engagement screening technique known as the behavioral interview.

Behavioral interviews are most common among human resources professionals, who use them to uncover potential relationship and career derailers that might otherwise go unnoticed until it's too late. Traditional interviews often involve hypothetical question like "What would you do if ___?" Trouble is, hypothetical questions usually result in hypothetical responses; often involving superhuman feats; rarely representing reality. Behavioral interviews, on the other hand, leverage real-life experiences to assess behavior(s) the interviewer seeks to understand.

Say you're recruiting the appraiser quoted above. You want to discover how he or she might deal with a less-than-esteemed client. A traditional question might be, "What would you do if an AMC called late in the afternoon, for the third time, to check on an order status?" That'd likely trigger a response such as, 'Why, I'd empathize, of course! I'd say that I know how you feel. I'd add that I'd feel the same way were I in their shoes. Then, I'd coach them to look in the notepad for my last two updates. I'd close by thanking them for their business, and ask for the next order.' The perfect candidate!

Behavioral interview questions take a different approach and involve a three-part formula built around a particular characteristic or trait. Rather than posing a hypothetical, the interviewer would say: (1) "Tell me about a time in your career when an AMC client called late in the afternoon, for the third time, to check on an order status. (2) What did you do? And, (3) what was the result?" The STAR formula -- Situation or Task, Action, and Result -- may illicit a different, hopefully more enlightening, answer.

But don't stop there, ask more questions: "Tell me about a contentious encounter with an AMC? What did you do? And what was the result?" or "Tell me about a situation in which you parted ways with an AMC. What happened? And what was the result?" You might toss in a few "What caused that?" questions to dig even deeper. The point to remember here is that past experience is a predictor of future behavior. Consider adding the behavioral interview technique (STAR) to your vendor recruitment due diligence screening. Consult with your HR professional for assistance and some pointers in setting up and introducing the program in your vendor management operation.

Assessing organizational fit is even more important now that the Home Valuation Code of Conduct (HVCC) is in effect. The HVCC puts a foot to the brakes on simply dumping an appraiser with attitude. Certainly, the client can jettison a vendor for being a bad fit. However, the HVCC is very specific on how that removal process has to happen. And there's no telling if the appraiser has a friend in the class action lawyer business.

Play it safe. If you don't have a pre-engagement mechanism in place to assess a prospect's fit with your organization start building the capacity today. It will help to sort out whether the vendor a coveted on paper has the makings of a trusted advisor in real-life.
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The Economics of an Optimal Number of Vendors

noreply@blogger.com (Jeff Schurman) — Wed, 20 May 2009 17:29:00 +0000

It has been suggested that appraisal management companies (AMCs) should pay appraisers the customary and reasonable fee for an appraisal in a given market area. Let’s call this “customary and reasonable fee” the appraiser’s retail appraisal fee. This is the fee that an appraiser lists on her or his standard rate sheet. Among the benefits, proponents of the retail fee argument posit, is that it will attract more appraisers to the AMC system.

The premise underlying the claim is that an AMC benefits by increasing the number of its vendors. So if there are ten (10) ready, willing and able residential appraisers in a market the AMC should benefit by engaging all ten. But will they? Will AMCs benefit by using every residential appraiser in the market? And, significantly, will they benefit by paying these appraisers retail appraisal fees? I argue that they will not benefit economically on either count.

In recent testimony before the House Financial Services Committee, Jim Amorin, MAI, SRA, and the president of the Appraisal Institute, correctly stated that an AMC “recruits appraisers, reviews their qualifications, verifies licensure, negotiates fees and establishes service level expectations with a network of third-party appraisers.” A good description, to which I will add, that fee panel management is the appraisal manager’s core competency. In other words, recruiting, qualifying, and managing appraiser panels on behalf of mortgage lender clients are what they are in business to do.

This latter distinction is significant. That is because, an appraiser’s other clients, mortgage lenders, are in business to make loans. Lending money is their core competency. They manage appraiser panels as a means to secure a critical piece of the loan package. Unlike AMCs, lenders often pay appraisers’ full retail fee, passing the cost along to the borrower. In doing this, lenders mistakenly view appraisal fee panel management as a cost-neutral exercise, which it certainly is not.

As AMCs point out to prospective lender-clients in high power sales calls maintaining a staff of individuals to recruit, qualify, verify licensure, negotiate fees and service levels is very expensive. A lender easily absorbs over $100 per transaction in search and coordination costs. But that is a discussion for another time. My main point – beyond the shameless plug for appraisal management – is to illustrate a key difference in mindset between AMCs and lenders when it comes to negotiating appraisal fees.

Another difference between AMCs and lenders is the number of orders managed and the geographic distribution of those orders. Even mega-lenders like Wells Fargo or BofA have only so many appraisals in a market at a given time. So while their volume is often sufficient to gain some fee concessions from vendors individually most don't have the same leverage that an AMC that pools orders has. Smaller lenders in particular pay retail fees because they must.

Suppose a certain lender consistently orders ten full URAR appraisals per month in your home town. Suppose also that the lender believes that using more appraisers is better than using just a few. Armed with 10 orders and this belief, the lender goes out and engages all ten appraisers and gives each appraiser one order per month. Even if the lender doesn’t believe in the virtues of paying full retail price, at only one order per month per appraiser the lender has effectively nullified its fee negotiation leverage. Bad move.

On the other hand, an AMC, whose business is to manage fee panels, would see using all ten appraisers in a different light. The AMC would reach out to just a few of those appraisers with the proposition that this limited group of vendors would receive all of the AMC’s order volume. To put numbers to what this means, let’s say the AMC reaches out to eight of the 10 appraisers and says: “I have 25 orders per month in your market. How much of a discount will you give me off of your retail fee?”

You may be thinking, 'Thirty orders a month?!? That’s not an apples-to-apples comparison! You said the lender had only 10 orders per month.' However, an AMC pools all of the orders of all of its clients in the area, directing them to a subset of the appraiser population. Instead of negotiating based on just 10 orders per month the AMC is able to negotiate based on a more robust order count.

Now, if the AMC used say eight of the ten appraisers in town, they’d probably get a small discount for volume. If they used five appraisers they’d probably get an even better deal. But if they used three, or four, and monitored the appraisers’ performance over time, and revisited the pricing model every now and again, they’d almost certainly get appraisals at more of a wholesale price than a retail price.

The appraiser then makes the choice: do zero AMC appraisals per month at full retail and find clients on their own; or earn a discounted fee in return for volume.

I get a lot of emails and calls from appraisers complaining that an AMC they sought to do business with told them “We pay $X in your area.” This is why. They monitor fees paid and negotiate like few if any lender would. Managing appraisers is a business they take seriously. And they understand what we all look for in our roles as consumers: volume discounts.
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AMCs are not new kids on the block!

noreply@blogger.com (Jeff Schurman) — Thu, 23 Apr 2009 11:59:00 +0000

In today's session on appraisal management companies (AMCs), I want to dispel yet another myth being perpetuated by some in the appraisal trades. That is, that AMCs are some sort of new kids on the block invading the appraisal industry ecosystem.

The fact is that the AMC industry traces its roots all the way back to 1959, to a Cleveland, Ohio-based abstracting company called Legal Messenger Service.

An abstracting company lauched the appraisal management industry? Yes. Because that company just a few years later became Record Data, Inc., and overlaid the system it designed for title agency and the acquisition of third-party title products and services on to the appraisal acquisition system of the day.

It seems that the same clients that benefited from outsourcing title abstracting, examination, and commitment functions -- mostly consumer discount companies making second mortgage loans -- benefited similarly by outsourcing appraisal management functions like engaging independent fee appraisers, ordering and tracking appraisal orders, and customer service.

Just a few years later, in 1967, Lender's Service, Inc. (LSI) came on the scene. Like Record Data, LSI provided title and appraisal vendor management services. Then, in 1984, Fran Azur, at the time LSI's senior vice president of operations, launched the first national service center for managing vendors across the U.S.A. from a centralized location. In 1992, Azur left LSI to found ATM Corporation of America (ATM), which he sold to FNF fifteen years later.

The ranks of the AMC industry includes numerous familiar names that today constitute some of the giants of the industry: General American Corporation (GAC), 1979; National Real Estate Information Services (NREIS), 1990; ATM, 1992; Nationwide Appraisal Services (NASCO), 1994; ServiceLink, 1998. And the list goes on.

The suggestion by some in the appraisal trades that AMCs are some sort of new-fangled opportunistic interlopers elbowing in on the festivities just doesn't stand up. They've been around for many years. Longer, apparently, then some of those making the claims can remember, or might want to admit.
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Doing the Math: Quantifying the AMC Loophole

noreply@blogger.com (Jeff Schurman) — Wed, 22 Apr 2009 19:03:00 +0000

Today’s post updates a recent reply to a reader’s comment, in which I shared my belief that the Appraisal Institute and other critics have overstated the so-called appraisal management company (AMC) loophole while pressing for state regulation of AMCs. The AMC loophole, as the story goes, enables an appraiser whose state appraiser license or certification has been revoked to become (gasp) an appraisal management company.

Running the numbers to quantify the odds

There are 120,000 certified/licensed appraisers on the Appraisal Subcommittee (ASC) National Registry of appraisers. Let’s put the split among residential and non-residential appraisers at 60/40 (72,000 residential appraisers; 48,000 non-residential).

ASC records indicate that 2,100 licenses/certificates have been revoked since the states began reporting revocations to the government agency. Looking at the Registry it appears that the ASC has been collecting revocation data back to 1993; 15 years now. That’s about 140 appraiser licenses/certificates per year (2,100 revocations divided by 15 years equals 140 revocations per year.)

Next, let’s apportion the 140 revocations based on residential or non-residential appraiser orientation. That would be about 84 residential revocations per year; 56 non-residential. That’s just .07% of the residential appraiser population! Critics would argue, correctly, that even one defrocked appraiser going AMC on us is too many. But to make this a cornerstone in the argument for AMC regulation seems a little, well, overstated.

Descending to the Dark Side
A great unknown is just how many of these 84 bad actors would descend so far as to become… an AMC. I contend that the chances are remote. Certainly it can be done. In fact, a trusted regulator alerted me to one such case in Florida. But to believe this is as widespread a phenomenon as some appraisal trades suggest is a stretch.

Becoming an AMC has a few very high hurdles. First, it requires at least one big client, or a number of small clients right off the bat. Second, it requires a good amount of start-up funding. Third, it requires expensive vendor management technology systems operated by trained personnel. And it requires a scalable infrastructure.

Perhaps the highest hurdle though is order volume. For an AMC to be viable, it needs to manage something north of 250 orders per month, assuming appraisal management is the only source of revenue. Why? Because margins in appraisal management are tight. But as an MBA student might remind: ‘A small number times a big number is a big number.’ Lesson: Economies of scale are helpful in this business. A newbie -- especially one who's just been thrown out of their last gig -- would be challenged to make the career change.

So, realistically, how many of the 84 could clear these hurdles? One? Five? Ten? Suppose that 90% realize they clear the hurdles and find something else to do. That leaves fewer than ten to try their hand at appraisal management. Which works out to .1923 individuals per state. That's a small number in the big picture.

I'm not saying these 10 couldn't pose a risk. They could. But there’s nothing like a little quantification take some of the hype out of the hype.
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Appraisers, USPAP Obligations, and AMCs

noreply@blogger.com (Jeff Schurman) — Sat, 18 Apr 2009 18:30:00 +0000

In a post last week, entitled Appraisers, Legal Obligations, and AMCs, I challenged the notion that appraisers who work with appraisal management companies (AMCs) do not comply with their legal obligations. I figured I’d get a slew of comments, given all the criticism of AMCs over the supposed lack of qualified appraisers populating their fee panels. A week later, and still no one has weighed in. So scroll down to the post and weigh in.

In this post, I'll address another criticism, that because appraisers are underpaid by AMCs, they perform poor quality, unethical work.

It is common knowledge in the business that USPAP doesn't offer an exemption to the competency and ethical standards based on the amount of the appraiser's fee. If appraisers are committing ethical or practice violations they are subject to discipline. This discipline isn't based on the amount of fees. And there are no get-out-of-jail-free cards. If people believe that a large number of appraisers are violating USPAP, then what is needed is better enforcement of appraisers (and perhaps more stringent training standards) not regulation of non-appraisers.

That a person would observe ethical standards and quality standards only when they are paid more is slightly disturbing, and implies that they will provide unethical, poor quality work if they are not paid as well.

The appraiser always has the obligation to assess the nature and scope of the assignment, including the fees offered before accepting the assignment. Once the appraiser has accepted the assignment, the appraiser must observe all of the requirements of USPAP.

Even if the appraisal is being done for an AMC.

As always, counter-points, backed by evidence, are welcome.
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HVCC and the Structure of the Mortgage Finance System

noreply@blogger.com (Jeff Schurman) — Wed, 15 Apr 2009 18:31:00 +0000

The structure of a system influences the behavior of actors within the system.

I get a lot of inquiries seeking clarifications on various implications of the Home Valuation Code of Conduct (HVCC) relating to AMCs (appraisal management companies). Mostly they come from appraisers, and mostly I respond directly to the person asking rather then on the Net. The other day, I got a question from an appraiser on a topic that needs some public discourse. In fact, I’ve wrestled for some time with this question, and others like it, that go to the heart of the systemic consequences of the HVCC.

Before getting started, I will gently remind readers again that I am a liberal arts major and not an attorney. Nor am I in a position to tell the government what to do (no one is from the looks of things). So as always, what follows is nothing more than a conversation between friends.

An appraiser’s question

I have worked hard to build my clientele (mortgage brokers) and maintain excellent working relationships. Recently, I contacted several of the larger AMCs and was told that they have not added and would not be adding any new appraisers to their fee panels. Is there anything within the HVCC that prohibits AMCs from excluding appraisers? Or is the HVCC looking out for everyone except the appraisers?

A liberal artiste’s response

The intent of the HVCC is to safeguard the independence of appraisers in developing and reporting appraisals regarding loans purchased by Fannie Mae and Freddie Mac; it is not to re-write the fundamental rules of commerce in a free enterprise system. So, as I see it, AMCs and any other clients may decide on their own the vendors they choose to work with.

Take Wal-Mart for instance. We can only imagine the quantity of vendors and potential vendors hoping the retailing giant will purchase and resell their wares. We, as consumers, are endlessly pitched in radio and TV ads, billboards, pop-ups and unsolicited calls at dinnertime by businesses seeking our favor. The free market works in large part by our ability as the clients to call the shots about who we invest our trust and money with. From my perspective, and as I read the HVCC, there is nothing in it that would, as the appraiser put it “prohibit AMCs from excluding appraisers” from being placed on their fee panels. Now, once the appraiser is approved and becomes a member of a client’s fee panel, the HVCC has something to say. But not before.

Section I.B.(8) of the HVCC, addresses the removal of an appraiser from a list of qualified appraisers in connection with influencing or attempting to influence the outcome of an appraisal. Here, the HVCC specifically addresses the removal of an appraiser from a list, not the addition of an appraiser to a list of qualified appraisers. Who knows, this may change, and others may disagree with my assessment. Therefore, as is always the case in this Blog, any reference(s) to official documentation to the contrary is welcome. Until then, in my mind, the client retains the right to compile its own fee panel.

So the answer to the appraisers question is: No, there isn’t anything in the HVCC that prohibits an AMC from excluding appraisers… with the caveat… before the appraiser is approved and becomes a member of the client’s fee panel.

An unintended consequence on the horizon

That leaves the appraiser’s closing comment, “Or is the HVCC looking out for everyone except the appraisers?” as the last high hurdle for this post. And a high hurdle it is.

Recently, I explained an elephant-in-the-room challenge facing small AMCs in states that assess usurious registration fees on AMCs in their states. Missouri, which proposes a $5000 registration fee and a $2000 annual renewal fee, exemplifies this challenge. (See the post Why State Regulation of AMCs will Put Small AMCs out of Business further below.) Small AMCs need a certain minimum order volume to remain viable. That magic number is some multiple of 250 appraisals per month.

Keeping small AMCs out is a good thing, isn’t it? Not if the only functional alternative is the large AMC.

There are a dozen or so large AMCs (defined here as those managing over 1,000 appraisal orders per day). Each has maintained an extensive appraiser fee panel, even before the HVCC came to town. As a result, appraisers whose client base includes mostly mortgage brokers have a dilemma. In order to be added to a fee panel, someone else must go. (I’ll explain the rationale for this in a future post. Essentially, productivity gains and volume discounts are better in dealing with an optimal number of appraisers versus a total population.) The extent to which large AMCs will need to take on additional appraisers will be determined by the increase in appraisal management volume brought on by the implementation of the HVCC. But it won’t be an incremental increase as AMC fee panels, at least the large ones, are already fairly stacked.

This leaves many appraisers who have traditionally opted not to work with AMCs to try to hook on to one or more of the smaller AMCs. However, if small AMCs don’t have sufficient order volume to justify onerous state registration fees, or decide to walk away from states with high registration fees, lenders, mortgage brokers, and appraisers will have few alternatives to the large AMCs. Therefore, instead of penalizing small AMCs by assessing onerous registration fees, states ought to be encouraging them to come in to the state, thereby offering appraisers – and lenders – alternative to the largest AMCs.

… Added dis-incentive

Add to this that the HVCC now makes it more difficult for an AMC, or any other client for that matter, to rid itself of a new but underperforming vendor once she or he is added to the system. Going forward, every client will have to weigh the upside benefits of (re)populating the fee panel gene pool with the downside costs, and risk of litigation, brought on by written notice and evidence of an appraiser’s illegal conduct, USPAP or state licensing standards violation, substandard performance, improper or unprofessional behavior or other substantive reason for removal.
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Appraisers, Legal Obligations, and AMCs

noreply@blogger.com (Jeff Schurman) — Mon, 06 Apr 2009 16:52:00 +0000

A recent post about an unintended consequence of the Missouri proposal to regulate appraisal management companies (AMCs) generated a mini firestorm of responses from appraisers objecting to one or another aspect of the appraisal management business model. Readers can find the string in a post entitled Why State Regulation of AMCs will Put Small AMCs out of Business. There’s a lot of outrage going on out there.

In reading the comments the premise underlying the outrage seems to be a belief that appraisers who work with AMCs do not comply with their legal obligations. Sure, it is couched in different terms like appraisers who work with AMCs are unqualified, aren’t paid enough to do a quality job, are sufficiently rushed that they can’t turn out a compliant product. But the inference is that appraisers who work with AMCs do not comply with their legal obligations.

But is the criticism realistic, anecdotal or repeating what others are saying? Fully 63% of the residential appraisers who participated in the 2008 October Research Corporation National Appraisal Survey count AMCs among their clients. Another 17% said they’d work with AMCs if they paid more. I for one do not believe that 8 in 10 residential appraisers are unqualified shirkers who violate their certification, USPAP, and professional standards by working with AMCs.

In my mind the overriding issue among critics is that AMCs don’t pay enough and that if they paid appraisers’ retail fees much of the outrage would evaporate. How might this be done? Dialogue between appraisers, vendor managers, and mortgage lenders about the value that the appraisal and vendor management industries together bring to the mortgage transaction. It’s a start.
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Freddie Mac Posts HVCC FAQ's

noreply@blogger.com (Jeff Schurman) — Wed, 01 Apr 2009 18:46:00 +0000

Freddie Mac has posted a frequently asked questions (FAQ) page to its website.

Those interested in the understanding the GSEs' interpretations of the HVCC should add these links as Favorites in a Web browser for future reference.

Links

Freddie Mac FAQ
http://www.freddiemac.com/singlefamily/hvcc_faq.html

Fannie Mae FAQ https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/hvccfaqs.pdf

HVCC Document http://www.freddiemac.com/singlefamily/pdf/122308_valuationcodeofconduct.pdf

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Why State Regulation of AMCs Will Put Small AMCs Out of Business

noreply@blogger.com (Jeff Schurman) — Mon, 30 Mar 2009 17:32:00 +0000

Finally, someone in media has reported what I've been trying to get across for the past month: That state registration and regulation of appraisal management companies (AMCs) will assure the survival of only the largest of the large AMCs.

Unintended Consequences
In a story, about a proposed AMC bill in Missouri in today's Valuation Review, I am quoted (correctly) as saying that, “'… (T)his new legislation will have unintended consequences. Small or in-state AMCs won’t be able to afford the initiation fee. The state is essentially forcing small or local AMCs out of business. They’re taking jobs out of the state and putting them in other states with the large, national management companies.'”

The story also reported that "Schurman would prefer a federal regulatory solution: “We’d be happy to register AMCs, but not at a state level.” But this is a story for another day. For now, I'll stick to my contention that the Missouri bill and others like it will put small and in-state AMCs out of business and drive appraisal management to the big competitors.

That I am an independent leadership and business development consultant is well known in the settlement services industry. Over the years, I've done time and motion studies on (4) of the title industry's best known transaction management systems. I've done income and expense pro formas on a variety of businesses including title agencies and appraisal management companies. I've collected and analyzed surveys from across the settlement services industry, and used these data to power complex Excel models. And so, as it regards building AMC financial models, I have some level of experience. Enough to know that small AMCs paying big-time registration fees -- like the $5,000 registration fee and $2,000 renewal fee proposed by Missouri -- are toast.

Math Time
I don't even need to show you my pro formas as proof. You can do the math yourself. Get out a piece of paper (or Excel worksheet) and jot down a few numbers.

1) Estimate the average appraisal fee charged by an AMC for a combination of URAR, drive-by, REO, field review, multi-family and FHA appraisals. For this hypothetical example, I'll suggest using $315 as the average fee paid by a hypothetical client (remember, this is a blended fee for (mostly) URAR appraisals and a smattering of FHA, MF2-4 and lower-end valuation products).

2) Estimate the average fee paid to the appraiser by the AMC for the valuation product. Let's say the average fee to the appraiser is $200 (again, hypothetically... I don't want objections to the fee to drown out the context of the point being made).

3) Subtract the $200 appraiser fee from the $315 client charge, which leaves the AMC with $115 (36.5 percent gross margin).

The last step is where it becomes uncomfortable for the small business owner/operator.

4) From the $115, subtract the following expenses: Personnel (appraisal ops., customer service, QC, sales and marketing, and executive), support services (IT, payroll and accounting, etc.), labor burden, quality control reviews, telecom, computer, travel and entertainment (someone has to find and cultivate clients... AMCs do that way better than appraisers), legal and professional fees, warranties/E&O insurance, facilities, office lease, data subscriptions, transaction management systems technology, etc.

Oh, and by the way, suppose every state adopts Missouri's $5,000/$2,000 AMC registration scheme. You'll need to break those fees down to a per-unit basis in the expense calculation above. If Missouri is the only state to nick a 250 order-per-month AMC add just 60 cents to each appraisal; if all 50 states and D.C. do, add $30.60 per appraisal.

The bottom line is that there's a pretty thin net income in appraisal management. But as business schools teach, a small number times a big number is a big number. Which is why the nationwide AMCs have a distinct advantage over small in-state competitor. They do a lot of appraisals -- some upwards of 1,000 or 1,500... per... DAY!

So, if Missouri's aim is to wipe out AMCs, they'll be part way to their goal. They'll wipe out in-state AMCs and the local employee (tax and voter) base displaced by the AMC statute.

The math also lays bare the folly of the contention in the appraisal trades that an appraiser who's lost her or his license might morph into an AMC. The numbers say they simply don't have that great a chance even without usurous registration fees. Besides, an appraiser bad enough or unethical enough or lacking enough in the trust dimension to lose an appraiser credential has little chance of attracting enough lender-clients to lift an AMC off the ground. To do 1,000 or even 250 units a month requires a few huge or a lot of small clients. A defrocked appraiser without experience, contacts, or technology would surely wash out in the due diligence process.

The AMC Strikes Back!
The only recourse for the small time operator doing say, 250 orders per month, is to raise fees to the lender (costing consumers more by way of higher interest rates, points and fees), and/or lowering appraisal fees to appraisers (in this example to under $100 per unit). Hardly what the legislators and state appraiser boards wanted when state regulation of AMCs was proposed.

This comes at a very critical time for mortgage brokers and appraisers seeking to service the broker community through local AMCs. Fannie and Freddie have been at odds over whether a mortgage broker can order an appraisal directly through an AMC. Freddie says yes, while Fannie, up until now has said no dice. If Fannie changes its stance (I've heard it is reconsidering) and allows brokers to order directly with a local AMC, guess what? There won't be a local AMC to funnel work to local appraisers. The Missouri bill will see to it that the only alternative will be to place orders with the 8-10 heavyweights in the AMC industry.

Much luck to appraisers not on the national AMCs fee panels.

What's a Lender to Do?
A recent email from a leader of the California Appraisal Institute suggested that the death of the AMC industry would be a good thing. So it's fair to ask, What if AMCs were wiped off the face of the earth and lenders forced to order appraisals on their own? Answer: For a mega-lender it would add $100 per order to the cost of making a mortgage loan. In other words, if a big bank paid the appraiser's so-called "retail" fee (say $325) and charged the borrower the same $325, it would cost the lender another $100 per order; much more if the lender was a small local bank unable to take advantage of the economies of scale.

But what if lenders decided that it appraisals weren't worth that much out-of-pocket cost? One alternative might be to find some displaced AMC owner/operator to hunt down alternative collateral assessment products like AVMs and BPOs.

After all, how valuable can appraisals be when appraisers and their trade associations testify to congress about how bad appraisals and appraisal oversight are? Or when well-known appraiser bloggers assert that 70 percent of residential mortgage appraisals aren't worth the paper they're printed on? Or when a person way-in-the-know at a GSE tells me that 25 percent of appraisals are lousy.

Time to stop talking down the brand, folks.
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A Prediction on the Future of Regulatory Oversight

noreply@blogger.com (Jeff Schurman) — Wed, 25 Feb 2009 19:38:00 +0000

Here's my prediction: The government will come to see the value in paring down the number of regulatory agencies overseeing the financial services sector.

In a story in the Wall Street Journal, we learn that Citigroup is struggling to adapt to the hands-on-hands-off-push-pull-release-repeat approach the government is taking toward steering the banking giant through the current tumult. It seems there is a lot of confusion about who's actually in charge of overseeing the company -- FDIC, FED, OCC and/or Treasury.

According to the report, all these government hands at the helm have been "handing Citigroup a jumble of sometimes conflicting orders, advice and critiques."

There's been lively debate over the years about whether, and for that matter why, companies like Citigroup ought to be under the regulatory oversight of multiple federal entities. This episode may well call the question. In fact, I believe the Citigroup experience will compel our leaders to adopt a policy of a single regulator per entity.

Surely there will be plenty of cage matches to determine who ought to be ruler of multi-line financial giants that cross regulatory boundaries. However, it will be a worthwhile struggle in the long run. That's because, by most accounts, we're set to step into the Regulate Everything That Moves Age. Therefore, as it is in basketball's zone defense, clarity about who's guarding whom on the regulatory front will be vital to regaining our country's footing.

Having a single overseer per entity should also go far in alleviating another scary visual. That is, as the Journal reporter observed, "In trying to be neither an active nor a passive investor, the U.S. is directing the business without a firm strategy or particular expertise."

Developing a single strategy, aligning and motivating constituencies, and executing a plan is no easy task. Pursuing several potentially conflicting strategies is almost certain to end quite badly. It sounds like leadership at Citigroup knows this; the government will too.

You heard it here.
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When Leaders Panic Followers Freeze in Their Tracks

noreply@blogger.com (Jeff Schurman) — Wed, 11 Feb 2009 14:35:00 +0000

Here's an interesting observation from TAVMA's favorite economist, Jeff Thredgold, which just amps my concern about leaders who beat us down with how bad things are.
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Said Thredgold, in Shock & Awe...

"Look at the monthly employment data chart. I (Thredgold) have been making the case that the nosedive of recent months is directly tied to Federal Reserve Chairman Ben Bernanke and then-U.S. Treasury Secretary Hank Paulson telling the U.S. Congress and the American people on Friday, September 18, 2008 that the sky was falling.

"This was the day they asked the Congress for an immediate $700,000,000,000—no questions asked—in order to support financial markets and deal with toxic assets polluting commercial and investment bank balance sheets…

"…the American consumer basically stopped spending at that point.

"The loss of nearly 1.8 million net jobs during the past three months alone was the largest 3-month loss since just after World War II…when the war effort was going through an awkward but longed-for conversion to peacetime."

(Ed. note: You can surf to the entire article by clicking here. While there be sure to sign up to receive Jeff's weekly e-newsletter.)
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Maybe it's time to step away from the live mic on the world stage.
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Should AMCs be Criticized for 3-Day Turnaround Times?

noreply@blogger.com (Jeff Schurman) — Sat, 24 Jan 2009 21:54:00 +0000

I admit it, I'm a statistics gear head; apparently one with little else to do. So here I am on a Saturday afternoon leafing through my copy of the 2008 October Research Corporation National Appraisal Survey (Volume II). Yes, I'm a gear head. And confused by the meaning of questions 3, 4 and 5 as they relate to appraisal management companies (AMCs).

Question 3: What is the average turnaround time for.. residential appraisal assignments? Answer: 69% of the appraisers surveyed said that full appraisals take 2-5 days to complete.

Question 4: What are your clients' turnaround time expectations for... residential appraisal assignments? Answer: 43% of the appraisers surveyed said that clients expect a turnaround time of 1-3 days for full appraisals; another 34% said 4-5 days.

Question 5: On average, how often are you able to meet your clients' turnaround time expectations? Answer: 79% said they meet client expectations for full appraisals between 76%--100% of the time.

The average AMC turnaround time expectation for a full appraisal is 3 days (i.e.: Accept order on Monday, inspect on Tuesday, deliver appraisal on Wednesday). And they expect appraisers to meet these guidelines between 90-95% of the time, unless the order is delayed by the borrower or other party to the transaction.

What this suggests to me is that, while AMCs are aggressive in their turnaround times and on-time percentages, they aren't that much different than what the average appraiser provides her or his other clients.

By the way, the same survey (Question 1) says that AMCs make up only 17% of the respondent's book of business; not nearly enough to conclude that the percentages above are skewed to the low-side by AMC turn times and on-time expectations.

Certainly, AMCs can be a pain in the neck (or elsewhere) when it comes to following up on late appraisal assignments. In a weird and annoying sort of way this is a testament to the sophisticated tracking systems they use to rat out the appraiser the second the appraisal clock winds to zero. They can literally get on the horn the moment an appraisal goes missing. And they wield this tool like a battle axe.

But for appraisers and appraiser trade associations to beat up on AMCs for their "unrealistic" turnaround times has lost a little steam with me. It seems most every client -- AMCs included -- want fast turnaround times.
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How did vendor management get started?

noreply@blogger.com (Jeff Schurman) — Wed, 17 Dec 2008 15:21:00 +0000

The Winter 2009 TAVMA newsletter features an article on the genesis of the vendor management industry that you won't want to miss. It is an excerpt from a book project I'm working on entitled "The History of Vendor Management" that until now very few people in the industry ever knew about. I'm looking for industry veterans to add their insights and stories to the book. If you're interested, please contact me at the TAVMA office at 412-507-2318, to arrange an interview.

You'll also find terrific articles on two of my favorite topics: Web-based communications technology, and social networking technology. These must-read articles are brought to us by our industry's subject-matter experts, Rick Grant and Associates, and Sharp Creative.

There's also an article on the application and implications of the Better-Faster-Cheaper value proposition triangle in businesses unrelated to vendor management. The last issue featured Wal-Mart; this time we look at how McDonald's Corporation melds bureaucracy, standardization, and technology to produce consistent quality and timeliness at an affordable price.

Finally, we caught up with Lee Howlett, President and COO of Fiserv Lending Solutions -- Fulfillment Services Division, to get his take on the state of the real estate settlement services industry for this quarter's Question and Answer session.

I'd like to hear your feedback on the newsletter. So please leave a comment using the comment tools below.

Link: TAVMA Newsletter - Winter 2009
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