You often can't order appraisals. But you can help ensure your lender taps a quality valuation source

George K. Demopulos; president, chief corporate appraiser and co-founder; Lincoln Appraisal & Settlement Services

As published in Scotsman Guide's Residential Edition, February 2010.

Mandatory appraiser independence appears poised to stick around for the long term. Mortgage brokers can use this to their advantage by working with lenders that assure only the highest-quality appraisal management and delivery.

By looking more closely at appraisal-management companies (AMCs), brokers can reduce their exposure to risk, provide clients better service and maintain regulatory compliance.

As the mortgage industry moves forward, appraisal independence likely will remain a requirement of lending guidelines, regardless of specific developments related to the Home Valuation Code of Conduct (HVCC). Mortgage brokers’ ability to satisfy clients’ needs and to deliver solid loans to lenders could depend on their capacity to work with lenders that use high-quality AMCs.

Understanding the history of AMCs can help. So can following a five-step process for evaluating which lenders use the best AMCs.

How AMCs started

AMCs are valuation operations that manage a network of third-party appraisers who work independently or by contract. The advent of AMCs was a result of mortgage-industry conditions that witnessed banks and other lending institutions expand their geographic coverage. There was a greater need to organize and manage larger appraiser panels. In addition to independent AMCs, larger lenders set up their own AMCs to identify and evaluate appraisers based on competency, regulatory licensing and other metrics.

The HVCC, which prohibits brokers from ordering appraisals when working with loans to be sold to Fannie Mae and Freddie Mac, and a similar appraisal-independence mandate by the Federal Housing Administration (FHA) further strengthen the future of AMCs.

While HVCC, implemented this past May, could expire naturally following its original implementation period of 18 months, Fannie Mae and Freddie Mac appear likely to continue prohibiting broker-ordered appraisals. In addition, similar FHA rules are set to take effect Feb. 15, delayed from Jan. 1.

Generally, mandated appraisal independence intends to reduce the risk factors associated with mortgage lending. By keeping mortgage brokers from ordering appraisals, regulators aim to reduce the chance that appraisers will be pressured to produce certain value estimates.

Identifying quality AMCs

Mortgage brokers can benefit when the lenders to which they send their loan packages use high-quality AMCs.

Quality AMCs provide a one-stop solution for appraiser management, multistate coverage, dedicated support staffs and experienced in-house reviewers. In addition, AMCs should work with the best independent appraiser partners throughout the country by adhering to strict appraiser-evaluation models. Finally, they should do all of this at a competitive price that’s also attractive to the mortgage industry.

In general, AMCs should insulate the valuation process from collusion, fraud and substandard valuations. They also should allow mortgage brokers to focus on their primary business of helping consumers secure the most appropriate mortgage.

High-quality AMCs also should provide exceptional customer service to all of their clients and nationwide coverage to those who need it. The best AMCs provide dedicated, client-specific service teams that work hard to manage the appraisal process from order until delivery and beyond. Client-service teams should have extensive backgrounds in real estate, mortgage lending, loan processing and the appraisal process.

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