An Appraisal Management Company is more than just an appraiser. Instead, it is an independent entity that works with lenders and others who need valuation services. They go through the administrative process of actually hiring and retaining an appraiser. They will also deliver the report to the lender or other client as well.
The AMC will generally have “on call” appraisers that they use regularly for specific projects. No matter how the AMC finds the appraisers, they are state licensed or qualified to provide appraisal services in the specific state and industry in which they are retained.
Interestingly, however, the lender cannot choose the specific appraiser—which is why finding the right AMC is so important.
AMCs as a concept were developed in the 1970s. However, they were not widely used until after the mortgage crisis in 2007 and 2008. In 2009, Freddie Mac and Fannie Mae, government housing lending institutions, the Federal Housing Finance Agency (FHFA) and the New York Attorney General got together to create the Home Valuation Code of Conduct (HVCC).
The HVCC served as appraisal guidelines that then led to incorporating similar appraiser guidelines into the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Truth in Lending Act. Specifically, lenders now have to use independent appraisers to ensure that properties are valued appropriately.
These legal changes lead to a sharp increase in the use of AMCs. It also created the demand for more AMCs, so the market increased with available options for lenders.
Federal laws and regulations have specifically tried to limit the contact between a lender and the appraiser. The idea behind this separation is that they do not want the lender to influence the appraiser’s valuation process.
Federal lawmakers believe that inflated valuations contributed to the housing crisis in 2008. By avoiding or limiting situations where the appraiser can inflate the value of a home, an appraiser is more likely to provide an accurate valuation of the home based on true market conditions.
AMCs provide a vital “disconnect” between the lender and the appraiser to ensure that the valuation is unbiased and accurate based on the market.
Technically, lenders are not required to use AMCs. However, they must ensure that their appraisers are independent and unbiased, and AMCs can be a good way to ensure that is not an issue.
Every lender, and their risk tolerance policy, is different. Many have internal policies that require the use of AMCs.
Keep in mind that individual states often have their own guidelines that AMCs must follow as well. Each state has to meet minimum standards, but some states, including Ohio, have more stringent requirements.
When a lender hires an AMC, it takes the lead on getting an appraiser lined up and delivering a report to the lender. None of the key parties can select the appraiser—including the loan officer, mortgage broker, or homeowner.
By excluding all of these interested parties, the potential for bias or influence is generally averted. When the system works correctly, the AMC hires an appropriate appraiser who has knowledge of the market in the local area to provide a realistic and accurate valuation of the property.
The appraiser does not get any prior information about the property. They are also not allowed to contact the lender, either.
Every report must meet the standards set out by the Uniform Standards of Professional Appraisal Practice (USPAP).
Selecting an appraiser will usually require an evaluation of the appraiser’s experience and qualifications based on the area where the property is located. Other criteria might include:
Many AMCs have their appraisers on a regular rotation if several appraisers would be a good fit as an option for a subject property. Ultimately, the AMC will choose the best appraiser suited for the job under the circumstances.
AMC often has a pool of appraisers that they work with regularly that are “on call” to help with appraisal needs as necessary. Each appraiser must be licensed or otherwise qualified, depending on the state in which they are working.
Each individual AMC will generally create and implement their own screening process to qualify appraisers. They will also use unique methods to measure and track progress, as well track eligibility to receive additional appraiser assignments.
While every AMC uses a slightly different process, each one will follow the same general steps to help a lender and a homebuyer go through the mortgage process.
The AMC report is required to be used unless the lender can show that there is appraiser bias or if the report is somehow factually inaccurate. Federal law prohibits lenders from using several appraisers or AMCs to get more than one value estimate and then using the value estimate they like the best for the mortgage.
Get more information about the value of using an AMC and AmericMac’s ordering process by visiting our website.