I just returned from the AARO (Association of Appraiser Regulatory Officials) conference in Chicago. I spoke on a panel regarding Mandatory Reporting per Dodd Frank.
‘‘(e) MANDATORY REPORTING—Any mortgage lender, mortgage broker, mortgage banker, real estate broker, appraisal management company, employee of an appraisal management company, or any other person involved in a real estate transaction involving an appraisal in connection with a consumer credit transaction secured by the principal dwelling of a consumer who has a reasonable basis to believe an appraiser is failing to comply with the Uniform Standards of Professional Appraisal Practice, is violating applicable laws, or is otherwise engaging in unethical or unprofessional conduct, shall refer the matter to the applicable State appraiser certifying and licensing agency.
On the panel with me was Mark Liley, chief appraiser at Flagstar Bank, Scott Dibiasio from the Appraisal Institute and Jeff Dickstein with Pro Teck. This topic is an important one that is and will be affecting all stakeholders.
I surveyed Appraisers, State Regulators, Appraisal Management Companies and Lenders just before the conference to get different points of view on the topic with some interesting results. Much to my surprise the majority of appraisers who had fallen victim to a complaint were quite pleased with the process and felt as though they had been treated fairly and expeditiously by their State Regulator. They also stated that the vast majority of these complaints had originated with borrowers. I didn’t ask but I am speculating that these fall into the category of “ the appraisal came in too low.”
Regulators on the other hand stated that the vast majority of their complaints were being filed by AMCs. Once again that was somewhat unexpected. AMCs are in a bit of a quandary. If they file a bunch of complaints you must wonder how much due diligence was done on the front end. On the flip side if you are a large AMC and you aren’t complying with Mandatory Reporting your clients are going to be asking for an explanation. It would not be possible to process hundreds of thousands of appraisals and never seeing an appraisal you didn’t like. This is sort of the “Goldilocks and the Three Bears” dilemma. Not too hot, not too cold but just right. I don’t know what that sweet spot should be I would take a clue from Mark Liley at Flagstar.
Mark stated that Flagstar is ranked as the number 9 lender for total volume in the US. He files approximately one complaint per day. Flagstar is a very distant #9. He did the math and he posits that if the top 10 lenders filed at the same rate then there would annually be about 25,500 complaints filed annually. One regulator stated he dismisses about 50% of his complaints. So even at that you would be left with 12,250 disciplinary actions annually at current rates of volume.. I am sure I don’t have them all but I have aggregated disciplinary actions since FIRREA and I have just under11,000 disciplinary actions.
You can begin to see very quickly that there is a huge gap between what might be expected “normal” activity and what is actually happening. State Regulators responded to the survey that they were typically seeing less than 25 complaints filed a month. So the big witch hunt for appraisers hasn’t exactly materialized just yet. Mandatory Reporting is the law. Compliance with the law doesn’t seem to have caught on quite yet. Hmm…