The recent conversations I’ve had with lenders and appraisal management companies (AMCs) are not about how to comply with the latest regulation. If there’s one thing we all know by now, it’s to plan for potential future changes, instead of constantly playing catch up with what you’re facing now.
The appraisal industry has undergone tremendous change and there’s likely more on the horizon. Whether it’s HCCC, AIR, UAD or UMDP, the pace of change has been furious with federal and state regulations piling on top of each other, not to mention individual investor requirements changing almost daily. To say it’s been a rough couple of years is an epic understatement. In this climate, most of you have been tempted to over-invest in compliance officers and internal training and systems, or to simply sit back and hope to avoid an audit. I think we all know at this point, the latter is no longer an option. With this being said, I can tell you from experience: There is a way to safely navigate these rising waters.
In the valuation arena, whether it’s BPOs, appraisals, or AVMs, there’s not a lot in Dodd-Frank (or any other regulations for that matter) that can’t easily be addressed by a comprehensive collateral valuation strategy. In other words, many lenders don’t have a compliance problem, they have a workflow problem. This cannot be stressed enough—the workflow of collateral valuation, if properly designed, easily accommodates Dodd-Frank and all the other regulations. The key here is to engage the right experts in your decision.
A prime example of this would be the numerous times I’ve seen lenders having problems with an existing AMC (for whatever reason), and think the solution is to add multiple AMCs to spread out the pain. More often than not, this only compounds the existing problem and turns into a vicious circle that could go on for months (if not years).
But don’t get me wrong. Your expert can indeed be an AMC, and there are some excellent options out there. You can also choose one of the many technology platforms available that help lenders maintain in-house compliance. Up-to-date compliance can be a moving target, but quality valuation management doesn’t have to be. Focus on the latter and the former will automatically resolve itself.
Finding the right partner is easier said than done, of course, but I’ve outlined three critical criteria to keep in mind when selecting the right company or platform.
Due diligence: Try before you buy
I can tell you from experience that the full company and their history definitely matters, and this decision is far too important to simply trust a salesperson’s word. Make sure you request a thorough demonstration of the service, or even a pilot period to get a true sense of how the service will actually improve your operations, enhance your appraisal quality, and ease your compliance burdens. Some vendor management platforms or self-management software apps don’t have trial periods or a way to let you test out the product in a real-world environment. I am always leery of this policy and firmly believe the product should sell itself. Watch for anything that has you signing a contract before you see the service in action, and definitely don’t lock yourself into any long-term commitments. I cannot tell you how many times I’ve heard, “We aren’t at all happy with the service, but our contract isn’t up for six more months.” Maybe I’m missing something here, but the only business advantage I can think of for any company to adhere to this policy is to protect the vendor’s revenue if/when you decide you need to make a change.
On the flip side, watch out for companies tailoring pricing policies around clients walking away. If they’re giving you “half-price” for the next year because you’ve been so unhappy with the service, nothing’s really changing but the price. This might make some sense in the short-term, but it’s not a real solution and chances are you’ll regret it.
Solid history, solid reputation: It’s all about who you know
As mentioned earlier, another red flag to watch for is a limited company history. First and foremost, the AMC or software you choose needs to have a solid industry reputation. Ask for client references, ask your industry peers, check online message boards, and do your due diligence on the company’s overall reputation. Some companies have popped up in the last few years and say all the right things, but ultimately can’t deliver when you need them the most. They may not be prepared to support you during large-scale industry changes, leaving you in the cold when another change they can’t support pops up. You should find a partner with significant experience, and the longevity and stability that result from solid business practices.
Second, the software or AMC you choose should be able to integrate with the software and services you already use. This includes integrations with your LOS provider so that loan officers can compliantly order appraisals from the LOS or an online portal, or quickly and easily place orders with the AMC. Flexible APIs and modern technology make all of this (and much more) possible, and it’s a far better solution for your long-term efficiency. Make sure your partner is innovative, responsive to your unique workflow, and has established business relationships in the industry enabling you to connect everything your mortgage lending team needs into one efficient, compliant solution.
Third, check their client list. If your prospective partner can handle the volume and complex requirements of other industry leaders, you’re likely in good hands (assuming those industry leaders aren’t getting “half-price” this year—that one kills me). Rest assured, those large companies have done extensive due diligence and there’s no shame in leveraging their work to make your decisions a little easier.
Buyer beware: Sense before dollars
Everyone makes money on the process somehow. Make sure you know upfront how your prospective partner gets paid. It sounds like a simple concept, but this is a significant factor in judging the overall value of the solution. Here are examples of situations to avoid:
►Avoid AMCs that take a large cut of the appraiser’s fee. There’s usually a reason the appraiser is working for a lesser fee and if the AMC’s profit margin is dependent on how low they can get the appraiser to go, and how high they can get you to go, there’s a definite problem. I used to ask “You know what you’re paying for the appraisal, but do you know what the appraiser is actually being paid?” Trust me—it matters.
►Beware of bait-and-switch scenarios. Sometimes full service AMCs offer a “self-managed” solution based on less expensive, tech-based services. Sometimes choosing between an AMC and a self-managed technology platform seems like an either/or choice, and a vendor offering both solutions can be perceived as a safer option. However, once a client is hooked, the vendor has a financial incentive to guide them to a more costly solution regardless of their actual needs. If you choose to go with the vendor’s technology platform and have a customer support question, you might be escalated to higher priced AMC services. Make sure you’re not getting baited on a less expensive solution, only to find out later you’re being sold on the more expensive AMC services you thought you wouldn’t need.
►Also watch out for implementation fees and upfront costs. Whether it’s a software platform or an AMC, paying upfront fees typically isn’t necessary, especially in today’s competitive environment. If they have to develop your solution, and want an implementation fee upfront, you should question their experience. Testing and launching custom implementations is a long-term project fraught with unforeseeable delays and expenses, and it’s rarely a good experience for the lender. Don’t foot the bill for someone to develop a new solution, unknowingly playing the guinea pig. If it’s new, it most likely hasn’t been tested, and there are plenty of solutions out there that have been, so you don’t need to risk additional upfront expense.
Finding a long-term partner is any realm is a tough decision, but in this regulatory environment it’s absolutely essential. As a lender, you need to focus on origination and service, and rely on valuation workflow experts to help you with specific workflow operations. With the right partner you can weather any regulatory storm and continue moving forward. Always remember to keep the long term goals of your organization in mind; otherwise you may be making this same decision again sometime soon. Hopefully these guidelines help you make the best choice for your organization.
Chris Sullivan oversees the national sales team for Mercury Network, and supervises Mercury's largest, key strategic accounts. He has been with a la mode inc. for 11 years, building invaluable expertise in vendor management operations and appraisal compliance concerns with the largest lenders and appraisal management companies in the nation. Chris has been instrumental in the growth of Mercury Network, powering more than 20,000 compliant appraisal deliveries a day. He may be reached by phone at (800) 434-7260, ext. 708 or e-mail [email protected]