A few weeks ago, we cautioned both lenders and appraisers that with decreased volume, AMCs would be under financial stress. In spite of regulatory guidance to the contrary, lenders still believed they could outsource all risk to their third parties. The guidance has been clear: the use of third parties actually increases risk, not decreases it.
Just for a refresher, here is the OCC Bulletin that can be used as the basis for writing your policies.
It would appear that the mere act of AMC registration at the state level has created a class of AMCs that, in some cases, are not real businesses. Minimum AMC requirements to register has proffered an air of legitimacy. And when States don’t audit for fundamental business activities, the public trust is violated.
The next 12 months are going to be messy.
Consumers are going to be trapped in many instances where appraisers will refuse to deliver reports based on past due invoices. Appraisers will be stuck once again for lack of third party oversight, mostly by nonbank lenders, and will be left with millions of dollars in unpaid invoices. Lenders lacking in basic understanding of compliance will find themselves at the center of the wrath of the blogosphere. That is headline risk. Tangible losses will occur when appraisers file complaints with state lending regulators against the lenders and also seek judgments in their local courts. My advice to lenders is to get out early on these issues and pay appraisers promptly.
Appraisers are in a very tough position. It is extremely difficult for appraisers to be in a position to properly vet the AMCs with whom they have no prior history. Proceed with caution. Look at the type of clients the AMC has, how long they have been in business, their payment history with others, and the terms and conditions of their payment schedules.
Be careful, folks.