Q and A:  Alternatives to AMCs for HVCC Compliance

"What is it going to take for the lending industry to better understand there are alternatives to AMCs when it comes to maintaining HVCC compliance?"

The first thing to recall is that AMCs are not an HVCC compliance solution at all. The lawsuit by the NY AG's office which resulted in the creation of the HVCC was filed against a lender who pressured a major national AMC to use only those appraisers who hit the lender's requested numbers.

Just hiring an AMC but then sending them legally discoverable emails to the effect of "find someone else to make the deal work" is obviously not any sort of HVCC-compliant "firewall". Yet it happens all the time. In an age when consumers are emboldened by class-action suits and public officials look to score high-profile populist victories, that's a massive risk.

It's not mitigated by simply eliminating mortgage brokers from the process either. They've been a scapegoat to date, but the fact is that loan officers and mortgage brokers have had virtually identical fraud rates for years. Bad internal loan officers e-mailing their contacts at AMCs create a paper trail a mile wide, and it leads right back to the lender.

The industry needs to be made aware of that risk. Only risk aversion will result in lenders employing a smarter mix of automation, employee training, and stringent internal controls.

On the automation front, systems like our Mercury Network reduce exposure by eliminating the pressure option completely. For example, our bi-directional double-blind firewall provides real-time managed status without anyone knowing or selecting the appraiser, or communicating with them in any ad hoc manner. To the contrary, most large AMCs are still highly dependent on their staff manually selecting, calling, and e-mailing appraisers. Put simply, we believe that "people with headsets working on commission" are too likely to engage in risky behavior, and lenders pay the price when they do.

Even if a mortgage lender is currently happy using just a traditional AMC, they still need specific valuation technology, staff training, and fraud controls in place for actual HVCC compliance. Like all risk aversion, a layered strategy works best.

Lenders should take the time to investigate the multiple options of mature non-AMC, technology-centric management platforms available. It's usually free to test drive them with a small number of appraisal orders to see how they work. There's nothing to lose, but so much to gain, that not performing that due diligence could be the riskiest behavior in the whole process.