Selecting the Right AMC: What Lenders Need to Know By Vladimir Bien-Aimé Working with the wrong appraisal management company (AMC) can slow the appraisal process, cost you money, cause potential reporting gaps and create exposure. You have to be discriminating when deciding which AMCs to use, as many AMCs lack the qualifications to properly execute, and the lender is ultimately responsible for any errors the AMC makes. There are numerous constantly changing compliance regulations that lenders must adhere to. Now, more than ever, it is imperative to remain in compliance or risk being fined, receive buy-backs or have appraisals delayed which can kill deals. Most lenders turn to AMCs to manage what has become a much more intricate and complex process than it once was amid compliance mandates. But be careful, not all AMCs are created equal. A significant number of AMCs lack technology, expertise and stability to effectively handle the process and produce compliant appraisals. However, if you select the right AMC to work with, you’ll lower costs, reduce risk, prevent fraud, speed up turn times and sell compliant loans to the secondary market. There are number of things to consider when selecting an AMC. Below is a checklist to help guide you.
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l Make sure the AMC is truly national and licensed in every state. Most AMCs are not. Unbeknownst to lenders, it is not uncommon for them to outsource appraisals to AMCs that are licensed in states they are not. This introduces a third party that can complicate matters. l Make sure the AMC uses sound technology to automate the appraisal process. Does the technology offer ease of communications, status updates and detailed reporting? Does the AMC offer a mobile application that appraisers can utilize in the field? Can their technology integrate with your LOS? l Make sure the AMC is Uniform Collateral Data Portal (UCDP) compliant, uploads appraisals to the UCDP in a Uniform Appraisal Dataset (UAD) compliant format, and returns a compliance certificate. l Make sure you check references and Google the AMC (the results might surprise you). All too often, lenders make the decision to work with AMCs without doing this. The AMC’s reputation is very important. For example, some are slow pay or don’t pay their appraisers, resulting in unexpected financial liability. Certain states, like Texas, require AMCs to be paid within 60 days. l Make sure the AMC has been in business and is established along with what their attrition rate is among the staff? It’s telling. Many AMCs sprang up due to an uptick in demand, and many later closed their doors with limited to no notice. l Make sure they are experienced. What is the combined experience of their management team? Do they fully understand the appraisal process? l Make sure the AMC has a robust reporting structure. If the CFPB audits you, the burden of proof is on your organization. Detailed reports will prove you are handling appraisals efficiently and compliantly. l Make sure their fees are customary and reasonable per the Dodd-Frank Act. Many overcharge you and underpay appraisers. Score the AMCs and then make an informed decision based off capability and price. Don’t just rush into an engagement and wait to see how they perform. Just because you have an AMC managing your appraisals, it doesn’t mean you have nothing to worry about–unless you selected the right AMC. Vladimir Bien-Aimé is president and chief executive officer of Global DMS. Since co-founding Global DMS in 1999, Bien-Aimé has grown the company to capture a leading share of the appraisal management segment, with a client base of over 20,000 unique users and a 100 percent retention rate among lender clients. He may be reached by phone at (877) 866-2747 or visit www.globaldms.com.
SPONSORED EDITORIAL
The Mini-Correspondent Channel: Pros and Cons BY
JONATHAN FOXX
everal years ago, our firm, Lenders Compliance Group, provided unique guidance to the mortgage division of a bank. The bank wished to build a special origination platform for its mortgage brokers. At that time, the prevailing regulations required disclosure of the yield spread premium (YSP), and the bank wanted to give their thirdparty originators (TPOs) an opportunity to close in their own name, with their own funds, and, among other things, by-pass disclosure of the YSP. In building the platform for the bank, many features were needed to implement these relationships in accordance with federal and state law, as well as safety and soundness metrics. This all took place at a time when a three percent fee cap on broker revenue was not even a glimmer in the eyes of legislators or regulators, and Elizabeth Warren1 had yet to promote the creation of the Consumer Financial Protection Bureau (CFPB). As Shakespeare wrote in The Tempest, “What’s past is prologue.” Since the early part of this year, many lenders are building a new origination channel. The proximate cause for the new channel is found in the Final Rule pertaining to the Ability-toRepay guidelines and the requirements of a Qualified Mortgage (Rule).2 The new channel is meant specifically for brokers who hope to bypass a three percent cap on loan amounts above $100,000, the new CFPB requirement that substantially and principally affects broker TPOs.3 The loans covered by the Rule are first lien and junior lien mortgage loans that are closed-end mortgage loans secured by a dwelling, including home purchase, refinance and home equity loans. (Excluded loans are HELOCs; Timeshares; Reverses; Bridges with a term of 12 months or less and loans to purchase a new dwelling where the consumer plans to sell another dwelling within 12 months; Vacant Lot loans; Loan Modifications not subject to the “refinancing” provisions under TILA; and Business Loans.)4
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MICHAEL G. BARONE
In particular, many brokers usually seek to charge fees between two and three percent per loan transaction; however, as of Jan. 10, 2014,5 any excess above three percent in total points and fees virtually guarantees that such loans, originated by brokers, will not be eligible for treatment as a Qualified Mortgage (QM). The result of the Final Rule and specifically the three percent cap is to create an incentive for many brokers to morph into a new kind of correspondent, termed the “MiniCorrespondent.” The new origination channel developed by some wholesale lenders is aptly called the “MiniCorrespondent Channel.” One of us, Jonathan Foxx, has written extensively–both in magazine articles and newsletters–about the Ability-to-Repay guidelines (ATR), the Qualified Mortgage (QM), and the Non-Qualified Mortgage (viz., which he has titled the “NQM”). For additional details and guidance, please read those publications.6 In this article, we are going to explore two interrelated issues. First, we will discuss the three percent cap, its implementation and placement within the QM framework, and the way it affects the originations of the mortgage broker. To do that, we will provide the QM framework into which the three percent cap is situated. Secondly, we will discuss the structure of and certain requirements relating to a mini-correspondent TPO. Bear in mind that this new type of TPO is taking place in a dynamic regulatory environment and loan origination market; therefore, aspects of our observations may change, due to a regulatory response, or other material factors, that pertain to originating loans through this new channel.
Two classes of qualified mortgages Essentially, the Rule creates two types of QMs, one of which provides a safe harbor from liability and another which does not provide a safe harbor, but