Thursday, September 29, 2011

Come Monday, Which AMCs Will Be Licensed to Manage Appraisals in Kentucky?

Appraisal management companies (AMCs) are facing an array of new regulatory hurdles under various state AMC laws.  With all the new requirements on AMCs and because of apparent and hidden compliance problems by AMCs which pose liability to their lender clients, we're probably not too far off from seeing some form of "appraisal management company management companies" or "AMCMCs" -- whose function is to assure that AMCs are qualified, appropriately licensed, properly insured and adequately bonded, and also to rate AMC performance (I'm only half serious).

In Kentucky, in particular, where AMC registration becomes effective 10/1/11, if AMCs want to operate legally, two of the hurdles they face are: a $3,500 application fee and the posting of a $500,000 surety bond.  We've had a few AMCs actually call us to ask if $500k is a typo (seriously).  It's not.  Thus, at this time, if an AMC intends to comply with Kentucky's AMC registration requirements and operate legally, it must post a $500k bond.  At the other end, some AMCs simply can't qualify for that bond at any price.

As of yesterday (9/28/11), only 11 AMCs were licensed in Kentucky -- though I do understand, some applications are in process.  Many familiar AMC names are missing from the current list.

Even though many parties have ill will for AMCs, these new regulatory hurdles are not always a positive development for the majority of residential appraisers who do AMC work.   Not all AMCs are "mega-AMCs" -- a few are small, locally operated alternatives to the national providers and a few actually operate as appraiser-owned cooperatives.  These kinds of AMCs may not be able to qualify for a $500k bond.  Even medium-sized AMCs may choose to, and be forced to, forgo doing business in Kentucky.  As a result, Kentucky may end up with only very large AMCs offering management services to lenders.  This lack of competition may allow those AMCs that do register to be in a competitive posture to charge a higher overall fee to the lender/client (causing a higher fee to be passed onto the consumer), while at the same time being in a position to force appraisers to accept a lower fee.

We'll see what happens in Kentucky, but it's for the above reasons that we believed and suggested that the bond requirement be graduated in amount based on volume.  It's our belief that the AMC bond requirements in most states of $20-$25k are not meaningful for either consumer, public or appraiser protection -- these bonds do serve other purposes, however, such as testing and assuring minimal financial responsibility, but the amount is too low to provide any actual financial protection.  We believe that a meaningful “entry-level” bond amount starts at $100,000 to $200,000.  An entry-level amount in this range better balances the public protection provided by a bond without creating a bar against responsible competition from smaller AMCs.  At the higher end, a $500,000 bond likely is appropriate for the largest AMCs.  It also makes sense to tie the amount of the bond to appraisal volume because the risk being protected against by a given bond certainly depends on the number of appraisals handled by a particular AMC.