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Increasing Outsourcing Seen As A Cost Saver
July marked another year of the Dodd-Frank Act’s passage and reform of some areas in the appraisal management company (AMC) world. One area of focus is to ensure that the compensation of fee appraisers is “at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.”
The Act also directs government agencies that oversee federally-regulated financial institutions to require those institutions to create and maintain audit processes for the AMC’s they work with. This requires preparation on the part of AMCs to be subject to detailed and extensive audits. It’s important that AMCs demonstrate compliance and knowledge of all applicable regulations at both state and federal levels.
AMCs should expect that lenders’ audits will be more extensive and cover parameters such as background, reputation, qualifications, financial standing and principals. Financial institutions and AMCs must stay steps ahead by anticipating further regulatory changes. The most impactful parts of the Act for AMCs has likely been the “customary and reasonable fee” issue, increasing technology costs and the higher costs associated with increased background checks and reviews of appraisers.
Mark Lyons, Senior Vice President, National Sales and Marketing Manager at The William Fall Group says, “Customary and reasonable fees are coming into play for sure. The appraisers have provided AMCs with their fee schedules in the marketplace to develop a competitive fee, but also one that is fair and reasonable. Depending on the supply and demand for appraisals in a respective marketplace, [those fees] can move up and down.”
The trend for AMCs to ensure compliance has become outsourcing. When contracting with a business process management (BPM) company, the AMC may realize cost savings as they are handling compliance, customer service and other administrative functions.
Lyons says, “It can also help AMCs compete on service levels and improve managing customer service inquires. Building an outsourcing solution for parts of the appraisal process – for example, data entry, quality control reviews, administrative reviews, typing reviews and compliance, and panel maintenance – will help with reducing costs associated with the additional industry requirements and compliance.”
Just as lenders oversee AMCs, third-party vendors need to have proper oversight from the AMCs. The Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) published guidance last year on what they require in order for third-party oversight to be effective.
“Outsourcing will not alleviate any responsibility from an AMC,” says Boudreau. “AMCs are still 100% responsible for maintaining compliance. I just think that smaller AMC firms that may not be able to afford the legal fees to understand and implement Dodd-Frank and CFPB regulations will find it much easier to partner with a law firm or a business process management firm [to manage the compliance function].”
Brandon Boudreau, Chief Operating Officer at Metro-West Appraisal Company says, “The key is to look outside the box and consider outsourcing to specialized third-party vendors. AMCs should be competing on the things that really matter most to banks: quality and process. I would encourage AMCs to embrace technology and look at outsourcing some functions that aren’t core to their business.”
Another rising cost is that which is associated with technology. AMCs and appraisers are working together to develop improvements in investor-approved and USPAP-certified appraisals. Investing in the right technology is important to ensure that AMCs are meeting the increased regulatory requirements.
“Make sure that you have the right amount of technology to support processes like quality control,” says Lyons. “Doing so will help reduce costs, as well as make the process more efficient.”
Lyons added, “I believe that AMCs will need to compete on intense quality review, continual auditing of their vendor network, and paying customary and reasonable fees to the appraisers in the marketplace. That’s really getting the emphasis back on a quality process to ensure meeting federal and state regulatory guidelines, along with USPAP guidelines.”
Many AMC heads predict that there will be some consolidation in the industry. The remaining AMCs will be stronger in terms of financial stability and compliance and will be able to meet the regulatory demands of today’s marketplace.
Mortgage Orb. “How Will AMCs Compete in Today’s Regulatory Environment?” 14 August 2014. http://www.mortgageorb.com/e107_plugins/content/content.php?content.15790