Newsletter SUMMER 2008
Doing the Math:
Appraisers Who Work With AMCs Q&A with Craig Weber Reverse Mortgage Primer
Did you know... There’s a growing threat to the real estate settlement services industry from interest groups seeking to manipulate the industry through legislation and regulation. The Title/Appraisal Vendor Management Association (TAVMA) is a non-profit professional association that monitors, tracks and reports on pending and proposed federal and state legislation and agency regulations affecting the settlement services industry. TAVMA’s ability to identify these threats early and coordinate resources against them is invaluable to the industry, consumers, our members, lender/clients and vendors. Let your voice be heard! For more information about TAVMA or to become a member call 412.507.2318 or visit www.tavma.com for an information packet and membership application.
TAVMA is the only association specifically geared to the needs and concerns of the settlement services industry.
COVER STORY
Doing the Math:
Appraisers Who Work With AMCs If a person can be judged by the company they keep then over half the residential appraisers in the United States have just been dissed. So has a significant segment of the appraisal industry’s client base. Ought lenders that choose to affiliate with AMCs be waved off as uncaring about appraisal quality? Not without empirical data, please. Page 6
Table of Contents The State of the Association Title Insurance & Coffee: Be Starbucks Not Folgers Doing the Math: Appraisers Who Work With AMCs Managing Information Overload with RSS A History of Collaboration Q&A with Craig Weber Reverse Mortgage Primer
Page 4 Page 5 Page 6 Page 10 Page 12 Page 14 Page 16
About TAVMA Founded in 1998, TAVMA is a non-profit trade association tasked with enhancing public awareness and promoting ethical conduct to settlement services industry vendors and service providers. The Association acts as a forum for the exchange of vital information and presents the positions of its member companies to media, government, user groups and vendors. TAVMA member organizations are committed to promoting excellence and integrity while adding customer and consumer value to the settlement process.
Find this and more at www.tavma.com!
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The State of the Association
By Jeff Schurman
The Men’s Dress Furnishings Association just folded; victim of an 80 percent drop in memberships. The reasons: Industry consolidation, member apathy and declining demand for neckties. Unlike the neckwear association, our industry is growing. That’s the bright light. What’s not so encouraging is that the vendor management industry continues to consolidate and TAVMA is not attracting sufficient new members to replace those exiting. In 1998, eight vendor management companies formed TAVMA to update one another on legislative matters. Since then, five founders were acquired—LSI, ServiceLink, Atlantic Assurance Group, Advantage Equity Services, and Nationwide Appraisal Services—and the entrepreneurs that launched the association moved on. Another founding member, Express Financial Services, closed. More recently, a number of TAVMA members including ATM Corporation, United General Title Insurance Company, Aculink, Chesapeake, Home Connects, HomeFocus, and STARS were acquired, merged or closed.
Today, TAVMA’s membership rolls are down almost 70 percent from peak years. Market conditions have taken a hefty toll to be sure. Yet a lot of companies that ought to support TAVMA simply don’t. And that is a shame. TAVMA is the only association that promotes and protects the specific interests of multi-state agents, vendor management companies, and closing management service providers. TAVMA gives these specific groups a voice in the issues that matter the most to their businesses. We’re one of only a few trade groups whose members’ legislative and regulatory interests generally align. And we are shameless promoters of the vendor management business model and value proposition.
All of us are part of a vital and growing industry. And yet vitality and growth often fuel attacks by interest groups seeking advantage through unfair and anti-competitive legislation and regulation. TAVMA’s work benefits the bottom line of every competitor in the space. So my plea is that every beneficiary of TAVMA’s work take a financial stake in the association. If your company is a TAVMA member please be our champion within your workplace. If you’re not, please reach out to decision-makers in your firm and deliver the message they need to hear: That TAVMA is your best chance to maintain a level playing field in the settlement services industry. Please visit the Tavma website to see if your company is currently a TAVMA member. www.tavma.org
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Title Insurance & Coffee:
Be Starbucks Not Folgers By Raelin Musuraca As an industry our core products and services—title insurance, appraisals, closings—are in danger of becoming commodities. On the positive side, commodities are always in demand. On the negative side, commodities are usually low margin, price-sensitive goods and services for which the market, not the supplier, drives the pricing and subsequently, overall profitability of the suppliers. Aspects of our business are commodities: title insurance is title insurance, much like coffee beans are coffee beans. As an industry we could—as Maxwell House and Folgers did—accept that we are in a commodity market, put a pretty label on what we do, and be happy collecting our low-margin profits. Or, much like Starbucks*, we could add significant, valueadded differentiators to our product offerings and elevate a commodity back to the status of a premium product. People assume that Starbucks’ success is built on branding—cool graphic design and hip locations. But the visual look is only one attribute comprising a successful brand. Starbucks continually gets customers’ input and improves its product. For example, by offering organic coffee in recycled paper cups, they have differentiated the commodity of coffee and increased customer loyalty, even though by doing so, they cause the cost of the product to increase. As a group of “suppliers,” we can implement strategies to prevent the
commoditization of our industry:
• Working together through organizations like TAVMA, we can help curb the groundswell of state and federal regulations that tie our hands when it comes to pricing, product design or delivery. We can only improve and add value to our products when we have the commercial freedom to do so. • Creating consumer education
initiatives helps create a more sophisticated buyer. Starbucks’ success is not just because of better coffee. Starbucks spent considerable time and effort educating each customer, each employee, and the local media as to the benefits of drinking Starbucks— coffee bean purchases support small growers in South America or recycling helps the environment. Well educated consumers will understand the value and therefore accept the true cost of appraisal, title and settlement services.
• Stop leading our sales efforts
with price and begin to reset expectations of both lenders and consumers. Starbucks does not advertise their price, nor do they have volume discounts. They do consider the competition’s price and adjust accordingly (they may reduce price but never go less than), but they always lead their marketing
with experience, quality, customer service and other distinguishing factors.
• Use marketing to clearly differentiate your company, your products and your services. Very few title and settlement services companies offer a compelling marketing message. Several themes are common and lack substance—“we deliver faster,” “we have better technology,” “we offer great customer service”—and therefore offer no clear distinction in the marketplace. You need to find your niche, the manner in which your company truly adds value to the products and services, and then generate marketing materials that clearly demonstrate that value (not just state it). Fighting the battle against commoditization is difficult, but no more difficult than it was for Starbucks to get Americans to pay $3.25 for a cup of coffee. What it comes down to is a clear message, educational outreach, and, of course, a better product or service—because if Starbucks coffee had tasted poorly they would have never left Seattle. *Please
note: Much of Starbucks current financial struggles is due to the overextension of their brand, thereby generizing their product and returning it to a commodity status.
Doing the Math:
Appraisers Who Work With AMCs “In the past, the majority of appraisal management companies appear to have been focused entirely upon the factors of pricing and turnaround time. Appraiser credentials, experience and competency largely have been ignored by the typical AMC business model.” ~ Home Valuation Code of Conduct Letter Appraisal Institute, American Society of Appraisers, American Society of Farm Managers and Rural Appraisers, National Association of Independent Fee Appraisers April 30, 2008
If a person can be judged by the company they keep then over half the residential appraisers in the United States have just been dissed. So has a significant segment of the appraisal industry’s client base. And several of the nation’s premier lenders. Is it just me or does the above quote, buried in a comment letter to a federal regulator no less, suggest that appraisal management companies (AMCs) and the appraisers who work with them ought to be blacklisted for malpractice? Ought lenders that choose to affiliate with AMCs be waved off as uncaring about appraisal quality? Not without empirical data, please.
2 Such mischaracterizations pay homage to an ageold debate about whether appraisal management companies add value to an industry that has grown up in large part by capitalizing on the process improvements AMCs have brought to the market. I’ve heard them all many times before. What’s different today is that we actually have history and experience that can be tapped to provide some actual facts. We know the makeup of our industry. Independent research firms have provided studies that we can use to gauge its performance over time. In short, we have the information we need to once and for all put this question to rest. And if demography is destiny, the future of appraising, too, appears to be working with AMCs.
Let’s do the math.
1
Estimate the Total Number of Residential Appraisers
The Appraisal Subcommittee of the Federal Financial Institutions Examination Council (FFIEC) National Registry of state certified and licensed real estate appraisers lists a total of 123,343 state-issued appraiser licenses and certificates. Of those, 37,555 are certified general (30%), 56,148 certified residential (46%), 28,579 licensed (24%) and 61 transitionally licensed appraisers (.05%). Some appraisers obtain licenses and/or certifications in multiple states and so are counted twice (or more) in the 123,343 total. The Appraisal Institute website says there are over 90,000 appraisers. TAVMA has estimated that there are 100,000 appraisers. And the October Research Corporation National Appraisal Survey (Volume 2) reported that there are 106,947 appraisers. So for this discussion let’s say there are 100,000 certified and licensed appraisers. Some certified and licensed appraisers that don’t actively appraise renew their licenses in case they decide to get back into the business. Others work as chief appraisers and staff appraisers for lending institutions and aren’t available to take on independent fee appraisal work. Still others focus exclusively on commercial, industrial and other non-residential appraisal types. Answer: There are around 60,000 active residential appraisers doing independent fee appraisals in the United States.
Estimate the Total Number of Residential Appraisers Who Work With AMCs
According to the same 2007 ORC survey, 63% of the 403 certified residential and/or licensed respondents said that they work with AMCs. Extrapolating this statistic to the entire residential fee appraiser population, it means that around 38,000 of the total 60,000 residential appraisers work with AMCs. Additionally, the ORC survey quantified the percentage of business that these (38,000) AMC appraisers receive as a percentage of their total appraisal business. Below is the approximate numeric breakdown based on the ORC survey percentage of business from AMCs.
Percentage of Business From AMCs % Business From AMCs 1%-10% 11%-20% 21%-50% 51%-100%
% of AMC Appraisers* 53% 17% 15% 15% 100%
# of AMC Appraisers 20,322 6,191 5,743 5,743 38,000
* The 14% of respondents who didn’t quantify % of business derived from AMCs is apportioned among the categories.
Answer: AMCs employ about 38,000 appraisers and almost half of these appraisers report that AMCs make up over 10% of their overall volume. Perhaps even more interesting is that the majority of appraisers (53%) that work with AMCs do most of their work outside of the AMC system but see economic value in taking on an AMC job when it comes up.
3
Estimate the Number of Appraisers Designated by Major Appraisal Trade Organizations Working on the Residential Side
The 2007 ORC appraiser survey reported that about 67% of the total appraiser population holds at least one professional designation. The table below breaks
Number and Percentage of Designated Appraisers
Professional Appraisal Organization
Membership
% of Designated Appraisers (of 100,000 total appraiser population)
National Association of Realtors (NAR) (appraisers only)
30,000
30%
Appraisal Institute
21,000
21%
American Society of Appraisers (ASA)
5,000
5%
National Association of Real Estate Appraisers (NAREA)
3,000
3%
National Association of Independent Fee Appraisers (NAIFA)
2,200
2%
National Association of Master Appraisers (NAMA)
2,132
2%
American Society of Farm Managers and Rural Appraisers
2,112
2%
Certified Commercial Investment Manager Institute (CCIM) (appraisers only)
720
0.7%
International Right of Way Association (IRWA) (appraisers only)
620
0.6%
66,784
67%
Total # Designated Appraisers (and % of total appraiser population)
down the membership in the top nine (9) appraisal organizations. If there are 66,784 appraiser designations, and adjusting for individuals holding multiple designations, we can assume that there are 50,000 individual appraisers who hold at least one professional designation in the U.S. Lacking hard data to prove otherwise, it seems fair to assume that the split between residential and non-residential designations is about 70/30, given that the Appraisal Subcommittee registry (see Problem 1 above) indicates that 70% of the entries in the database are residential certified or licensed and 30% are certified general appraisers. Answer: About 35,000 designated appraisers work on the residential side of the appraisal business. As discussed in the first math problem, there are around 60,000 active residential appraisers doing independent
fee appraisals in the United States. Therefore, about 58 percent of all active residential appraisers hold at least one professional designation.
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Estimate the Total Number of Designated Appraisers Who Work With AMCs Nothing in the ORC survey suggests that designated appraisers are more or less likely to work with AMCs. Nor have I, after spending 14 years in appraisal operations, quality control and risk management positions in the AMC industry, and the past 10 years as an independent consultant to the settlement services industry, ever come across empirical evidence that designated appraisers as a group have rejected the AMC business model. This observation is bolstered by the fact that appraisal trade organizations have tried to replicate the AMC business model over the years. So, on the one hand it would be appropriate to assume that 58% of the appraisers who work with AMCs hold at least one professional designation. Using this figure we can calculate that 22,000 of the 38,000 appraisers who work with AMCs are designated appraisers. However, for this exercise we will take a more conservative line and assume that designated appraisers are less likely to work with AMCs. The vast majority of criticisms of the AMC industry come from the appraisal trade publications, which assert to one or another degree of outrage that “No good appraiser would do work for an AMC” or “AMCs only hire appraisers who can’t find work elsewhere” or “AMCs
9 hire only appraisers who are new to the business.” While we’ve refuted similar charges elsewhere and won’t deal with them now, let’s assume that just half of
Designated Appraiser Percentage of Business From AMCs
% Business From AMCs
1%-10% 11%-20% 21%-50% 51%-100%
% of AMC Appraisers*
# of AMC Appraisers
53% 17% 15% 15% 100%
20,322 6,191 5,743 5,743 38,000
# of Designated AMC Appraisers (11k Total) 5,830 1,870 1,650 1,650 11,000
% of Designated AMC Appraisers 15% 5% 4% 4% 29%
* The 14% of respondents who didn’t quantify % of business derived from AMCs is apportioned among the categories.
the designated appraisers who do residential appraisal work include AMCs as clients. So instead of 22,000 designated residential appraisers working with AMCs we’ll go with just 11,000 who do so. The table above breaks down the numbers as they relate to designated appraisers and AMCs. Answer: Extrapolating the ORC appraiser survey results to the total population of designated appraisers we can conservatively estimate that around 11,000 designated appraisers work with AMCs, although we believe the number of designated appraisers that work with AMCs to be far higher.
Conclusions • If 38,000 of the total 60,000 certified residential
and licensed appraisers work with AMCs – including 11,000 or more designated appraisers – is it realistic to conclude that these are the 38,000 “bad” appraisers that we all worry about and that lenders and AMCs spend millions upon millions of dollars to weed out? It is very unlikely that this generalization comes near the truth.
• Is it accurate, given that all 38,000 AMC appraisers are
licensed and/or certified professionals with legal duties to perform appraisals in compliance with USPAP, etc., and 11,000 designated appraisers who work with AMCs are duty bound to follow their appraisal organization(s) code of conduct, to suggest that AMCs focus entirely upon the factors of pricing and turnaround time, and that appraiser credentials, experience and competency largely have been ignored by the typical AMC business model? No. That statement cannot possibly be true based on the math.
• Is it fair to broadly assail 11,000 designated appraisers
for working with AMCs? Should they be branded as unqualified simply because they work for AMCs? We hope not!
• Despite the claim, that “Appraiser credentials,
experience and competency largely have been ignored by the typical AMC business model…” is there empirical evidence to dispute that AMCs use the same or better quality appraisers than is the norm for the industry? The fact that 63 percent of all residential appraisers include AMCs as clients tells a very different story.
A better approach would be to judge AMC versus non-AMC appraisers based on individual performance evaluations. Naturally, our critics are not eager to go there and we don’t blame them.
Homework The intent of this article is to show that more appraisers – including designated appraisers – count AMCs among their clients then don’t. I feel that this math lesson has done that. I’m guessing though that some will disagree with my analysis. And that’s fine. We don’t need to agree, and in fact, I look forward to an ongoing discussion of the topic. Therefore, your homework assignment is to illustrate, using hard data and well thought out analysis, where the math equations are on the money and where they need adjusting. As you may have guessed, however, generalizations absent quantities will receive less than full credit. So for now, class is dismissed.
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Web or reading newspapers?
Managing Information Overload with RSS By Rick Grant There is a lot of information out there. Much of it can make you better at your job because everyone knows that knowledge is power, especially in an information-based society. The problem, of course, is in keeping up without losing your mind. Whether you get it online, from the Wall Street Journal or a trade publication, you could spend all of your time reading and learning and never capture a significant fraction of what’s being made available to you. How can you tap into the best sources of data and information that relate to your job function without spending 14 hours a day surfing the
The answer comes in two parts. First you have to find a way to get the information you need to come to you and then you need a way to screen out the information that doesn’t fit your standards. In this article, we’ll offer you some online tools that will help you manage the information you receive via the Web. As for the Journal, you’re still on your own (unless you use their website). Content syndication The primary tool we’re using today to make sense of this crashing wave of online information was actually developed to make it easier for content publishers to disseminate their work. RSS, which stands for Real Simple Syndication or Rich Site Summary in earlier versions, is a form of eXtensible Markup Language (XML) used to break up printed information into recognizable chunks that can then be processed by other software tools. Similar to HTML, which is processed by Web browsers, RSS is processed by feed readers. While RSS was initially used to syndicate the periodic articles posted to Web Logs, or Blogs,
it is today used to syndicate just about anything available online from a daily quote for your website to videos to entire websites. Once a user configures a feed reader to check a site’s RSS feed it will do so automatically every time the user opens up the software reader. Changes in the RSS file are automatically downloaded and displayed for the user. This is significantly easier than using bookmarks to surf to each web destination and manually check for new information. Choosing a feed reader There are software applications that you can download to help you read RSS feeds from your desktop, including Amphetadesk (Windows, Linux, Mac), FeedReader (Windows), and NewsGator (Windows - integrates with Outlook). While I’m sure they work great and allow you to work on your blogs when you’re not connected to the Interet, I’m almost always connected and so I choose to use an online tool. There are many to choose from. Google has perhaps created the simplest RSS reader to set up and use and it’s simply called Reader. If you already have a Google account, you can surf to the Reader page
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at reader.google.com and you will find your own personalized reader waiting there for you. You can take the video tour to find out more, or begin adding subscriptions at once. Google makes it easy to add bundles of feeds or to search for an area of interest. You can also type in the username of anyone you know that blogs and Google will find it and add it to your list of subscriptions. For instance, if you type in rickgrant and click next to the “Blogger (blogspot)” button, you’ll find my mortgage technology blog. Google has also made some social media functionality available to its Reader users. You can select any feed subscription to be public and any “friend” you have in the system will be able to see what you’re reading. While I found Google’s Reader very user friendly, I was reading RSS feeds before Google released it, so my tool of choice (through long habit) is Bloglines (www.bloglines. com). Another online reader, this tool does not require you to download software. Just sign up for a free account and start adding subscriptions. Bloglines also makes it very easy to add feeds,
however, the easiest way to get started using Bloglines is to e-mail me at rick@rickgrant.net. I’ll send you an invitation along with a list of the blogs I already follow. You can delete any or all of them and add more quite easily.
from your reader. Be brutal as there is a lot of information out there and you must seek out value.
Managing your subscriptions
3) At least once each month, surf to blogsearch.google.com or www. technorati.com and search for new blogs in your area of interest. Subscribe to everything that looks interesting and then use the above two rules to whittle them down to useful feeds over time.
Today’s wealth of information available automatically at the touch of a button was exactly what the developers of RSS were hoping for. Now, just about anyone to be an information publisher by launching their own blog and providing an RSS file, which most blogging tools do automatically. This is both a blessing and a curse. While a feed reader will allow a user to know about any changes to a website or blog immediately, if the information isn’t intrinsically valuable to the user, it just contributes to information overload. I recommend a few rules that will allow you to both cull the feeds that are no longer valuable to you and find new information to track when it becomes available. Here, I summarize those rules. 1) If you don’t learn something useful in five consecutive blog posts or website changes, delete that feed
2) If you don’t find an update for a blog every week or a website every month, delete the feed.
Regardless of what software you choose to use or what rules you use to manage that tool, you’re going to need to get set up with an RSS feed reader if you hope to keep up with the wealth of information that is now available via the Web. About Rick Grant Rick is a freelancer writer and the owner of Rick Grant & Associates, Jim Thorpe, Penn., a communications consulting firm.
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TAVMA, THE FEDERAL TRADE COMMISSION and THE DEPARTMENT OF JUSTICE A History of Collaboration By Edward J. Krug
In January 2002, representatives of TAVMA met with officials from the Federal Trade Commission’s (FTC’s) Department of Policy Planning and the Department of Justice (DOJ). It was an exploratory meeting to determine if either federal agency had an interest in playing a role in combating the attempts of various state bar associations in their efforts to exclude lay professionals from participating in the settlement services industry in their particular state. Jerry Ellig, then Director of Policy Planning for the FTC, his counsel, Maureen Olhausen, and Jessica Arkow-Butler from DOJ met with us at the request of our DC Anti-Trust counsel, Ed Glynn. Our meeting occurred in the shadows of an upcoming confrontation with the Real Estate Section of the North Carolina Bar Association over the attorney’s role in handling real estate settlements in that state. To understand the focus and the interest of these agencies one only needed to take notice of all of the posters covering the walls of a rather old and drab FTC office building. Each poster contained the term “consumer.” While some espoused the value of the internet in benefiting the consumer, others seemed intent on protecting the consumer from industries and associations which controlled a specific market place. Although this author believed that this was a courtesy meeting arranged by our counsel through his efforts in contacting former associates at his former employer, it became quite clear from the onset that there was real interest in the concerns that we raised. We were aware that the agencies had within the past several years involved themselves in Bar Association issues in the settlement service
industry in Virginia and Kentucky but were not certain that our plight in maintaining a level playing field in North Carolina would catch their interest. Not only did each agency official appear interested, they also asked several very relevant questions, which indicated that we were discussing an issue which had great common interest. Our discussion not only covered the current matters in North Carolina but also several other states where similar restrictions were being considered that would impact our members’ ability to offer uniform services and provide consumer choice. Over the next several months, I engaged in frequent telephone conversations with each agency official, mostly responding to their questions about the way industry services are provided. In many ways it appeared that this process of educating these individuals would never culminate in any official action being taken. They were always cautious not to reveal their strategy nor even their thinking…they just seemed interested in learning more about how services were provided in states in which bar associations imposed no restrictions. Finally, after several months of on-going conversations, I was informed that a joint letter would be issued by the agencies addressing their concerns in North Carolina. A letter was sent from the FTC/ DOJ to the North Carolina Bar Association, outlining the agencys’ concerns that an attorney only restriction would prevent real competition in the providing of services and that no real harm to the consumer had been established by the attorney only advocates. A few months later, a hearing was held in Raleigh by a special committee of the Bar, to take public and industry comment on the Bar’s proposed
ethics opinion restricting real estate settlements to attorneys only. Not only did TAVMA members testify, but in a pleasant surprise both Jerry Ellig and Maureen Olhausen were present and testified as well. A few weeks after the hearing a compromise ethics opinion was adopted by the Bar permitting the use of lay closers. In the past several years since our first meeting, there has been frequent contact between TAVMA and the FTC Office of Policy Planning. Jerry Ellig has moved on but has been replaced by Maureen Olhausen as the Director. Fortunately for TAVMA, our relationship with the Director has remained open and supportive through both Jerry and Maureen’s efforts. We have contacted the Director’s office over the years to obtain their support as various state issues arise and the response has always been positive and generally a joint letter is issued from the FTC and DOJ. Prior to any issuance of a comment letter there has always been frequent communication with our Legislative Affairs Committee to gain insight into the nature of the matter and further education on state specific customs, practices and pricing. Three years ago, TAVMA sought the support of the agencies after sponsoring legislation in Massachusetts, now known as House Bill 1551, to open the path for lay settlement services in that state. The agencies will not, by their own policy, comment on proposed state legislation unless they are requested to do so by a member of the legislature in which the bill is pending. Such a request was made for HB 1551 and the FTC/DOJ issued a joint letter similar to those in the past where they asked the legislature to be mindful of the benefit of competition to the consumer.
In other states such as Georgia, West Virginia, New York and recently in South Carolina joint letters have been issued in response to proposed legislation and Bar Association opinions, such as the American Bar Association’s attempt to update its definition of the Unauthorized Practice of Law. On April 15, 2008, the FTC/DOJ issued a letter of comment to the South Carolina Supreme Court after the Court requested public comment. (Link to the South Carolina Letter http://www.ftc.gov/os/2008/04/ v080010sc.pdf) This letter, which is not unlike many written by the agencies in the past, provides an interesting chronology of prior comments as well as a continuation of their message of protecting the consumer interest. In accord with TAVMA’s main principle, the agencies agree with the benefit of counsel being involved in real estate transactions but also espouse the belief that the consumer must have a choice and that such restrictions have never been shown as a benefit to reducing harm to the public. The strength of the relationship between TAVMA and the FTC/DOJ is a result of education and open communication from that early
13 meeting, which has continued to present. We, as a trade organization, are committed to maintaining a level playing field in the settlement services industry throughout the country. We are proud of our accomplishments and are very grateful to these agencies for permitting us the time to build their awareness of unnecessary state restrictions which hinder and complicate the providing of services and fail to create any benefit to the consumer. Some regulatory agencies have been reluctant at times to reach out to our industry for insights and experience. It is encouraging that the Federal Trade Commission and Department of Justice have openly shared their concerns and welcomed our views and experiences. Edward J. Krug, esq., Commercial Loan Services, LLP, Moon Twp., PA. Ed can be reached at ekrug@clslegal.org
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Questions & Answers
Craig Weber
Senior Director Operations,
National Real Estate Information Services.
Q
Quality Assurance / Control have been appearing more often in customer requirements and contracts. In what ways have client expectations for QA/QC changed this year?
A
I do not necessarily think it represents a “change” but rather a “correction” and a return to quality processes and procedures that were standard prior to the advent of the alternative title products. Some of those products and processes added value and brought certain efficiencies but they became somewhat misused. Products that made a great deal of sense when applied to portfolio refinance transactions had huge gaps when applied otherwise. Everyone knows these horror stories. We have all heard about the alternative title policies that were not accepted on the secondary market. We have all heard about the “instant” title search products that resulted in countless unrecorded mortgages due to bad electronic data and truncated legal descriptions. Customers have found themselves in precarious situations. It is quite natural and, logical for customers to revert to more rigorous standards of quality assurance and quality control.
Q
In addition to QA/QC, in what other ways have the needs of customers changed? What are the most common business requirements today?
A
The environment for customers and vendor management companies alike is incredibly competitive. Vendor management companies have to be positioned to accommodate their customers and, react with flexibility, scalability and fluidity. Whether its technology and systems integrations, expanded product lines, alternative services, or back-office customer support services, vendor management companies are required to play at entirely different level. Each day I am amazed by how far we have come, as vendor management companies. While the customer requirements are more extensive and there are certainly challenges accompanying the requirements, I think most of my peers would agree that these are exciting times. The demands and the requirements represent progress. A few weeks ago, I heard this great quote. I cannot remember it word for word but, it was something like “The Stone Age did not end for lack of stone.” That is an insightful perspective and, it can be applied to any period of evolution and progress. The vendor management companies are experiencing another stage of evolution and it should be embraced.
Q
Since the subprime collapse, state and federal legislators/regulators have rushed to pass new guidelines and legislation. What are the most concerning proposals you’ve seen?
A
My biggest concern is that state and federal legislators/regulators feel compelled to enact new legislation rather than enforcing that legislation already on the books. The United States Code as it relates to mortgage fraud is fine as it is. If the government proactively enforced existing legislation, there would be little need to enact new guidelines or, pass new legislation. When the U.S.C. already makes it illegal to “make false statements regarding income, assets, debt or, willfully overvalue land or property in a loan and credit application” what additional language is required? What else is it going to take for us to feel more comfortable? The reality is there were some “bad actors” in the market. The majority of those players are gone. New legislation is not the answer. If the government enforces existing legislation, predatory lending and the impropriety often associated therewith will not resurface when the market does correct itself.
Q
As customers ask for more—faster turn around time, reduced costs, farther reaching QA—what can a VMC do operationally to meet these requests and remain profitable?
A
I absolutely believe vendor management companies can meet the demands of their clients and make a profit. But, the vendor management companies will find that the profits are not as great and the profits do not come as easily as they once did. Vendor management companies have to take this time to focus on getting the right people into the right positions within their organizations. They have to focus on training, performance measurement, and associate accountability. They have to focus on running lean. They have to consider different shifts, job-sharing, and modified schedule work weeks. There are a great many options available to vendor management companies which will ensure growth and profitability without eliminating employees. But, these options require some outside-of-the-box thinking and an acceptance of change. Last summer, when the mortgage crisis really hit those of us in the vendor management industry, I thought of Machiavelli and something he wrote in The Prince. Machiavelli compared “fortune” to a river in flood. And,
15 during the flood season, one cannot control the river. But, when the flooding river calms, one can build dams and levees to mitigate the effects and impact of future floods. The mortgage crisis is the “fortune” to those of us in the vendor management industry. I am not saying that the flood is over but, I do believe that a lot of vendor management companies are thinking long and hard about where to build their dams and levees.
About Craig Weber Craig Weber is the Senior Director of Title Operations for National Real Estate Information Services. Craig has been active in the title insurance industry for over 16 years, and has been with National since 1995. As the Director of Title Operations, Craig oversees a variety of departments, including Customer Service, Title Production/Quality Assurance, Title Clearance, Pre-Closing/Taxes, and Title Policy Production. He is also very active in the investigation and resolution of title claims. Although Craig’s position requires him to delegate much of the operations to his staff, he occasionally likes to keep up his “chops” and place orders, assign orders to abstractors, create reports and commitments and prepare HUD statements. He believes these functions comprise the overall commitment to service that distinguishes his firm, and staying in touch with the physical part of the operation helps him maintain that perspective. Craig graduated from Gannon University in 1990 with a Bachelor of Arts in Political Science.
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Reverse Mortgage Primer
By David Gutmann Reverse mortgages appear to be the next big market that everyone is interested in these days, loan originators as well as title agents. By some accounts there is several trillion dollars in untapped equity owned by seniors. Anyone really interested in getting into this market should do their homework and learn the ins and outs of reverse mortgages. The premier organization devoted to reverse mortgages is the National Reverse Mortgage Lenders Association (NRMLA). They have several conferences each year and conduct lunch time telephone seminars on a regular basis on a variety of topics related to reverse mortgages. The vast majority of reverse mortgages written today are Home Equity Conversion Mortgages (HECM). This is a HUD-insured product that borrowers are using in many ways. The basic difference between a reverse mortgage and a traditional forward mortgage is that the lender pays the borrower monthly rather than the borrower paying the lender, hence the name. This of course, is a very simplistic explanation. The borrower on a reverse mortgage can tap into the equity on their home in several ways. The first is by receiving monthly payments from the reverse mortgage lender. The borrower can also receive their mortgage proceeds in the form of a lump sum at closing or in a line of credit to be used at a later date. In addition, the borrower can receive proceeds in a combination of the above methods. Most importantly, regardless of how the borrower chooses to receive proceeds, there is no monthly repayment to the lender. The lender obtains repayment on the loan out of the equity in the property either at the time of the borrower’s death or when the borrower permanently vacates the property. This too is a simplistic explanation, however
the details are beyond the scope of this article. In addition, it is important to note that the borrower has no personal liability on a reverse mortgage loan. The lender is limited to recouping the loan principal and interest from the value of the home. From my experience, there are a variety of reasons borrowers turn to these products. Some see them as the seniors’ savior. It is a method by which an older homeowner with a very low income can tap into the equity in their home for additional monthly income. In addition, they provide relief from rising credit card debt, home equity lines of credit, rising real property taxes, and other debt. Seniors with sufficient equity in their homes are able to pay off this debt, without incurring any monthly payments on the reverse mortgage. In some respects, they are taking the place of subprime mortgages. My office has also seen a number of situations where the senior borrower is terminally ill and is using the reverse mortgage as a way to remain in their home in their last weeks or months so that they can die with dignity in familiar surroundings, rather than spending their last days in a hospital or hospice. At the other end of the spectrum are those seniors that are leveraging the equity in their homes to provide a more comfortable lifestyle. These are usually high net worth individuals or couples with high-end homes. In addition, the reverse mortgages tend to be proprietary products that allow for a higher loan amount. We have
had a borrower who used the proceeds from the reverse mortgage to purchase a long desired yacht, with a plan to take several years and sail to exotic Ports of Call. At the end of his excursions he planned to sell the yacht and pay off the reverse mortgage. The benefit was no regular payments for a loan to purchase the yacht. We have had borrowers use the reverse mortgage proceeds to buy vacation homes, expensive toys (sports cars), and even to invest the proceeds. These borrowers were very sophisticated financially and in some cases had the advice of their attorneys and accountants before proceeding with the reverse mortgage. One negative aspect of reverse mortgages that should be pointed out is the high cost of obtaining one. This should be pointed out to the borrower to ensure a good fit, whether it is a senior borrower in need or a senior borrower looking to improve their lifestyle. Reverse mortgages don’t work for everyone, and much more time is required up front by loan originators and brokers to help the senior borrower and their family decide whether this is right for them. From a title insurance viewpoint, there can be some very common and recurring issues that arise in connection with reverse mortgages. These aren’t new issues but ones that affect seniors in general. They include estate administration, estate planning, living trusts, life estates, powers of attorney, guardianship and competency. Title clearing on a reverse mortgage can be quite different than normal circumstances, partly because of the mindset of the senior borrower and partly because many issues may have remained dormant for years as the result of lack of activity on the property (no sales or refinancing). A considerable amount of “thinking outside the box” is necessary in order to clear some issues. We all like to think that the title and escrow process is going to be quick and slick and result in a fast closing. The reality is that some title issues can take time to resolve, if they can be resolved at all. Take the case of the irrevocable trust that specifically prohibited any mortgaging of the property and could not be amended. That is not to say that all reverse mortgage transactions have issues. We have had a substantial number that have had very clean titles and have been closed rather quickly. As long as all parties involved realize that issues exist, and as long as reasonable expectations are set up front, successful closings with satisfied borrowers will result.
17 Many seniors may have done some estate planning and as a result have transferred their real property to the trustees of a living trust, or to a son or daughter while retaining a life use. It is likely that an attorney was involved with the estate plan, therefore, any contemplated changes to the way title is held should involve that attorney, so as not to inadvertently alter the estate plan. It is also important to understand that some of those seniors may have done their estate planning some time ago and don’t remember transferring their property into a trust or to a relative. Also, as some individuals age and their mental capacity diminishes, they won’t remember such a transfer, or just don’t understand the issues. In this case, it is critical to have the assistance of a family member that is familiar with the affairs of the borrower and who can assist with the title clearing. Furthermore, by the time a title agent becomes involved, the loan originator or broker has already spent a considerable amount of time with the borrower and has built up a level of trust that the title agent doesn’t have. The borrower may not want to deal directly with the title agent or it may just be too confusing for them to have yet another party involved with their transaction. In this case, the assistance of a knowledgeable originator or broker is invaluable. Probably the most important thing for a title agent to remember is to discuss the issues as early as possible with the originator or broker. Knowing whether the title is clean or has issues that will take some time to resolve is important for the originator or broker so that they can prepare their borrower for either case. And if there are issues, setting some reasonable expectations for the time to resolve them is critical. Listening carefully to the borrower and picking up on things left unsaid will go a long way toward resolving any issues in a timely manner. Not long ago, we had a situation with a borrower who was in a Chapter 13 bankruptcy. Forget the obvious issue of the need for a court order to refinance. The borrower neglected to tell us that he failed to make several payments on his plan. Fortunately, we were able to resolve the issue before the Trustee dismissed the case. Each file has its own issues. Make sure that you do your homework to learn about reverse mortgages, and spend a little time educating your originator or broker on the issues that commonly arise. Doing this can help increase your business in a growing new market. David Gutmann is Vice President & Corporate Counsel for Customized Lender’s Services, Inc.
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• Forbids parties from influencing
appraisers through coercion, extortion, collusion, compensation, instruction, inducement, intimidation, bribery, or in any other manner;
• Prohibits mortgage brokers and real estate agents from selecting, retaining, or compensating appraisers; • Prohibits lenders from using “in-house” staff appraisers to conduct initial appraisals or using loan production staff and certain other employees to select, retain, recommend, or influence the selection of or otherwise communicate with appraisers;
The HVCC Elixir Does Not Right All Wrongs By Jeff Schurman Three months ago, New York Attorney General Andrew M. Cuomo, OFHEO, and the GSEs entered into a pact intended to put an end to inappropriate client pressure on appraisers to hit predetermined market value estimates. One result was the Home Valuation Code of Conduct (HVCC). But what the architects envisioned as a panacea to right all that is wrong in the appraisal industry seems to have hit a snag. The HVCC is set to go into effect on January 1, 2009, but no one seems willing to take this medicine. Since it was announced, virtually every comment letter sent in response to the Code has come
• Prohibits lenders from using
out against it. After reading 20 or so of these letters, it is apparent that the collective body of experts sees nothing innovative or progressive about the HVCC. Many contend that it poses a significant threat to the very system it seeks to improve. Many others say it is flat out unworkable. The question now is whether the many comment letters about the shortcomings of the proposed Code will be taken seriously or if the elixir will simply be force-fed to an industry that wants no part of this cure. No word yet as to whether the NY attorney general will heed the industry’s concerns. In a previous interview, though, Mr. Cuomo indicated he would “consider the (industry’s) suggestions.”
The Code of Conduct Essentially, the Cooperation Agreements would require the GSEs to purchase loans only from lenders that certify compliance with the HVCC. Specifically, the code:
appraisal providers that they own or control or that are owned in whole or in part by settlement service providers;
• Imposes certain quality control and reporting requirements on lenders; and • Requires the GSEs to fund
the creation of an “Independent Valuation Protection Institute” that will implement and monitor the Code, establish a complaint hotline for consumers to call with appraisal fraud concerns, and serve as a contact for appraisers who believe that their independence has been compromised.
What is clear is that the proposed HVCC throws almost every segment of the industry into disarray. In its comment letter, TAVMA argued that the HVCC appears to have been designed to banish three legal and compliant business segments from the appraisal business: (1) vendor management and appraisal management companies (VMCs and AMCs) as they currently exist; (2) staff appraisers working for
lenders; and (3) mortgage brokers. And, while TAVMA has grave concerns about several aspects not dealing directly with appraisal management, our comment letter focused on the ill-advised consequences of deconstructing the appraisal and vendor management business model. Our research indicates that about 500,000 appraisals per month are processed through VMCs andAMCs. This is in addition to the same – and most likely greater – number ordered by mortgage brokers directly. As a result, if the GSEs go through with the plan and exclude VMCs, AMCs and mortgage brokers from the appraisal process lenders will incur the burden of handling roughly 1 million appraisals per month. And as any loan processor would tell you this is no simple matter. Lenders will be forced to assume responsibility for ordering, processing, reviewing, and delivering twelve million additional appraisals a year. Even those unwilling or unprepared to hire staff, obtain technology, and implement procedures necessary to handle this additional workload would be forced to do so out of necessity. The massive expense involved would surely be passed along to consumers. And they’ll need to do all this in the next 3 months to meet the January 1, 2009 effective date. That the HVCC will effectively wipe out such a substantial appraisal acquisition channel without offering any alternative means of satisfying appraisal demands gives credence to assertions that the HVCC poses a significant threat to the mortgage lending system.
TAVMA Recommendations TAVMA has been a leading voice for the need to curb client pressure
on appraisers. TAVMA believes that client pressure is wrong and that it undermines the safety and soundness of the mortgage banking system in the United States. For its part, TAVMA issued a 28-page comment letter in response to the proposed HVCC. TAVMA’s letter made the case for the appraisal and vendor management industries as a solution to client pressure and explained its role in managing contractual agreements and large volumes of appraisal transactions. Specifically, TAVMA urged the GSEs to postpone the implementation of the HVCC, arguing that:
19 the Code to clarify that the term “employed by” is to be interpreted by its plain meaning and does not include independent contractors;
• Paragraph VI(5) and Paragraph VI(6) should be withdrawn altogether. • OFHEO should revise and clarify
the exception for lender ownership in Paragraph VI to extend it to affiliates of lenders and other settlement service providers, as well as to ownership of all appraisal providers and not just AMCs.
• The Cooperation Agreements and Conclusion
Code were not handled pursuant to the federal Administrative Procedures Act, which prescribes the proper procedures for implementing regulations with such sweeping implications;
• Congress should consider the Code’s content during deliberations of various pending bills that will address the appraisal independence issue; • A definitions section should be added that includes definitions of at least the following terms – “affiliate”, “vendor management company,” “appraisal management company”, and “employed by”; • OFHEO should add language at the beginning of Paragraph VI of
The proposed HVCC offers stark proof that there is no easy solution for curbing inappropriate client pressure on real estate appraisers. If it is enacted, the Code will create huge uncertainties in the lending marketplace, penalize businesses that have been operating for decades, and reward others based on the nature of their corporate structure or ownership. It is clear that the Code’s negative impacts on not just the appraisal management industry but the entire mortgage lending system in the United States far outweigh any benefits that the HVCC proposal could create. TAVMA will continue to monitor the HVCC debate and will provide periodic updates to our membership. Stay tuned.
Chart a New Course There is uncertainty in the market. Fear and doubt lurk just beneath the surface of every transaction. No one can say what lies beyond the horizon. And yet, you will not abandon your quest. The courage to compete, in any environment, is the mark of a true leader. Our history books record the achievements of many great captains of industry, but only because someone was there to tell their stories. Who will tell your story? Who will translate your passion for innovation and customer service into messages that ring true with your target markets? Success makes for some great stories. Let us tell yours. Rick Grant & Associates 47 Broadway, Suite 201 Jim Thorpe, Pennsylvania 18229 www.RickGrant.net 800-979-9049
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