Comments on: Value chain growing pains?

By: David Smith

David Smith — Thu, 09 Jul 2009 16:24:05 +0000

Good comment. There is a certainly a risk that a large AMC, by aggregating buying power (monopsony), can compel compliant behavior. But that doesn’t have to work to the ecosystem/ value chain’s detriment. (In the mid-1990s, Fannie Mae forced an improvement in lending standards on environmental remediation issues by insisting on extremely strong represetnations from borrowers.) Here, the AMCs’ customer is the lender (the big entity, not the originating mortgage broker) much more than it is the borrower. If your business becomes solely being the AMC, then you had better not gain a reputation for choosing appraisers who are borrower-compliant and put your lender customer at portfolio-level risk.

By: Syd

Syd — Wed, 08 Jul 2009 19:25:46 +0000

The mechanism for pressure is not communication it is selection. Commission-based loan originators kept deselecting the most independent appraisers and kept selecting the most compliant appraisers. Adding a link in the value chain does not stop this problem it facilitates it. Think about it. The mechanism is not communication it is selection. A mortgage broker can not withhold enough work from an appraiser to matter, but a big AMC certainly can. The bigger it is the more power it has over appraisers. And how is the AMC immune from fearing loss of its clients? I got out of the appraisal business because I came to believe that the whole system was never intended to be anything more than window dressing.