Late last month, the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac published this “Working Paper” by their economists, Jessica Shui and Shriya Murthy.
Here’s the short title: Are Appraisal Management Companies Value-Adding?
The answer, the economists determined, is no… AMCs don’t add value to the valuations process.
“We find that compared to non-AMC appraisals, AMC appraisals on average share a similar degree of overvaluation despite being more prone to contract price confirmation and super-overvaluation,” they write. (More on the methodology is explained below the REVAA quote.)
“AMC appraisals also share a similar propensity for mistakes, despite employing a greater number of comparable properties,” they conclude.
So what do AMCs make of the unfavorable-to-them news?
Mark Schiffman, Executive Director of the AMC trade group, the Real Estate Valuation Advocacy Association, emailed the following to me so I can share with the LendingLife community.
Here are his comments, reposted in full:
“We are disappointed that AMCs and lenders were not consulted at the outset of this research so that we could have help ensure sound methodology. We are also disappointed not to have had the chance to discuss this research with the FHFA before it was distributed publicly.
This is not a final report of any kind from the FHFA, it is a “staff working paper,” which according to the FHFA is a “preliminary product circulated to stimulate discussion and critical comment.”
We urge caution in taking away anything conclusive about the staff working paper at this time, other than the fact that it concludes that lenders that use an AMC to provide quality control before an appraisal is submitted to a GSE is comparable to a lender that did not use the services of an AMC for quality control. In either case, the appraiser never submits an appraisal report directly to the GSE – it first undergoes quality assurance, whether it is provided by the lender or the AMC.
Our review of the research has uncovered real concerns about the methodology, measures of quality, errors and the insertion of staff opinion that seems to indicate bias. REVAA is documenting its concerns and plans to speak to the FHFA about these matters.”
The economist used data retrieved from a subset of the Uniform Appraisal Dataset, gathered by the Enterprises through the Uniform Collateral Data Portal, to conduct their analysis.
“Our subset consists of active appraisal records associated with loan applications submitted to one of the largest Government-sponsored Enterprises from the last quarter of 2012 to the first quarter of 2016,” they said.
