AMC vs. In-House Appraisal Management
While Lenders are not required to use AMCs, they must ensure that appraisers are engaged independently and not unduly influenced. As a result, many lenders use Appraisal Management Companies (AMCs) to fulfill that role. The lender also may choose to manage the appraisal process in-house, using an internal team to play the role of the AMC.
As the industry has gravitated largely to the AMC model, some lenders have yet to make the shift, and others consider the risks and benefits of managing their own panel. While the lure of having control of the process in-house may be appealing, it comes along with inherent compliance risks.
It is no secret that Mortgage banking is a highly regulated industry. One unfortunate result is ever-changing guidelines coming from a myriad of government agencies. It has become a full-time job for bank Compliance teams just to keep abreast of all the new regulations. As someone who has been involved in that process for several years, I can assure you that timely interpretation of those regulatory changes is an entirely different challenge.
Lenders must also be aware of the Appraiser Independence Requirements, which draw a clear distinction between loan production/origination staff and panel management staff. While the legislation may be interpreted in different ways, it is evident that there must be a clear divide between the loan production staff and the staff managing the panel. An employee’s title alone does not take them out of any involvement in production/origination. Consideration must be given to the internal or external audit requirements necessary to pass an “independence test” showing clear separation of the processes. Even simple communication may be enough to be construed as a compliance issue.
It is also important for lenders to note the fixed costs associated with an internal panel that cannot be quickly curbed in a shrinking market. These do not just include the employee salaries, but the potential office space required to assure separation of production and panel staff, ongoing benefit expenses, etc. With a dependable AMC, costs always fluctuate evenly with production.