Appraisal management companies have a list of rules they’re supposed to follow, and it’s up to state and federal regulators to make sure they do. Unfortunately, oversight has been, shall we say, lacking.
According to testimony from the Government Accountability Office titled “Regulators Should Take Actions to Strengthen Appraisal Oversight”
Some industry participants voiced concerns that some AMCs may prioritize low costs and speed over quality and competence.
You don’t say.
[A]ppraiser groups said that some AMCs selected appraisers based on who would accept the lowest fee and complete the appraisal report the fastest rather than on who was the most qualified, had the appropriate experience, and was familiar with the relevant neighborhood. (Emphasis ours.)
And while Dodd-Frank requires state and federal oversight, the GAO pointed out that even minimum licensing standards haven’t been set. (Or, as Housing Wire put it, “There has yet been issued no such standards.”)
Two problems combine to make a larger one. First, unless someone suspects an AMC of violating the rules about appraisal independence, a state board won’t investigate. Second, even if presented with evidence of rule-breaking, state boards often don’t have the funding to investigate.
The result of the lack of enforced regulation?
[I]n some cases, the AMCs were established or operated by former mortgage brokers or appraisers who had been sanctioned or lost their license to practice. There were no laws or regulations in place that prohibited these individuals or those with criminal backgrounds from setting up and managing these companies, even as they became such an integral part of the mortgage process. [source]
This was only testimony to the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity, but at least the issues are being aired. So who knows, maybe something will come of it.