Blacklisting: Is there light at the end of the tunnel or is it just the train coming the other way?

Tuesday, March 4, 2014

In September of 2013, Joe Appraiser (not his real name) was notified by one of the big banks that he had been placed on ineligible status due to an incorrect review. Immediately, Joe contacted the bank regarding his placement on the “do not use” list believing this was all a simple mistake. In hopes of reversing his eligibility status, Joe submitted a detailed rebuttal where he provided a line-by-line response to each alleged deficiency in his appraisal report.                                                   

In part 1 of our series on blacklisting, we talked about the process Joe Appraiser went through to be reinstated using his FREA Professional membership benefits. After several months of back and forth emails, FREA was able to have Joe removed from the bank’s “do not use” list and reinstated. However, even winning comes at a cost. Joe’s fear of repercussions for even letting us tell his story made it necessary for him to remain anonymous. Plus, while he was on the blacklist, his business dropped by more than 30%.


The high cost of being blacklisted

Joe’s business suffered greatly just because he was blacklisted by a single big bank. Thankfully, before every other bank and AMC followed suit and also dropped Joe, he was able to get reinstated with FREA’s help and the help of attorneys Sanjay Bansal and Todd Stevens.

Here is why being blacklisted could/would have been more disastrous if Joe was not promptly reinstated. The ramifications of being blacklisted extend far beyond receiving appraisal work from just the one bank who drops you. In the case of big banks like the one that dropped Joe, much of the loan volume they do comes from smaller banks, mortgage brokers, and other sources. This means that being on one big bank’s “do not use”/blacklist can mean losing business from many lenders and also mean getting dropped from AMC panels as well.

While the bank in question allegedly provides its “do not use”/blacklist to only those direct lenders it does business with and to secondary market loan sellers it buys from, the bank is aware that its list is broadly circulated. Therefore, any bank that may potentially end up selling a loan to this big bank also cannot use any ineligible appraiser.

Furthermore, since AMCs do not have the capability to sort which lender clients do and do not (or may or may not) sell loans to this big bank, it is far easier for the AMC to just drop any appraiser placed on a blacklist. This creates a trickle-down effect that results in appraisers also being removed from other lenders' lists, which then essentially crushes an appraiser's business and professional reputation.

What is coming next may be even more frightening. Both Fannie Mae and Freddie Mac are now creating their own respective “do not use” lists. This is the result of a combination of factors, the first being  the GSE’s apparently do not trust the big banks to handle appraisal quality review well (imagine that) and the second being the GSE’s themselves now have a new appraiser quality monitoring (AQM) system as mandated by new regulations. Yes, this is exactly what it sounds like – both Fannie and Freddie will now have their own blacklists and if you think getting off a bank’s blacklist is tough, you have no idea what you will have to do to get off one of their lists.

As one industry expert observed, “if you get on the do not use list for either Fannie Mae or Freddie Mac, you’d better find another job because your days of being an appraiser just ended.”

If you find yourself on a “do not use” list, no matter the source, attorney Sanjay Bansal suggests getting in touch with FREA or an attorney right away. “A lot of what you do at the outset can have an effect down the line,” Bansal said. “You want to make sure that you don’t waive any of your rights or the processes that might be in place to protect you.”

The appraiser’s right to a timely and meaningful review

While the big bank in question claims to not use the term “blacklisting”, the bank’s own actions suggest that this is precisely what they are doing. Whether it's due to an honest mistake or due to a bad review, appraisers are regularly being placed on the “do not use” list without any meaningful opportunity to receive a timely and meaningful review. To us, this is the very definition of a blacklist. Like Nathaniel Hawthorne’s Scarlet Letter, being blacklisted can leave a permanent mark. If you are facing a blacklisting situation, attorney Todd F. Stevens suggests creating a paper trail. “Whether it’s by email or letter, you want to have a clear record of the facts,” Stevens said.

FREA advocates for the voluntary adoption of a formal review policy by all banks and GSE’s to ensure the current “do not use” system is operating fairly and transparently. Failing the voluntary adoption of such a policy, FREA believes appraisers need to lobby Congress or one of the many regulatory agencies overseeing the banks and the GSE’s to take action. "Congress would be interested in finding out the abuses that are taking place," Trotier said. "We don’t believe Congress ever wanted to allow banks to blame or punish appraisers for the real estate market falling apart, but that's clearly what's happening."

As a last resort, it is entirely possible someone like Joe could file a class action lawsuit on behalf of all appraisers who have ended up on a “do not use” list without a chance to appeal and whose business and professional reputation have been damaged. Now, there’s a thought…a class action where appraisers get to be the plaintiffs. Hmmm…kind of makes you smile, doesn’t it?

Now it’s your turn

If banks and GSE’s were to adopt a formal, fair, and transparent review policy as we suggest, how would that affect you as an appraiser? Do you know of any banks or GSE’s that already have such a policy in place?

Leave a note in the comments below or email us to share with us your story.

If you missed part 1 of this series on blacklisting, read it here.

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