What really caused the real estate market to collapse?
While much has been written about the multitude of complex reasons behind the collapse of the real estate market in 2007, it is the opinion of this writer that there is one primary reason for the collapse. Simply stated, banks loaned money to borrowers who lacked the ability to pay back the loan. That’s it, pure and simple. If you loan money to someone who has no resources to pay back your loan, you will lose money almost every time and it matters very little if you have any collateral for the loan. This should be known as the prime directive: “Thou shall not loan money to someone who cannot pay you back.” There certainly are many other reasons behind the collapse, but if the “system” had not violated the prime directive the collapse would not have been so sudden, so precipitous, and so prolonged
If it makes you feel any better, the list of characters that also deserve some of the blame is as long as my arm (34” sleeves). This list includes, in no particular order:
- Elected officials who thought the banking system should loan money to anyone who wanted to buy a house plus many who did not. Some of the housing bills passed by our elected “leaders” were tantamount to acts of treason.
The Appraisal Foundation’s Appraisal Standards Board has issued a third exposure draft of proposed changes to its 2016-17 edition of the Uniform Standards of Professional Appraisal Practice, and is seeking feedback on the proposed changes by Oct. 10.
Among the proposed changes is an adjustment to the definition of report, which currently is defined as “any communication, written or oral, of an appraisal or appraisal review that is transmitted to the client upon completion of an assignment.” The proposed definition would read “Any communication, transmitted to the client or to a party authorized by the client, of an appraisal or appraisal review that includes a signed certification.”
A modified recordkeeping rule would require appraisers to track communications with clients prior to report submissions and keep those communications (more…)
An online survey of both Utah mortgage lenders and Utah licensed and certified residential real estate appraisers was conducted to discover customary and reasonable fees for residential appraisals throughout Utah for 2013. Federal regulation pertaining to customary and reasonable fee studies specifically “excludes compensation paid to fee appraisers for appraisals ordered by appraisal management companies.” Therefore, this study does not include appraisal fees paid by appraisal management companies to Utah appraisers.
Two surveys, one for lenders and one for appraisers, were prepared to capture the unique demographic and background information of each group; however, the questions pertaining to appraisal fees (more…)
During the housing crisis, it came to be recognized that inflated home mortgage appraisals were widespread during the subprime boom. The New York State Attorney General’s office investigated this issue with respect to one particular lender and Fannie Mae and Freddie Mac. The investigation resulted in an agreement between the Attorney General’s office, the government-sponsored enterprises (GSEs), and the Federal Housing Finance Agency (the GSEs’ federal regulator) in 2008, in which the GSEs agreed to adopt the Home Valuation Code of Conduct (HVCC). Using unique data sets that contain both approved and nonapproved mortgage applications, this study provides an empirical examination of the impact of the HVCC on appraisal and mortgage outcomes. The results suggest that the HVCC has reduced the probability of inflated valuations and induced a significant increase in low appraisals. The HVCC also made it more difficult to obtain mortgages in the aftermath of the financial crisis. (more…)
The Consumer Financial Protection Bureau announced Aug. 12 that it fined mortgage lender Amerisave Mortgage Corp., its affiliate, Novo Appraisal Management Company, and the organizations’ collective owner, Patrick Markert, $19.3 million for allegedly luring prospective borrowers with misleading interest rates and trapping them with inflated appraisal fees.
The CFPB claimed that the lender and its affiliated AMC violated the Truth in Lending Act and Real Estate Settlement Procedures Act by enticing tens of thousands of borrowers with deceptive advertising and then illegally overcharging them for third-party services. (more…)
On September 18, 2014, the Federal Housing Administration (FHA) is offering a 120-minute webinar on Most Common Appraisal Deficiencies.
This session will provide an update and overview of FHA Single Family mortgage insurance appraisal requirements. It will address the most common appraisal questions and appraisal deficiencies. Property inspection requirements, appraisal validity period, case numbers, REO, manufactured homes, well and septic, attic and crawl spaces, lead-based paint, termite (more…)
Some appraisers are now being targeted in lawsuits by an entity named “Mutual First, LLC.” It has filed at least 35 lawsuits since May. Mutual First is not a bank, credit union or any kind of regular financial institution. It’s an entity aiming to make money for investors by suing appraisers. Based in Texas, it acquires foreclosed loans for small fractions of the original principal amounts. It then files lawsuits against the appraisers who performed appraisals years ago for the original lenders who made the loans. In its lawsuits, Mutual First claims that the appraisers are liable to Mutual First for damages as the result of negligent overvaluation in the appraisals. The damages demanded include the full unpaid balance of the long-ago foreclosed loan (some were foreclosed 4-5 years ago or more), even though Mutual First itself only paid a very small amount to buy the loan after it was already foreclosed and after the appraised property no longer served as security.
Savant Claims Management appears to manage the litigation against the appraisers (more…)
We all got gut punched by Andrew Cuomo’s HVCC, the most of which were the appraisers. Well now the shady truth about it’s conception is here.
HVCC. We all remember it. Basically is was a total drag. Unless you owned a huge AMC that is. Which by the way virtual all the banks did. It was totally counter productive to the industry and real nuclear bomb to our collective equity as a nation. Well as it turns out, one of Cuomo’s buddies actually got the ball rolling on it as long has he and his company got total immunity, which they did, then he helped Cuomo structure it all so the bank clients he represented made out like champs by forming their massive AMC’s. Yeah, that’s basically it. So the whole thing was a big good-ol-boy love fest that continues to create problems with appraisals today. So tune in (more…)
Even today there is undue pressure being put on appraisers to make loans work. All the new regulations in the appraisal industry did nothing for the bullies who work for AMC’s now. It’s sad to hear veteran appraisers talk about the way they were disrespected and treated unprofessionally, and how they are making plans to leave the industry. It happens every day in appraisal forms and blogs all across the country. The bullying and intimidation is as bad now as it ever was before.
This would never happen in any other industry and there is obviously a huge discrepancy between how appraisers are trained and what the mortgage industry expects from them. Appraisers are taught from day one; protect the buyer, lender, and mortgage investor. Make sure the value is fair to the best of your ability. 100% imbedded in every appraiser’s brain; be ethical and fair, you are there to protect the public and are influencing large financial investments. Then they discover this is NOT what lenders want. They might say they do in public, but their day to day business operations tell another story. The lenders and AMC’s (who pay the appraisers) often could care less if the loan is secure, not their problem. Make the loan, get paid, and let the next guy worry about it. Sound familiar? (more…)
If you were an appraiser looking for more work, this year’s Valuation Expo at the Flamingo Hotel in Las Vegas, June 23-25, was a good place to find it. Attenders included many product vendors, AMCs seeking appraisers, and representatives from agencies such as HUD and the VA.
Four sessions were offered for CE credit: “Keynote – panel of government and GSE representatives,” “Alternative Valuations,” “Valuation Visionaries,” and “Regulatory Compliance.”
In this month’s newsletter, I’d like to share some of the information covered by the Keynote panel: David Bunton of the Appraisal Foundation; Robert Murphy of Fannie Mae; Robert Frazier of the FHA; and Gerald Kifer of the VA.
Up first, Bunton shared information from the Appraisal Foundation, under which are all of the following: (more…)
How many times have you had this comment from someone who knows relatively little about the appraisal process, “I am not so sure about you appraisers. Seems like every time there is a purchase transaction needing an appraisal, you come in just above the purchase price. If the house is selling for $200,000, you come in at $202,000. If it is selling for $450,000, you come in at $460,000. Seems a little rigged to me.” Ever had a client get really upset when you asked to see the purchase contract before you begin working on the appraisal? “Well, I don’t want you knowing what the purchase price is. How can you be unbiased and give me an honest appraisal if you know what they are buying it for?”
To the ignorant (and I mean that in the most gentle of ways), these are legitimate questions. To a trained real estate appraiser however, looking at and even analyzing the contract in detail as part of the appraisal process is necessary in order to complete a credible report. In fact, the Uniform Standards of Professional Appraisal Practice (USPAP) REQUIRES that we do (Standards Rule 1-5a). Why? To answer that question, let’s step back from the trees for a view of the forest for just a minute. What is an appraisal? In layman’s terms, an appraisal is an opinion of value by a qualified professional supported by market data. That is all fine and dandy…if you have support in the market. Now, some appraisers work in metro areas where support for the market is easier. I (and many others like me) work in a more rural market where finding true ‘comps’ are sometimes like finding Big Foot in aisle 13 at the local grocery store. It is times like this that we appraisers (more…)
The Federal Housing Administration on July 31 issued drafts of four new appraiser policy documents that it plans to add to its Single-Family Housing Policy Handbook. The FHA is seeking feedback before the documents are finalized.
The draft documents relate to FHA appraiser eligibility requirements and the application process, as well appraiser responsibilities and compliance actions, eligibility guidelines for appraisers performing appraisals and reporting results, data delivery requirements related to the FHA Uniform Appraisal Dataset and instructions to help appraisers accurately complete FHA appraiser forms.
FHA developed the documents in an effort to provide appraisers a more consistent approach to its policies. Stakeholders can submit comments on the draft policies (more…)
CHICAGO (July 31, 2014) –The number of active real estate appraisers in the United States fell less than 1 percent in the first half of 2014, the Appraisal Institute announced today, lower than the average annual decrease of 2.6 percent over the past six years.
Research conducted by the nation’s largest professional association of real estate appraisers found that as of June 30, the total number of active real estate appraisers in the U.S. stood at 80,500, down from 81,050 on Dec. 31, 2013. A broader analysis suggests the rate of decrease could rise sharply over the next five to 10 years due to retirements, reduced numbers of new people entering the appraisal profession, economic factors and greater use of data analysis technologies, Appraisal Institute research found.
“As appraisers leave the profession (more…)
Alliance Allows San Diego-Based Property Data Service to Offer E&O Coverage at No Additional Cost to Qualified Residential Appraisers0
SAN DIEGO, CALIF. (July 28, 2014) – National Data Collective (NDC), a San Diego-based property data company serving real estate professionals, announced today that it has formed a strategic alliance with CRES Insurance, LLC, a leader in protecting the real estate industry with risk management services and insurance solutions.
NDC offers a subscription-based data service to appraisers, providing access to a database of full property profiles, assessor records, deed history and comp reports for more than 130 million properties nationwide. NDC has joined forces with CRES to provide its customers with Appraiser One, a product that allows appraisers to get their data and E&O together for one low price. Through the partnership, appraisers who purchase a subscription to NDC data will receive E&O coverage from CRES at no additional cost. (more…)
- Most AMCs are small companies. 86% have annual gross revenue less than $10 million. Conversely, 13% have annual gross revenues of over $50 million.
- AMCs are more frequently adopting a “cost plus” pricing model for their services. This means they charge a separate fee for their service and are transparent about their fees paid to an appraiser. (Note: Arizona Appraisal Statute requires appraisers to disclose the fees they have been paid by an AMC in the Scope of Work section of the appraisal).
- 35% of the AMCs surveyed (more…)