Financial Ecosystem Changes

VaCAP Board

VaCAP Board

Coalition of Appraisers in Virginia at Virginia Coalition of Appraiser Professionals
Coalition of individual appraisers working together to unite, promote and protect the collective interests of all appraisal professionals in Virginia; to promote needed changes in laws, rules, regulations, policies and standards affecting all appraisers in Virginia; to observe and report the actions of regulatory, legislative, oversight, and standards-setting entities of the Commonwealth.
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Financial Ecosystem Changes & ASA's Response to the Treasury report Treasury report calling for a more digitalized mortgage process, including the use of AVMs, hybrid appraisals & appraisal waivers…

A few days ago, HousingWire reported the Trump Administration calling for sweeping changes to the financial ecosystem. In short, the article references a report by the Department of the Treasury calling for a more digitalized mortgage process, including the use of AVMs, hybrid appraisals and appraisal waivers. The HousingWire article has a link to the Treasury Report, which is 222 pages or you can click here to read the report.

VaCAP has received a copy of the ASA’s response to the Treasury Report. VaCAP’s Contract Date Analysis is specifically referenced in their response. All the more reason we need to get our expanded study completed!

Read ASA’s response below or click here.

Contract Analysis Spreadsheet due by September 30th.

  1. Determine the date the contract was fully ratified (finalized).
  2. For your (our) information record the name of the lender.
  3. Record the AMC by name.
  4. Record the date of final contract ratification.
  5. Record the date appraisal was ACCEPTED.
  6. Record the passage of time in days

This is an important undertaking, and can go far in support of insuring the safety and soundness of our financial systems, especially under current and pending issues! Please get this done! Any questions may be directed to info@vacaponline.com. You can download the spreadsheet with samples here.

Thank you for supporting VaCAP!

ASA’s Response to the Treasury Report:

The American Society of Appraisers wishes to express its deep concerns with the proposed changes to appraisal requirements, as set forth in a report by the Treasury Department on July 31. The report’s main conclusion, to urge broader usage of automated valuation models (AVMs) and hybrid appraisals to expedite collateral valuations and reduce costs to homebuyers, overlooks several aspects of the homebuying and collateral valuation process. The proposed changes are likely to have a negative effect on prudent lending and sound valuation practices, as well as on the protection of homebuyers.

Appraisers have long been at the forefront of adopting technologies to make their businesses more efficient and their appraisal reports more accurate. Form completion software, online property information databases, regression analysis and modeling tools, and online appraisal ordering and invoicing platforms are prime examples of ways the appraisal profession has modernized the way appraisals are performed and reported in order to be responsive to market changes and to meet the needs of clients and other parties who rely on appraisals.

Unfortunately, all the time and cost savings that would normally result from the efficiencies created by appraisers are being consumed by other aspects of the collateral valuation process:

  • One state appraiser coalition, VACAP, found that, on average, it took 9 days after the contract was signed for the lender to order an appraisal directly from an appraiser. For those ordered by appraisal management companies (AMCs), that delay doubled to 18 days. This is time lost between the contract date and the closing date, and completely out of the appraiser’s control.
  • Once appraisers receive an order, appraisers have to sort through voluminous assignment conditions from various parties, such as the lender, the AMC, government loan guarantors, and the government sponsored enterprises (GSEs), all of whom have separate requirements for appraisals that may apply when extending credit. Rather than tailor an order to the loan product a homebuyer is most likely to use, the lender or AMC takes a “catch-all” approach to ordering. While this ensures one appraisal can be used for almost any lending scenario, it adds time and complexity to the assignment, often without any commensurate increase in the appraiser’s compensation.
  • Even after an appraiser completes an assignment, they often must respond to requests for revisions or reconsideration of their opinion of value, usually spurred by quality control tools offered by the GSEs. Most frequently, these changes do not result in a material change in the opinion of value and are usually completed by the appraiser without further compensation offered or received. This takes time away from the appraiser’s next assignment and has a cascade effect going forward.

Rather than work to address these systemic issues that contribute to the time and cost to develop an appraisal report, the Treasury report would instead like to see greater use of appraisal waivers, AVMs, and hybrid appraisals. While each of these alternatives may be fine in well defined, acute circumstances, they cannot be true replacements for the work of a locally situated field appraiser:

  • In the case of appraisal waivers, these often rely as much (if not more so) on the creditworthiness of the borrower to inform the risk profile involved and whether the GSEs will purchase the loan without an appraisal. While underpinned by prior subject and comparable appraisal data, waivers by their very nature can only operate for a certain percentage of lending and in certain areas where homogeneous properties transact regularly.
  • With AVMs, they suffer from the same property homogeneity and data regularity faults as a credit-integrated waiver platform, but with the addition of a layer of opacity. While the AVM relies on a range of algorithms to reach a value conclusion, these algorithms are the product of human programmers who will impose their own inherent, implicit biases and preferences into the modeling. Once behind the AVM, however, it is hard to confront those preferences and to seek reconsideration of value.
  • Hybrid appraisals – the newest product in the collateral valuation space – have obvious shortcomings inherent in a nascent approach. In the current environment, there is no formal criteria – either in terms of training or oversight during the data collection process – in determining competency when hiring third parties to conduct inspections to collect subject property information and provide images. Indeed, these may be unlicensed, uninsured individuals going into a person’s home without formal training. Beyond the data collection challenges, however, lies the fact that the appraiser who completes the appraisal and does the analysis could be tens, or hundreds, or thousands of miles from the subject property. It is hard to justify the use of an individual at such a physical remove from a community. In fact, the Uniform Standards of Professional Appraisal Practice (USPAP) makes locational competency a key factor in appraisal practice. Using appraisers that lacked locational competency was an identified factor in the run up to the housing problems during the Great Recession.

In short, the solutions have as many inherent problems as those identified by the Treasury report regarding traditional appraisals. ASA believes that, through work with lenders and GSEs, many of the time-consuming overlays and delays can be reduced, resulting in faster delivery of reports without sacrificing quality. Work is ongoing to both modernize the forms used for appraisal reports submitted to the GSEs and on ways to use current technological solutions to make the appraisal process more efficient.

To use flawed alternatives without first maximizing the current appraisal process is troubling, and runs counter both to the need for safety and soundness in the transaction as well as to the protection of the homebuyer – who, in many instances, is making the single largest investment of their lifetime.

ASA is happy to work with its industry partners and Treasury to find more immediate solutions that improve the appraisal process and look forward to our continued evolution as a 21st century profession. If you have any questions or wish to discuss ASA’s views further, please contact John D. Russell, JD, Senior Director of Government Relations and Business Development at 703-733-2103, or by email at jrussell@appraisers.org.

Sincerely,
American Society of Appraisers

 

Image credit flickr - Surian Soosay
VaCAP Board

VaCAP Board

Coalition of individual appraisers working together to unite, promote and protect the collective interests of all appraisal professionals in Virginia; to promote needed changes in laws, rules, regulations, policies and standards affecting all appraisers in Virginia; to observe and report the actions of regulatory, legislative, oversight, and standards-setting entities of the Commonwealth.

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10 Responses

  1. OK, as long as we keep using polite phrases like “While each of these alternatives may be fine in well defined, acute circumstances,…” we are shooting our selves in the foot.

    ASA is right in almost all that they said EXCEPT the following:

    1. There are NO circumstances in which AVMs are ‘usually credibly reliable’ in the real world. None. There are only circumstances in which they are coincidentally within a 10%+- range, SOME OF THE TIME!

    2. Hybrids are never reliable. Not ever. There is not one case in which a hybrid being performed in the time frames most often cited and for the fees cited, is USPAP compliant. NOT ONE!

    This is not a case in which a public letter addressed to no one in particular is an efficient way to get Treasury’s attention; or that of the Trump Administration. We need to find the names of the people and specific agencies involved and then develop a targeted campaign to change minds.

    I’ll dig into the Treasury report and urge others to do the same. Then every single one of us should take the ASA points and write letters to; or seek meetings with specific government employees.

    Other than that, it is time for ALL of us to modify our positions to that of becoming consumer & taxpayer advocates. If the government no longer believes in FIRREA then it is up to us to let consumers know when they have been taken advantage of in a purchase of loan transaction that is or was dependent on property value.

    It could be a windfall for attorneys, and it may be the only appraising work left related to lending. Lawsuits.

    MAYBE it is time for the AI to finally abandon it’s self serving ‘alternative valuation’ platform and start redirecting their efforts to preserving, rather than destroying the appraisal profession.

    Make no mistake. THIS Treasury Department proposal if adopted; coupled with MISMO’s avowed position of turning ALL appraisals into automated processes WILL spell the end of the appraisal profession as we know it. Both residential AND commercial.

    A little research is highly likely to find the billion and a half dollar a year revenue producer CoreLogic involved in this proposal somewhere.

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  2. I’m only up to page 77 of the report and it is HORRIBLE!!!

    This is not about real estate appraisals, it is about the complete elimination of consumer protections; taxpayer privacy in virtually all areas! They envision reduced (read elimination) of do not call protections; financial sharing of data with much greater ease between IRS and banks (which frankly should have ZERO access to IRS even now).

    They are suggesting data sharing of all your personal financial information online by and through Fintech data aggregators!

    Now WHERE have I heard that “data aggregator” term again???

    Anyone here comfortable with the idea that Corelogic could not only provide more or less incorrect specific property transaction data and characteristics about your house but ALSO incorporate your credit file and financial data for customers all in one unauthorized package? How about having that same data entrusted to low cost, low integrity virtual assistant providers over in India for marketing outside of what they were hired for?

    You apply for a loan and a high integrity company like (for example only) AMROCK cuts costs by having all the work sub contracted to the Sub Continent? They in turn sell your IRS data; savings account data (type like CDs held or 401K / SEP IRA choices etc, amounts and where) to Ford Motor Credit Corp who now begs you to buy their products via pre approval, right along with General Motors and Honda; and the other party they sell to is that Prince over in Nigeria that’s been trying to send you the five hundred million windfall for years if you would ONLY give them your checking account numbers.

    Mnuchin than talks about cyber security and protection as if it is a real thing. The agency that cant stop cyber fraud associated with tax returns; and the government that routinely gets hacked in social security and the Pentagon is seriously talking about cyber security?

    Then again, he also talks about ‘machine learning’ and artificial intelligence (AI) as if THEY exist! Has anyone told him yet that machines don’t actually ‘learn’ and that artificial intelligence only exists in science fiction books and movies?

    They aren’t real yet Steve! Both concepts encompassed by the false euphemisms are only as  good as the human programmers algorithms you propose surrendering too many responsibilities to by too few people, in the IT world.

    The same hucksters that brought bitcoin and bifurcated hybrid ‘appraisals’.

    Make no mistake, these proposals are not about alleged CFPB over reaches among different political philosophies; it is the wholesale sell out of ALL consumer and right to privacy laws in America today!

    YOU PAY for your VOLUNTARY digital online presence each month. Treasury would let you pay for the privilege of being spammed without limit or robo called without end. They also don’t merely propose discussions on these issues; they propose having Treasury take a leading, facilitating these changes and far more!

    States Rights also disappear. I’m no fan of states regulating federal law implementation but what’s proposed goes far beyond that. States enforcement of individual state laws will disappear and be replaced by a burden to enforce all federal financial laws (pro business and anti consumer in nature).

    Regular readers know I am a registered Republican. I’m also a Trump supporter or have been up through every single travail and charge leveled against him, but Treasury’s proposal is SO bad that the author of the plan needs to be pushed out!

    It’s not merely one or two ill conceived but forgivable ideas by a bureaucrat.

    The 222 Page proposal is a blue print for the complete wholesale destruction of every consumer protection ever codified into law; coupled with giving control of all our personal financial information to private aggregators like CoreLogic and four others.

    That Mnuchin would even propose such a thinly veiled wholesale elimination of taxpayer and consumer right is not something that can or should be overlooked.

    I will NOT CONTINUE to support a political party that espouses the things contained in the 222 page fairy tale of reform. Before reading this report, I could not envision a plausible circumstance in which my support for Present Trump would waiver.

    Mnuchin managed to create one. (this is an example of how serious I think the issue is as one who til now has been an Administration supporter and advocate. – not an invitation to side track into partisan issues – please!)

    My favorite line in the whole report? It’s the one about us needing “to facilitate RESPONSIBLE EXPERIMENTATION by financial institutions!.” Secretary Mnuchin, it was long term and presently ongoing irresponsible experimentation by financial institutions that necessitated the very regulations you seek to undo.

    President Trump, the only sensible solution is to (1) take the 222 page Treasury Department Report and put it in that circular file somewhere on the floor by your desk, and (2) Tell Secretary Mnuchin “You’re FIRED!”.

    …or with great regret, those of us who supported you through everything right up until today, & to drain the swamp, will have to find someone else.

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    • Baggins Baggins says:

      The list of contributing authors is front and center. I had hoped people more knowledgeable than I, or with more time would identify their revolving door memberships. Surely they are insiders whom seek to benefit.

      The truth is these activities happen regardless of whom is in office. The majority of legislation on the floors of governance is written by the companies supposedly being legislated. Swapping the politician does not seem to have any effect. Left wing right wing, what if I told you they are both wings on the same bird. This is the lesson Ron Paul constantly reiterates, the way decisions are controlled primarily for money and power, not principals and liberty. It is important to know that the corporate welfare dwarfs regular poor persons welfare, even though fewer individuals get money, they get a lot of it. If one is upset about the corporate control in governance, regardless of political leanings, the solution remains the same, audit the fed, and do our best to provide better financial education to regular consumers.

      The ASA letter brings hope. Will they listen?

      I did not dare read the whole treasurer’s report, but perhaps will go back and skim more of it. So what of it? Are these treasury reports common, do they come out frequently, are they taken seriously?

      As always, consumers drive the markets, and hopefully one day we’ll have better informed consumers. We need to provide financial education to the modern citizens whom are dealing with absence of financial education through all primary schooling, as well as maintaining a steady course that liberty and justice for all are more important ideals than special interest favors and self asking regulatory proposals. If people stopped borrowing so much, these corporations would not be this influential.

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  3. Anna Todaro says:

    My sentiments exactly.

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  4. Frank Cox on Facebook Frank Cox on Facebook says:

    Trying to speed up the process started the whole problem! When I started it took 90 days to close on a house and now everyone wants to close within 30 days.

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    • Baggins Baggins says:

      One button instant mortgages. No agent, no appraiser, no advisor, just you and the trusted lender. Look you’re done! Trust us, we’re here for the consumers best interest… They no longer laugh all the way to the bank, they do the laughing at the bank. Reasons to choose credit unions instead. I do not want or appreciate ‘fast mortgage process’ when I am the consumer. If you don’t give the consumer time to think, they are less likely to have critical concerns and form intelligent questions.

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  5. Bill Johnson says:

    Considering I just received a drive by appraisal request for a Pacific Ocean fronting property (the sand is your front yard) for $260, I say let the computer tell them how much it’s worth. It’s amazing how lenders think because there is less risk / liability for them (low LTV), that somehow my fee should be 10 cents on the dollar of the going rate.

    Seek the truth.

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    • Baggins Baggins says:

      I know. Truth. They want to reduce the vendors volume by substantial amounts, then continue to claim volume discounts for singles. Um… Fail. Surfing the job boards lately, this industry really went down the tubes.

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    • Michael F. Ford, AGA, GAA, RAA, Realtor® Michael F. Ford, AGA, GAA, RAA, Realtor® says:

      They will find someone to do it using one of those photo taking services for $8 a pic $40-maybe $48) Rest goes to the low-baller for doing what turns out to be a “hybrid” wearing drive by clothing.

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  6. Michael Ford Michael Ford says:

    I just saw an AVM for a 2.5 million property…over 8 million per AVM! AVM doesn’t know its land value only and house has been torn down.

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Financial Ecosystem Changes

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