I’m not sure when it happened, but sometime in my lifetime the family home stopped being where you chose to live to raise your family and put down roots and became an investment asset. It seems this transformation began when investment bankers on Wall Street first realized residential mortgage lending represented a potential source of huge profits.
Prior to the Great Depression, a typical mortgage loan was for 50% of the cost of a home, was interest only, was for 5 years with a balloon payment due at maturity, was funded by the same bank or savings & loan where you banked, and was approved by a banker that knew you, your family, and the house personally. In 1934, the federal government passed the National Housing Act and created the Federal Housing Administration (FHA) to help revitalize the economy by jumpstarting the local housing market. Then Congress created the Federal National Mortgage Association (FNMA or Fannie Mae) and approved the Veterans Administration (VA) loan program for veterans and military personnel. This VA program had no down payment requirement so mortgage lending went from 50% of cost to 100% of cost in a very short time. After WWII a housing boom began and both the Government National Mortgage Association (GNMA or Ginnie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) were created to increase liquidity in the market so more and more people could acquire the home of their dreams. (more…)
The Law of Unintended Consequences is a law, like Murphy’s Law, which is always lurking in the background to foil the attempts we humans make to control the world around us. It is particularly true of government attempts to reduce crime. A couple of examples follow:
I used to love air travel. I was a flight test engineer at Boeing and for many years I flew all over the world for both work and recreation. Then came the shoe bomber. Now I wait in long “security” lines while thousands of security workers peer at video screens as billions of pairs of shoes go by and more thousands of security workers watch as billions of travelers shuffle along in their stocking feet. Do I feel safer now?
Then came the underwear bomber and now billions of travelers will have to suffer through crotch inspections by full body scans. Am I even safer now?
I used to love appraising. Long before there was any appraiser regulation (more…)
Philosopher George Santayana once said,
“Those who cannot remember the past are condemned to repeat it”.
In light of recent actions in the mortgage lending industry, we all may be able to experience the thrill ride of 2007-2009 all over again…soon. You may wonder what actions I am referring to so let me share a brief list of what I will call the top ten contributing factors to the downturn I see happening by July of 2017.
- By 2017 it will have been 10 years since the start of the last collapse in the real estate marketplace. Since institutional memory is roughly 10 years, most of the people in charge of the big banks and the GSEs in 2017 will not remember what happened in 2007.
- Virtually all government mortgage lending programs have reduced down payment requirements to 3% of the purchase price. This is simply not enough skin in the game to keep borrowers from taking on more debt than they can handle. Not that many years ago buyers were expected to put 20% down so how do we get to 3% and feel good about it?
- Wall Street firms, money center banks, large home builders, mortgage banks, and big real estate firms are (more…)
a la mode and National Data Collective Form Partnership to Offer Real Estate Data Services to Appraisers2
November 10, 2014 — Naples, FL — a la mode announced today that NDC (National Data Collective), a leading national provider of property data for real estate professionals, has agreed to integrate its data products with a la mode’s full range of appraisal formfilling systems.
NDC offers a subscription-based data service to appraisers covering more than 130 million properties in all 50 states, with full property profiles, assessor records, deed history and comparables data. Its products are available on desktop and mobile platforms, with an advanced user interface designed around appraiser efficiency. Foreclosure activity is also available, along with flood information, linked deed histories, and more. Customizable packages are available in monthly or annual subscriptions. (more…)
A consumer class action complaint has been filed against a lender and its AMC relating to the subject matter of a prior CFPB investigation and settlement.
Last August, the Consumer Financial Protection Bureau (CFPB) announced that it had taken action against Amerisave Mortgage Corporation, its affiliated AMC Novo Appraisal Management Company, and one of the owners of both companies Patrick Markert. Part of the CFPB’s action concerned alleged overcharging for appraisal services by the AMC and failure to disclose the AMC’s affiliation with the lender. Under a consent order, Amerisave and Novo agreed to pay $14.8 million in refunds to consumers and a $4.5 million penalty. Mr. Markert individually agreed to pay an additional $1.5 million penalty.
On September 10, 2014 (more…)
OK, I admit it. I am old school. I still think you need to understand how to do something manually before you throw caution to the wind and buy into new technology to replace a good, old-fashioned, hands-on process that has worked fine for years. I honestly believe the use of technology without a complete understanding of how to do the basic process manually just lets us make more frequent and more complicated mistakes faster. In other words, if you can’t drive a Chevy Nova very well, don’t buy a Maserati Ghibli and expect it to fix your driving problems. All that will happen is that you will be going faster when you hit the wall.
What does this have to do with the Form 1004MC? In the old days when television was black and white and when reporters reported the news instead of making it up, the officers of banks and savings and loans had to decide what their home loan lending policies would be. First, they had to decide if they would offer home loans at all. Next, they had to decide what cities they would make loans in (typically they would only loan in markets where they had deposits so they had firsthand knowledge of those markets). (more…)
Being on HUD’s FHA Appraiser Panel and performing FHA appraisals is an essential source of work for many appraisers. However, according to a recent legal brief filed by the National Association of Appraisers (NAA), HUD has been quietly blacklisting appraisers for years without due process.
At the center of the case against HUD (U.S. Department of Housing and Urban Development) is Ken Taggart, an appraiser in Penn., who was removed from HUD’s roster in January 2010. Taggart says that his mortgage servicer, GMAC Mortgage, LLC, mistakenly forclosed on his FHA-insured mortgage. Since then, Taggart says HUD blacklisted him without due process to appeal the decision, effectively cutting off FHA work and threatening his livelihood.
Taggart is currently suing HUD and vowing to fight until he is restored to the FHA roster. In addition to clearing his name, he hopes HUD will change its policies to ensure that other appraisers receive due process.
Foreclosure and CAIVRS
Taggart had an FHA-insured mortgage serviced through GMAC Mortgage, LLC. He alleges that GMAC erroneously (more…)
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.
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…)
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…)
At least one appraisal management company (AMC) put a new accent on appraising by having the point of contact be in another country—specifically, a call-center in India. According appraiser Bill Streep, this is how the conversation went:
Bill Streep: “Hi, this is Bill.”
AMC Staff: “HELLO! Bill. Could I please speak to Villiam?”
Bill Streep: “This is Bill.”
AMC Staff: “Yes, Bill. I need to speak to Villiam.”
Bill Streep: “My name is Bill, it’s short for William.”
AMC Staff: “Yes… (insert long pause) Could I please speak to Villiam?”
Bill Streep: “This IS William.”
AMC Staff: “No, this is Bill. I need to speak to Villiam.”
Bill Streep: “Hang on…” I set the phone down and shuffle some papers around.
Bill Streep: “Hello, this is William.”
AMC Staff: “VILLIAM! HELLO!”
Bill Streep: CLICK.
While the above story is funny, wasting time and money are not. Ever since AMCs gained prominence, appraisers have lamented having to deal with inexperienced AMC staff who have little or no (more…)
One of the requirements of your job as an appraiser is getting to the property to appraise it. Unless you are appraising a property within a few blocks of your own house or office, chances are that you will be driving there. Today, the costs of driving — higher gas prices, higher insurance premiums and higher maintenance costs — have gone through the roof.
This got me thinking: the cost of almost everything that we, as appraisers, need to do to successfully perform our job has increased substantially. Higher insurance premiums, higher costs for the tools required by USPAP guidelines, higher vehicle costs, and higher costs associated with working for an AMC means we forfeit a large portion of our fee. What we’re left with does not give us much purchasing power.
Let’s rewind 20 years
Two decades ago, gas cost about a dollar per gallon. Let’s face it – almost everything (milk, eggs, etc.) was cheaper, including obtaining and maintaining your appraisal license (more…)
On May 23, 2014, the Court of Appeal for the Fourth Appellate District, Division One, State of California, issued a very interesting decision on whether a plaintiff can successfully plead and argue fraud based on comments made about the concluded value of real estate that was appraised. The case is Graham V. Bank of America, N.A., et al. Although this ruling is unquestionably useful for an appraiser being accused of appraisal fraud, it probably is not the magic elixir many will proclaim it to be. This is because the appraiser involved in the lending transaction, which was the subject of the lawsuit, was not named as a party to the lawsuit. Nonetheless, much of what the Court of Appeal said about appraisals and fraud is worth examining and understanding because it may provide a road map for the defense of an appraiser who is sued and must respond to allegations of fraudulent conduct.
The essential facts in Graham are as follows: In 2004, Graham borrowed a total of $489,000 to purchase a home in Vista, CA. The amount borrowed equaled the purchase price of the home (100% LTC) and Graham borrowed $391,200 under a first trust deed and the balance of $97,800 under a second trust deed. At the time, the lender involved had an appraisal report done and the appraiser concluded the value of the home was $525,000. Graham alleged there was some discussion about the appraisal (more…)
For the past two months, VaCAP has participated in a networked council consisting of 13 professional state appraisal organizations in responding to the Agencies request for comments of the Proposed Rules on Minimum Requirements for Appraisal Management Companies:
This letter is in response to the Agencies’ request for comments on the Proposed Rules on Minimum Requirements for Appraisal Management Companies. The undersigned represent a networked council of professional state appraisal organizations. We appreciate this opportunity to comment and thank the Agencies for their work and interest in creating and implementing appraisal management company (AMC) regulation.
The proliferation of AMCs is a relatively recent phenomenon, resulting from the May 2009 Fannie Mae implementation of the Home Valuation Code of Conduct (HVCC)/Appraiser Independence guidelines.
By their design, AMCs’ operations cover an extremely large amount of geographic and lending territory. As a result, they handle a tremendous amount of monies and interests associated with the various services they attempt to offer to lenders and consumers. Many AMCs not only supply appraisal services, but also title and other real estate related services. The potential for a single AMC to affect an enormous number of transactions should not be underestimated. Our members have already witnessed several large AMCs closing their doors without notice and filing for bankruptcy.
The professional appraiser’s business, as well as the appraisal profession, have been decimated by the increasing market dominance of AMCs. Trust and credibility (more…)
Current economic trends suggest your appraisal practice will not survive beyond 2015.
Appraisers are running for the exits, with many moving into Ad Valorem, and some into cost estimating. Client accounts you thought were safe have been converted to ether and dispersed among a dark refinancing void.
You’ve gone from completing six appraisals per week to camping by your email, in hopes of an AMC broadcast assignment appearing. Where you once had time to think about accepting the assignment, you now have less than 2 seconds to accept, because like you, ninety five other appraisers are competing for the same assignment in this down period.
Before you can click on the email, the assignment has been snatched by an appraiser using a faster connection, and quick-draw keyboard. By the time you acknowledge that an email has arrived, the assignment has already been accepted, and the accepting appraiser is on his way back from looking at the property. OK, well maybe not on his way back, but you get the point. (more…)