Appraisal Forum Recap
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“Preserving the Public Trust”
I really got a lot out of this week’s joint meeting with IAC and TAFAC of The Appraisal Foundation that took place in Arlington, VA. I represented my appraisal firm Miller Samuel at IAC (Industry Advisory Council) and RAC (Relocation & Consultants) at TAFAC (The Appraisal Foundation Advisory Council) and I’ll be sharing new insights on these and other topics in the coming weeks.
Appraisal Waivers – Both Julie Jones of Fannie Mae and Scott Reuter of Freddie Mac spoke about the waiver concept. On the whole, I feel much better about the GSE’s intent from their presentations. They’ve been offering appraisal waivers for more than a decade but recent efforts were ramped up and widely touted (and widely criticised). Their market share of loans with an appraisal waiver is a little under 10% so of course, the fear by most appraisers is that it is a slippery slope and soon all appraisals for Fannie Mae and Freddie Mac loans would be waived. The FNMA explanation was that if market share were to increase beyond 10%, their credit box would have to be expanded and that is a difficult process, requiring approval by their regulator FHFA (Federal Housing Finance Agency). In my view, they have been trying to entice lenders to better match their underwriting interpretation of risk with the actual risk out there. Lenders have lost their appetite for risk with the exception of some recent easing. With the economy strong and some consensus building for a recession by 2020, I find it hard to see a significant expansion of the FNMA credit box if at all, at least in the near term. Therefore it would follow that the expansion of appraisal waivers would be unlikely. On another note, I don’t think the understanding of the AMC impact to loan quality has been properly exposed because the GSEs can’t distinguish between AMC appraisers and non-AMC appraisers.
Hybrid Appraisals – An analyst for Moody’s spoke about hybrid appraisals that rely on a separate inspector rather than the appraiser. There has been little adoption observed in the securities markets. Moody’s knows of only one deal that included hybrid appraisals in some of the loans of a portfolio and there is no apparent impact yet on portfolio pricing. This deal had nothing to do with the GSE portfolios. Moody’s perspective was that portfolios include broker price opinions (BPOs) and they are more comfortable with appraisers being involved in the process. However Moody’s along with S&P and Fitch missed the housing bubble, thinking they could mitigate all risk but were using the wrong data to feel comfortable. My takeaway is that there is no real data or precedent to base risk decisions on this new product at this time and their biggest concern was the lack of standardization of separate inspectors for this product. The Fannie Mae waiver product is confusingly inserted into this line of thinking yet Fannie Mae appraisal waivers are not part of these portfolios. If their use becomes prolific much like AMCs have grown to dominate the mortgage appraisal industry, I start wondering about the expanded misplaced quality assumptions built into the bond market. In other words, bond pricing is likely appraiser-qualify influenced and with 80% to 90% of all retail mortgage appraisals going through AMCs, up from 10% in before 2009. This lack of AMC understanding as it relates to the value of mortgage collateral for securitization should make regulators nervous. What is going to happen to the bond market, whose mortgage collateral that is largely tied to AMC quality (which are generally poor) when the quality issue finally becomes more front and center.
Appraisal Institute Roams The Halls of Irrelevance in DC – Despite being denied re-admittance to TAFAC for not agreeing to honor the TAF mission statement, Scott DiBiasio of the Appraisal Institute continues to attend Appraisal Foundation meetings like this week’s, trying to insert influence and assert AI’s presence despite its current industry irrelevance. The more feedback I get about their actions, the more I am convinced they have some sort of private agreement with REVAA (Real Estate Valuation Advocacy Association) to encourage the industry adoption of evaluations despite pushback from their own residential members. Time will tell but as history has shown us, they don’t share these types of things with their members. Afterall, it took members a decade to get AI National to admit and disclose their deal with FNC. Residential appraisers I know – who are and are not AI members – continue to scratch our heads wondering why they are so unnaturally and over-enthusiastically supportive of demeaning our profession to enable us to do $25 (and I have heard of $7 to $12) evaluations as if that serves their members best interest. No logical reason for their over the top enthusiasm has been shared. To date, AI National has had no success on the state legislature level nationwide with this agenda that is unsupported by their members and in fact, I heard AI just lost its bid to enable appraisers to switch on or off their USPAP licensing requirements in Florida by a 1-7(?) vote.
A Better Day Ahead Through Collaberation – I had several appraisers at the conference mention to me that the mood in this regulatory body was noticeably more upbeat. The elimination of the constant AI National-fueled drama was no longer poisoning the collaborate efforts of stakeholders. That makes sense. Jim Park, director of the Appraisal Subcommittee (ASC) spoke to the joint TAFAC and IAC group and said that the only way our profession moves forward is in a collaborative way. I totally agree with that observation. It would be great to see AI National be a part of that but sadly that can’t happen if the current leadership remains and they continue to ignore the needs of their hard-working residential members. Read more »