Who’s to Blame?

Michael Ford

Michael Ford

General Certified Real Estate Appraiser at Michael F. Ford Appraisal
Over 28 years appraising all property types and interests, in Southern California real estate. VP/Chairman National Appraiser Peer Review Committee, American Guild of Appraisers, #44OPEIU/AFL-CIO. - Michael Ford on e-AppraisersDirectory
Michael Ford

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MISMO, Appraisal Data Mining, Hybrids, and Other Fraud Facilitators

Looking at who and what MISMO Directors are, is it a surprise that FNMA included language in basic appraisal forms resulting in appraisers having infinite liability and no ownership over their own work product IF they do work for FNMA?…

European Union General Data Privacy Regulations (EU GDPR) may seem like a stretch for an Appraisers Blog topic, but please bear with me.

For some time now, The Appraisal Foundation has been focusing on major international valuation issues other than real estate appraisals.

IVSC is one of the bigger and most detrimental misdirection’s they’ve taken as far as impact on American real estate appraisers; and perhaps real estate appraisers all over the world.

This may well be where the concept of so called “value added” originates. It’s certainly tied to WHY the TAF decided circa 2010-2011 to rename all real estate appraisers “valuators” and why a simple concept like real estate appraisal had to be relabeled as “valuation.”

On the surface, there is nothing wrong about valuation being a simile for appraisal. “I did an appraisal of such and such. The results of my valuation were ‘x’.” If limited simply to alternative verbiage to avoid repetition, there is no problem. An appraisal may be like a valuation generally.

When it is used as a metaphor (an appraisal IS a valuation) is when the problems arise.

For decades the accounting profession and business valuation professions were seen by the public and most government agencies as “valuators” who performed “valuations” of a specific type. At their core (to simplify) they are accounting oriented analysts. Their scope covered anything and everything that was likely to hit Wall Street; or to be analyzed for tax purposes that was an ‘entity’ interest in complex business assets as opposed to fee or leased fee (or leaseholds, etc.) interest in specific individual ‘pieces’ of real estate.

The real estate appraiser looked to a single specific property (real property) as the primary subject of our profession.

Both disciplines use approaches to value that share the same names, but which as applied within each discipline are as different as day is from night.

Income Approach: By Valuator, determines class of asset and what the required return rate is for that asset class in its normal market (Wall Street may be international; national or regional). Starting off with a return rate tells the valuator what the income (or rent if real properties) must be. The published studies of sales involving similar asset classes are compared to reconcile already published return rates. These rates may be from REITS that transferred one, five or even twenty years ago. They are the ‘comparable sales’.

I’m not criticizing the technique as used by certified accountants or business valuators at all. It is simply greatly different than the same named approach when used by real estate appraisers.

Income Approach: R.E. Appraiser identifies economic and physical character of the specific single real property. The appraiser doesn’t start out with a preconceived return rate expectation. Nor does the preconceived return rate dictate what the market rents are. The appraiser goes out into the physical market for physically and economically similar properties and ASKS what the rents are (either existing or asking). He then adjusts them for differences between the properties they are derived from and the subject reconciling the result into a market rent. Vacancy and collection losses are deducted; and operating expenses (which are also different categorically between RE and BV) are calculated and deducted to arrive at Net Operating Income (NOI). ONLY THEN is the sale comparable compared with the subject and a market derived return rate identified.

Simplified, BV and RE Income Approach analysis is performed in reverse order.

Again, nothing wrong with the differences aside from the fact that they must be recognized as being different.

TAF declaring by fiat “Henceforth let all in the realm practicing the sorcery known as business valuation or real estate appraisal hither be known as valuators” does not recognize the core differences.

So, “who cares?”  More importantly, why should anyone care?

We must recognize the goal of TAF which contrary to the mandate they were given by The United States Congress is preservation of self rather than preservation of public trust in the appraisal process. To achieve that they must be or become self-supporting or convince the government purse holders that they are engaged in necessary, beneficial pursuits ‘pretty close to’ what Congress mandated. Even if it means renaming everyone’s professions for the charade to work.

After all, it’s not like they can remain relevant by changing USPAP every other year or increasing and then decreasing educational requirements for licensing requirements whenever they want to generate educational revenue, can they?

Besides, real estate appraiser rule making, and linguistic gymnastics isn’t where the real money is anyway.

The ‘BIG BUCKS’ are in pursuit of an intentionally obfuscated and misused international accounting concept called “value added.” Under this concept, arguments can be proffered that real estate appraisal must also ‘add value’ to the investor (somehow).

By becoming (via self-declared proclamation) America’s foremost experts on International Valuation Standards (IVS); renaming R.E. appraisers and refocusing USPAP to be more in line with accounting principles and its purported math-based data absolutes TAF can tap into international revenue streams and interests so that they aren’t pauper’s dependent on unnecessary bi annual book sales.

Is that enough motive though? Is it personal or corporate greed? Not likely. They are a not for profit corporation. They can pay their salaried directors and leadership high salaries and travel all over the U.S. and stay in some pretty nice hotels but is that enough to undermine the American real estate profession? Doubtful.

Since its start TAF and its original promoters have seen the future lies in data. “Big Data”. When TAF was formed and for many years after, few had ever heard of MISMO or it’s not yet born ugly stepchild” UCDP.” This is where the drive to convert who and what appraisers are and HOW we perform our duties arises. The ‘art’ of appraising is now scoffed at and the profession of appraising seems to think it can’t tie its own shoes based on ‘experience’ unless that procedure can be scientifically documented…or at least supported via spurious data dog and pony shows.

WHY is all this happening? Go back to MISMO ®

MISMO stands for Mortgage Industry Standards Maintenance Organization.  MISMO ® is the standards development body for the mortgage industry.

Read more – check who Pete Carroll is among the listed MISMO Board of Directors (hint; he IS CoreLogic affiliated)

Hopefully you read who All the directors are. I encourage readers to explore the entire site. MISMO ® is now far more relevant that it once was.

It is what gave us (foisted on us) the expanded obligations under UAD, UCDP, XML and my guess is ENV too.

Now, there is absolutely nothing wrong with corporate America and International Finance seeking faster ways to communicate or conduct business. On the surface it was and is commendable… if it didn’t run roughshod over the one segment of the entire traditional loan process intended to be gate keepers; or to provide a trusted checks and balance within the system. Originally, we provided appraisals that both buyers and sellers could rely upon as well as lenders, with confidence. Investors had confidence.

Then the standards and definitions of who or what our clients are was modified. Only the lender is a client. The consumer was eliminated from necessary consideration – even when they paid for the service!

Then FNMA (check the MISMO directors again folks) fabricated the story about UAD being required because it is less confusing to consumers, appraisers and users alike. Phrases like C3 or Q2 that must be checked by consumers via a two-page translation sheet were so much less confusing than phrases like average, or good, or average to good were. Seeking computer readability even at the loss of appraisal integrity and quality was only a reluctantly disclosed after thought.

Looking at who and what MISMO Directors are, is it a surprise that FNMA included language in basic appraisal forms resulting in appraisers having infinite liability and no ownership over their own work product IF they do work for FNMA?

More MISMO FAQs here.

So, where exactly does IVSC fit in all this? Who normally BUYS the bundled securities packaged by FNMA? Largely international investor would be my bet. Especially when we look to who taxpayers had to bail out last time around.

EY’s global valuation leader on the challenges and opportunities in valuation

International Valuation Standards Council

What ALL of this adds up to is data mining and or scraping of information about people that were never told all their personal financing data, or professional work product was being cut, massaged, manipulated and possibly repackaged for subsequent resale in other markets. Maybe they are related and necessary to the specific mortgage transaction, and maybe they are not. We also create a system where phenomenal behind the scenes data manipulation can take place.

IVS / IVSC may be a truly beneficial thing for international investing and accounting purposes. It does nothing however, for American Real Estate Appraisers (as real estate appraisers only). Those with dual qualifications in BV or accounting may find it applicable. To the rest of us, the question asked is “Why do we have to finance it?”

We are the only ones required by law to follow USPAP. We are the only ones under FIRREA that can lose our livelihood (licenses) for purported violations of USPAP as determined by regulators who in many cases know nothing about real estate appraising or USPAP.

Long term solutions won’t happen overnight. In the meantime, American Senators and Congress Members may want to look to another ‘international standard’. One that deals with privacy rights violations and deception.

The EU General Data Protection Regulation

GDPR Key Changes

If trust in the American financial system and appraisals had ever been “preserved” or promoted we would not be seeing such a call for AVMs, hybrids and other fraud facilitators.

Too bad no one cares, aside from a few (80-90k?) appraisers, and perhaps the American Taxpayer.

Image credit flickr - Cyberslayer
Michael Ford

Michael Ford

Over 28 years appraising all property types and interests, in Southern California real estate. VP/Chairman National Appraiser Peer Review Committee, American Guild of Appraisers, #44OPEIU/AFL-CIO. - Michael Ford on e-AppraisersDirectory

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14 Responses

  1. Kimberly Pugh DeFilippis on Facebook Kimberly Pugh DeFilippis on Facebook says:

    You are becoming my hero. I’m more and more convinced an appraiser “walk-out” should take place Dec 25-Jan 1.

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    • Thank you.

      A walk out taking place when you describe would be nice as a demonstration of solidarity among appraisers. It’s a traditionally slow (near ‘dead’) period where few would be hurt financially. The problem: IF appraisers were unified enough to pull a walk out off, there actually would be no need for the walk out to begin with.

      Appraisers would self-correct the marketplace by refusing to accept low fee orders and especially hybrids or evaluations designed to put residential appraisers for mortgage transactions out of business.

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    • Retired Appraiser Retired Appraiser says:

      You are right…although around 9 years too late. Teachers that are using this tool understand that the primary goal of the walkout is to obtain national news coverage…and it’s working like a charm.

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      • Baggins Baggins says:

        Yeah, well educating children with government funding is quite different compared to individual 1099 workers standing up visibly and openly to powerful multi national lender interests whom stand to vastly increase profits from these manipulative tactics. There has been lots of coverage for the appraisal industry. If we all stepped off of the job, that would just be an excuse to go full steam ahead with waivers and hybrids. As usual with the emotional content, close but no cigar. The proverbial ‘walk out’ happens daily, with every appraiser whom individually refuses to fee quote for everyday orders, and demands a return to ethics in billing, aka; a reasonable flat rate or minimum fee expectation for all orders for all companies, which is not promoting the now solidified pay to work model of most middle management agencies. Skapinetz recently reiterated a long standing but important line; If amc’s are adding value, why can’t they charge for that separately? Answer; too many appraisers are busy pondering walk outs and mass resistance, but fail to understand they are a force in this market to themselves, and every time one refuses improper engagement they have a cumulative influence. I just boycotted again, and have a fresh direct assignment flat rate panel application to fill out. The solution is not a walk out, the solution is to market in a more effective manner and support the good guy lenders whom don’t force you to work with middle management. They’ll post superior service terms and results, will have far less turnover of their and 1099 staff, and then in proper order, the next lender will follow the model to stay competitive. When they said amc’s have a limited business model, that is what is meant by that. By standing up for yourself individually, all alone, appraisers in this scenario have the unique benefit of also standing up for their peer appraisers. And vice versa, appraisers whom discount for the lions share have a very negative and detrimental influence to other appraisers. To stop improperly co mingled fees, appraisers need merely care about ethics in billing. This is an entertaining read, a result of excess demand in Colorado the past few years.

        Opinion Piece: Appraiser Shortages in Colorado

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        • Retired Appraiser Retired Appraiser says:

          So you are saying that a boycott of AMCs will not work Baggins? You are absolutely wrong. You’ve had 9 years to fix the problem…yet it not only continues to exist…it’s getting worse with every year that passes. Unfortunately obtaining a permanent fix (eliminating AMC control) will require a great deal of pain for appraisers. Had they undertaken the project in 2009 (when they were virtually without orders) this would not have been a difficult project. Quite simply: What I’ve proposed for nine long years is THE ONLY SOLUTION. If there was another workable solution to reclaiming the “profession” you would have stumbled upon it by now. What do you have to lose? You’ve already admitted that you only trust this “profession” enough to provide you with what you termed as “beer money”. It’s a crap job..admit it. Roll the dice and if you lose your beer money so be it.

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          • Baggins Baggins says:

            Beer money is non negotiable. That being said, don’t worry about me. Perhaps my statements are too long and detailed to get the simple point through, because we’re on the same page. Individual boycotting is what matters, and that needs to be a year round effort.

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  2. Eric says:

    We will never obtain the kind of solidarity needed for a walkout.  Without a Federal mandate to give us support our Independence will always be used against us.  We are only as strong as our weakest links and AMC’s spend hours every day searching for that weak link in every market, and then searching again for the easiest way to take advantage of that link.  There just is no recourse without Open Disclosure.

    At this moment many good and established Appraisers are being kicked to the curb as soon as the “client” can find anyone who is complicit in “hitting the #” and turn time “desired” in exchange for a % of a fee that does not allow us the Resources to perform at this level.

    I always had a staff person or 2 for 15 years before HVCC – since Dudd-Fwank it’s just been me and a 10 year old car trying to get the work done alone while avoiding the constant barrage of demeaning and TIME wasting status and update requests.

    Get the resources and TIME back to where it is needed – the Appraiser!!  and most of these “problems” will be corrected.

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    • Baggins Baggins says:

      If there is one great thing I took away from the instant substitutability events, I’ve learned that goes both directions. Why they’d want me to pick up the phone and land a new client remains a mystery. But certainly, all it takes is a day or two most, some calls, some emails, perhaps a follow up. Sold! Direct assignments, flat rates, C&R or better. It’s not rocket science. Amc’s are like telemarketers, constantly recycling an ever reducing contact list. Eventually this time had to come. Major lenders nationwide have recently tested the market and ‘went direct’ within the past year or two, some more recently. The time is now to lift up, market again, and promote this return to distribution sanity. I remain mystified how appraisers allow themselves to be sold on the merits of completing their own services for a reduced payout amount. Most ridiculous sales tactic ever, which is a testament to appraiser incompetence for appraisers whom say yes. Complaining on boards or to government won’t help those guys, it’s up to them to help themselves, 1099 appraisal service is still to this day a free market. Special insider tip; If the panel manager is a licensed appraiser, that’s better than even higher paying leads where the managers are not appraisers, prioritize the appraiser ran panels first above all others. In the amc world, those managers are puppets, but in lender direct, they’re employees of the bank whom hold a client duty to not screw things up. Where as with amc’s, their client obligations are more profit and bottom line focused. It’s like salaried vs commissioned lending. direct vs amc and appraiser managed panels vs non appraiser managed panels is truly like day vs night. When you’re managing your manager, that’s when you know…

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  3. Baggins Baggins says:

    This caught my eye while surfing today. Related, mismo spring summit, Denver, CO.

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    • Baggins Baggins says:

      Related again, mismo home page. Hey, look how amc’s are noted first, appraisers come second. Bias?

      Property & Valuation Services WG | MISMO

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      • ——– Original Message ——–
        Subject: MISMO – BOARD OF DIRECTORS
        From: <janbellas@appraisersguild.org>
        Date: Fri, May 04, 2018 10:29 am
        To: “‘Jan Bellas'” <janbellas@appraisersguild.org>
        Cc: <mike@mfford.com>

        MISMO | About MISMO | MISMO Connect | Join MISMO Contact Us

        Top of Form

        Board of Directors
        MISMO Board members are appointed by MISMO’s parent corporation, the Mortgage Bankers Association. The Chairman and Vice Chairman of the MISMO Board are appointed by the Mortgage Bankers Association. Ex officio representatives from the various Committees which report to the MISMO Board are elected by their respective committees on an annual basis.

        The current members of the MISMO Board of Directors are as follows:

        Chair Michelle Korsmo, Chief Executive Officer, American Land Title Association Members
        Nancy Alley, Vice President of Strategic Planning, Simplifile [electronic recording and coordinating service https://simplifile.com/ ]                                             
        Bill Beckmann, President and Chief Executive Officer, MERSCORP Holdings, Inc [ownership rights free public access https://www.mersinc.org/about GOOD LINK TO HAVE]
        Pete Carroll, Executive, Public Policy and Industry Relations, Core Logic 
        Andy Crisenbery, Senior Vice President, Business Operations and Strategic Partnerships, Black Knight
        Mike Fratantoni, President of MISMO and Chief Economist, Senior Vice President of Research and Technology, MBA                                                            
        Tricia McClung, SVP Enterprise Data Governance Execution,SunTrust Mortgage
        Kurt Pfotenhauer, Vice Chairman, First American Title Insurance
        Ken Rivkin, Global Head of Commercial Real Estate and Managing Director, Auction.com a Ten-X Company                                                                      
        Donald Smith, CIO, Common Securitization Solutions
        Joseph Tyrrell, Senior Vice President Corporate Strategy, Ellie Mae
        Caroline Watteeuw, CIO, Caliber Home Loans

        Ex-Officio Rep. / Chair of Strategic Planning
        Matt Seu, Partner, Actualize Consulting Services
        Ex-Officio Rep. / Chair of Residential Governance
        Randy Poirier, Vice President of Data Solutions, Black Knight 
        Ex-Officio Rep. / Chair of Commercial Governance
        Brian Hunt, Multifamily Financial Operations and Analytics, Fannie Mae
        Ex-Officio Rep. / Chair of Education
        Charles Epperson, Chief Technology Officer, Signia Docs and MRN Cubed

        MISMO | Terms and Conditions | Privacy Policy | MISMO Policies and Procedures | Site Map | Contact Us | MISMO Bylaws
        © 2017 Mortgage Industry Standards Maintenance Organization. All rights reserved.

        *I annotated items inside brackets [ ], mike

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  4. There were no appraisers noted as sponsors or board members when I checked. I did not at your link that First American Mortgage Solutions (originator of the now infamous PACE PRO product and owner of ACI software is listed with Black Knight (Assurant/LenderX) I believe. AMC and title insurance hacks.

    What could go wrong with First American and Corelogic both represented or influencing direction?

    FTC ARE YOU LISTENING??? THIS is where the anti competitive policies are being cooked up.

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  5. ——– Original Message ——–
    Subject: MISMO – BOARD OF DIRECTORS
    From: <janbellas@appraisersguild.org>
    Date: Fri, May 04, 2018 10:29 am
    To: “‘Jan Bellas'” <janbellas@appraisersguild.org>
    Cc: <mike@mfford.com>

    MISMO | About MISMO | MISMO Connect | Join MISMO Contact Us

    Top of Form

    Board of Directors
    MISMO Board members are appointed by MISMO’s parent corporation, the Mortgage Bankers Association. The Chairman and Vice Chairman of the MISMO Board are appointed by the Mortgage Bankers Association. Ex officio representatives from the various Committees which report to the MISMO Board are elected by their respective committees on an annual basis.

    The current members of the MISMO Board of Directors are as follows:

    Chair Michelle Korsmo, Chief Executive Officer, American Land Title Association Members
    Nancy Alley, Vice President of Strategic Planning, Simplifile [electronic recording and coordinating service https://simplifile.com/ ]                                             
    Bill Beckmann, President and Chief Executive Officer, MERSCORP Holdings, Inc [ownership rights free public access https://www.mersinc.org/about GOOD LINK TO HAVE]
    Pete Carroll, Executive, Public Policy and Industry Relations, Core Logic 
    Andy Crisenbery, Senior Vice President, Business Operations and Strategic Partnerships, Black Knight
    Mike Fratantoni, President of MISMO and Chief Economist, Senior Vice President of Research and Technology, MBA                                                            
    Tricia McClung, SVP Enterprise Data Governance Execution,SunTrust Mortgage
    Kurt Pfotenhauer, Vice Chairman, First American Title Insurance
    Ken Rivkin, Global Head of Commercial Real Estate and Managing Director, Auction.com a Ten-X Company                                                                      
    Donald Smith, CIO, Common Securitization Solutions
    Joseph Tyrrell, Senior Vice President Corporate Strategy, Ellie Mae
    Caroline Watteeuw, CIO, Caliber Home Loans

    Ex-Officio Rep. / Chair of Strategic Planning
    Matt Seu, Partner, Actualize Consulting Services
    Ex-Officio Rep. / Chair of Residential Governance
    Randy Poirier, Vice President of Data Solutions, Black Knight 
    Ex-Officio Rep. / Chair of Commercial Governance
    Brian Hunt, Multifamily Financial Operations and Analytics, Fannie Mae
    Ex-Officio Rep. / Chair of Education
    Charles Epperson, Chief Technology Officer, Signia Docs and MRN Cubed

    MISMO | Terms and Conditions | Privacy Policy | MISMO Policies and Procedures | Site Map | Contact Us | MISMO Bylaws
    © 2017 Mortgage Industry Standards Maintenance Organization. All rights reserved.

    *I annotated items inside brackets [ ], mike

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Who’s to Blame?

by Michael Ford time to read: 7 min