BPC Report: Eliminate GSEs, Rethink Appraisal Processes
A Bipartisan Policy Center report released Feb. 25 primarily focused on reducing the government’s role in the nation’s housing finance system, but it also proposed changes to current appraisal policy.
Appraisal-specific recommendations contained within the 136-page report, titled “Housing America’s Future: New Directions for National Policy,” focused on banning the use of distressed home sales as comparables by appraisers, a practice the BPC said was helping to depress local home values and impacting buyers’ ability to secure financing.
The report suggested that Fannie Mae, Freddie Mac and the Federal Housing Administration should refuse to accept distressed sales as valid comps, which would force a reassessment of non-distressed properties.
The report stated that “distressed property sales continue to be recorded and used as comps in appraisals of non-distressed (retail) properties, a practice that depresses local home values and impacts would-be homebuyers’ ability to secure financing. In some markets, demand for multiple reappraisals, sometimes just days before closing, also introduces substantial uncertainty into the home-buying process and can derail sales and disrupt the plans of homebuyers and sellers.”
The BCP’s recommendations for a reduced government role in housing included phasing out the government-sponsored enterprises and replacing them with a public guarantor that would oversee a new mortgage market. Banks and other private firms would originate loans and issue mortgage-backed securities through the new market.
Such a proposal would require private insurance companies to guarantee the mortgages and cover losses in the event of default. The public guarantor only would come into play in the event that private insurers were wiped out. A fee paid on each issue of mortgage-backed securities would fund that public guarantor’s federal insurance pool.
The public guarantor also would determine what mortgage products would be eligible for government backing. BPC suggested limiting mortgage loans eligible for backing to $275,000 rather than the current national limit of $417,000.
The BPC proposal also supported the idea that the government should continue to play a role in housing by allowing borrowers access to low-cost, 30-year fixed-rate loans. The proposal acknowledged that the government would still step in in the event of a bust, but not to the degree of the 2008 crisis. The BPC called it a “guarantee of last resort.”
The BPC said its report could serve as an outline for the U.S. Department of the Treasury to create its own proposal for a housing market overhaul.
The BPC Housing Commission is led by former U.S. Sens. George Mitchell, a Democrat, and Mel Martinez and Kit Bond, both Republicans, as well as former U.S. Housing and Urban Development Secretary Henry Cisneros.
Read the Bipartisan Policy Center report below.
~ Source Appraisal Institute (AI)
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Rather than another useless one size fits all solution, why not turn the bad appraisals in to state regulators?
If I believe a distressed sale comparable is relevant for a specific reason, then the burden is on me to report what that reason is and to justify reliance on it.
IF one is selling a non distressed property in a market that is dominated by distressed sales, then it IS an appropriate market value indicator.
We understand the nuances between market value and use of distressed property comparables. I cannot imagine any GOOD appraiser opting to use a distress sale comparable over a non distress sale IF the latter are reasonably available AND indicative of prevailing market conditions.
Now, I have seen it happen quite a bit where low fee; rushed appraisal turn times result in appraisers that don’t know any better, using non market transaction sales because they never bothered to check or adequately research them.
That’s a different circumstance completely.
IF you ban the use of a distress sale, then what happens when that “distress” sale is the HIGHEST sale (divorce sale that sells high anyway)? What happens where there are 20 listings (all short sales); and 10 recent similar sales of which 9 were REO resales or short sales? Use the one ‘non distress sale that was on the market for seven months and sold with closing costs paid and a new car thrown in as boot? (OK I exaggerated), but you get the idea.
Let us do our jobs.
Then hold us accountable for making sure we did them correctly. Don’t micro manage the process further.
I research all my comparables. IF a middle range comp happens to be sold under ‘distress’ condition perceptions, unless it ALSO sold for LESS than market value, there is no reason it cannot be used.
Instead of FNMA ‘bans’ that affect the basic procedure of R.E. Appraisal, lets simply describe the very valid concern and instruct appraisers to be aware of it.
IF an appraiser uses one or more distress sales that DO result in a lower value, then there is a valid basis for requesting reconsideration; OR possibly turning the appraisal into regulators for their review.