ASA Concerned About the Expansion of FNMA Appraisal Waiver Program
In response to the Federal Housing Finance Agency’s (FHFA) decision to allow Fannie Mae to expand its appraisal waiver program, the American Society of Appraisers (ASA) has released an op-ed by ASA’s Strategic Partnership Officer, John D. Russell, JD, criticizing this move. ASA believes that by expanding the appraisal waiver program and relying on data and models for mortgage lending instead of human interaction, Fannie Mae is leaving behind two very important aspects: safety and soundness as well as consumer protection. The fear is that overvaluation may occur due to a reliance on models which always try to chase value upwards but struggle in markets where real estate prices are either flat or declining. Furthermore, with “value acceptance” there will be no warranty or reprieve for Fannie Mae when markets turn downward.
Russel expresses concern about potential overvaluation due to lack of appraisals, noting that such a situation would put taxpayers “holding the bag” if loans are made and sold based on inaccurate information. Furthermore, he argues that models and data collectors cannot replace experienced appraisers who can provide accurate valuations with their expertise; thus relying solely on technology may lead to repeating mistakes from two decades ago which caused significant financial losses for many homeowners as well as lenders.
Russell argues that agents and brokers have a direct financial incentive to see deals consummated for the highest possible selling price due to percentage-based commissions. Home inspections are unreliable at best and more buyers are waiving them in order to sweeten offers and speed up closing timelines. Mortgage originators also want quick transactions in order to capture as much margin as possible per loan through their lending pipelines. The only remaining safeguard left for homebuyers is an appraiser who can provide an objective opinion on the property’s value from a professional perspective, which no other party has reason or incentive do so.
In closing, he offers advice on how appraisers can find new clients by working directly with buyers who are interested in knowing the value of their home, exploring non-lending work opportunities and upgrade their credentials seeking a designation to grow professionally while navigating these changes brought about by automated systems like Fannie Mae’s appraisal waiver program.
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This is an unbelievable and accurate account of what is about to transpire. It’s up to each of us to send this EVERYWHERE!!!
Congress, Realtors, Lenders, and social media!!
This is so asinine that the pubic will certainly be vocal.
Terrific performance John Russell!!!!
Also at this time, the government moving to AI has been curtailed due to opinions by individuals such as Elon Musk pointing out failures in the system. Interesting to note is while everyone else seems to “get it” FNMA is hell bent on implementing the exact format now being shunned by government agencies as unreliable and potentially dangerous. Kind of makes you wonder how FNMA thinks they know more than everyone else. In reality, we all know why.
Agreed. This is an excellent letter.
One thing about “big data” – it has a relatively short shelf-life and without new inputs it gets stale rather quickly. With the steep decline in sales (since 70%+ of all 1st mortgages are below 4%), at what point does the incoming sale numbers used to populate the databases fall below a threshold where the output is reliable? Historically, about 3% of houses trade in any given year. That number is much lower now. So, out of ten thousand homes . . . 300 end up selling in a normal market, or 25 per month. That figure might be 100/year or below now. Is that statistically significant enough to keep the databases “fresh”? And is that sufficient to track market trends that are changing on a monthly basis?
While the Central Limit Theorem indicates that at least 20 randomly distributed samples (most appraiser texts use the 30 number) from a population are required to test a hypothesis and determine an inference, I would question whether the sample of the population is actually representative of the real population of the market place. In a nutshell, while the GSEs may be getting a result, I would opine that the sample of the very small sub-population (of the greater population that isn’t represented) under examination may not be enough to provide credible results; ie: data is stale. Moreover, the outliers tend to have an outsized impact on the results.
Here in California, the BREA is in a death-spiral as the number of licensees continues to decline. One of the consequences of removing licensed appraisers from the valuation process is the further dissilusionnment of new licensees and trainees. This will further stress the budgets of state licensing agencies. The BREA had to increase dues by about 40% to cover their operating budget, further exacerbating the decline.
What is the supportable demand for appraisal services and how many licensees are required to meet the demand? What is the minimum number of dues-paying licensees required to maintain state licensing budgets? Currently, the gap appears quite wide. Could the BREA function with 5,000 licensees? 6,000? Likely, no, which would require major structural changes and staffing cuts. No doubt other states are also facing the same problems. These are the direct consequences of FNMA’s embrace of the elimination of the appraiser, which will impact the profession for a very long time. Young people simply won’t pursue a career as an appraiser. This will impact education budgets and teacher salaries, which will further erode the passing along the body-of-knowledge from one generation to the next. The GSE’s are sadly perpetuating the death of the profession, in my opinion.
I agree with you that the sample is too small, and the neighborhood too defined. the market is defined by all the homes in it, the 900’s the 1200’s clear up to the 2400’s+. A sample of 300 over a six-month period is not excessive. An appraiser may even recognize a seasonal trend, or data supporting demand, v supply.
I have found that neighborhood activity typically moves around 6%-7% of the homes a month. Trailer parks 10%, woops improper term
Let’s see REVAA, Fannie Mae and The Appraisal Foundation are all located on 15th St in D.C. It’s over game set and match. A coordinated effort using “bias” and the New York Times, NPR etc. To take us all down. What really bothers me is the amount of appraisals and hard work I did during COVID doing my part to keep the wheels of commerce moving in a time of great uncertainty. I must have done a thousand appraisals and if you took all the appraisals everyone completed and divided them by the amount of a bias claims you would have the exact opposite of widespread bias. Someone needs to take a statistics class already but that just goes to show this is a political issue and the big players are all on 15th St in Washington D.C. while we’re on a chat board…
Maby appraisers should strive as a boutique, rather than a profession.
5, or 6,000 members could serve a public who understands what the need is.
Statistics need not be addressed, Excell and sorting of the available data clearly shout trends, activity, and, and Maby whisper futures, no algorithm needed.
PAREA is only going to attract unscrupulous actors looking for a quick buck that will do the bidding of clients looking for unethical appraisers.
Waivers, Big data, AI are as good as long as you have a steady flow of updated information. Removing the appraiser’s the vanguards of this nations REAL WEALTH is “ripe” for fraud and the destruction of the economy as a whole. With this current administrations daily dealings; I guess that is the point. But I digress.
An awesome letter that will fall on deaf ears by the organizations that need to hear it most.
Great letter John!
If you’re looking for someone with integrity who can get results quickly, then look no further than John – your best bet for getting attention from those in power at the national level!
We all need to jump in and get widely distributed.
I know this is a long shot (better than no shot at all), maybe the embarrassment of what they’re trying to do will get cooler heads to prevail!
I know that this WILL NOT receive ANY TRACTION; WE ALL NEED TO STOP WORKING FOR A 4-6 WEEKS.
Um… I’ve taken entire blocks of 3-6 months off several times over the course of so many years. There is no greater objection than absence but alternatively, the principal of substitution and all. Only a scarce few people actually missed me, there was no surprise or inquisition when I returned. I’m going to keep working, if I need to or am so inclined to continue moving ahead. However, I do continue to refuse service to appraisal management companies. Refocus that argument to simply boycott amc work. Oh, we’re getting traction.
For the longest time I was approved with nearly every amc in this country, and rotated through most of them at one point or another. They’re all the same and direct lending assignments is night and day vs amc work. So is repossession and forensic review, if you’re brave enough to tap into those. Not for the faint of heart though. If you think you’ve seen it all, you’ve never worked with default managers and forensic review firms. I nearly died of absolute disgust just last month as I voluntarily wore a mask, then subsequently had to throw up in the back yard of what me and the list agent now lovingly refer to as the dog terd double wide. Why do people whom can’t manage animals always gravitate to manufactured homes? I was pretty sure I took home some lice or bed bugs and subsequently stripped down in the garage and washed everything down to a toothbrush on my shoes and the cover alls. I’m certain I swallowed a flea or something. I nearly died right there and then while I all alone in the middle of nowhere, while chocking on whatever I breathed in, slipped on a terd, subsequently fell to my knees into the terds, right there in the living room. It was on the walls. And I put my hand on the wall to brace the fall. Because you know, if you’re in it, take it all the way. No regrets. Last week I was in the hood and watched a guard dog attack a half naked homeless guy whom got bit in the leg but it seemed like he did not even know it happened, and he just walked on. My truck died in my driveway and I was lucky to not get stranded down there.
That is how much I despise the appraisal management industry, because I’d rather be that homeless guy than work with appraisal management companies. I don’t even market anymore. Somehow, I stay busy. You’d make a more positive contribution by working more and joining the AGA or something along those lines. My appraisal pal is pessimistic too. He tells me you’ll never make a difference in this industry, quit wasting your time. Sometimes I think he’s right, and then the direct assignment work orders hit the email and I’m back at costco buying ribeyes and frozen organic veggies.
Make the most of it. Current status; finishing a report then spending the entire weekend under the hood to somehow get the truck started again and then pass emissions. I need everything too, fuel filter, brakes, vapor system items, belt, alternator, cap and rotor. I’m going to be in there, becoming one with the steel, metallica black album in the back ground. It’s ridiculous but I’m going to get er done and I bought these new e3 plugs and some octane boost which will probably fry my o2 censor but I’m going to use it anyways, because it’s awesome to rumble and there is no other way short of disassembly to flush the hard caked carbon deposits out. You need the heat, if you want the flush. Unlike the people whom can only make a living with cell phone apps, or whom spend their entire lives chained to desks in tiny dream killing office cubicles waiting for the sweet relief of death, I have real world skills too. Spring gardening is just around the corner, it’s going to be epic. The free ride bureaucrats whom refer to themselves as qualified GSE managers have underestimated the appraisers for too long. We’re not going to stop and will be there every step of the way highlighting the incompetency of appraisal modernization systems and the fictitious appraisers are racist narrative. We’ll watch them come and go as the system tanks. They’ll eventually be gone, and we’ll still be here making it work.
Baggins, I love your point of view, and I hope you’re right.
Ah, the GSE’s. They know something needs to be done but they don’t quite have a handle on what that is or how to go about it. It’s like being in the dark and blindly reaching for a light switch – you may end up turning off all the lights instead of just one! We can only watch as these changes are made with bated breath but we know they will end up creating more of a mess than anything from their fumbling efforts.
I like your take on the issue JM2C. Nice. I lost my temper the other day and rant posted.
Mr Baker, the above also details the various ways AI systems will fail. These systems are more biased than humans, and nowhere near as intelligent as they claim.
For the letter which is the content of this article, it was o.k. Not in agreement the sales comparison approach is problematic or inadequate though, the method of direct and local comparisons functions very well because it provides meaningful floor and ceiling benchmark indicators for current market valuations. A hard stop line which inhibits a great deal of aggressive and predatory representation. They’ll only realize what a mistake it was to depart from these principals until after the hard check to the balance is absent. As they’re completely overlooking the deterrent factor which prevents so much fraud and bias, due to the appraisers simple presence in the first place. Removing the basic principals of defining a minimum and a maximum in terms of fair market value on a micro analysis level, will be the mechanism by which rapid unchecked acceleration of pricing and over valuation could happen, vastly increasing the other risks the author talks about in terms of reliability and accountability issues revolving around the mortgage lending industry.
Additionally, Mr Russell, partner, get off the automated conveyor belt dude, just step out there without a phone, try to source more products locally, refuse to use self check out in the interest of more human jobs. People decry the system, while still supporting the systems and companies whom foist this unwelcome radical change upon us. The ending of the letter was disappointing though, this tired old line that abandoning GSE work to the bureaucrats is a workable solution. It is not. The largest provider of appraisal service requests is utterly failing and these radical alterations towards more automation could have dire consequences to everyone, especially to the most vulnerable people in our society, the youth, the uninformed, those just trying to scrape by. Nobody will be insulated from these detrimental effects of such vastly influential gargantuan sized so poorly managed government institutions. Just look the other way, pretend it’s not happening? Those independent requests will dry up in short order if the next generation does not have effective references for why they should care about independent checks and balances.
We have a responsibility to assure our own institutions are adequately managed and well functioning, otherwise what the hell do the GSE’s, and FDIC even still exist for, and shouldn’t the alternative argument be instead to wind these burdensome irresponsibly managed institutions down so risk management becomes once more a burden of the lender, not the taxpayer? The problem with the insider crew, they never advocate against their own positions. We should perhaps consider that we don’t need the government to have effective lending programs. That these incentives the institutions provide are nothing more than poisonous protectionism, doing more harm than good. Subsequently, if we could roll back this concept of infinite expansion of government institutions size, power, and influence, we would not need to fund or provide tax breaks to all the non profits whom thrive from the fact there are an excess of government funded institutions in the first place. It came from the depths, a deep current of terror will grip your soul as you’ll be unable to look away. You will realize there is no escape. Grind House presents; Rise of the non profits. Or something like that. Have a good one.
When your 1004 form has a different definition of the sale and terms of sale, you, the appraiser has a defensible position, enough to protect you and Maby your CLIENT.
The author speak of over valuation tendencies, however, we are pushing the concept far enough. Fannie has successfully pushed appraiser’s, in the mortgage space, how to write the reports, what terms and definitions are acceptable, but now they are trying to remove appraiser’s from the checks and balances. They insert themselves as the sole valuator, while remaining the largest buyer in the secondary markets. If they are the largest conglomerate of purchasing mortgage back securities in the secondary markets, how hard would it be for this single entity to manipulate the markets higher or lower. If they are can determine when the market rise and fall, they can then manipulate the Swap values on the secondary market. They literally could run the table on profits from both side of the value perspective. Markets running flat, oh we can fix that with tanking values and buying swaps. Values too low, we can fix that and drive the prices up, but then tank them when it suites them. There is a reason they were taken into conservatorship, yet they run over the rules and regulation that were installed to protect the consumer and tax payers.
FNMA definitions are stated, FNMA is A Client with stated goals. When the agent States the rules, you, The Appraiser, has to make a decision.
That is the over all point. They are taking the decision away from us at our own peril.
Not Our Peril, Our Agreement.