The Collective Rot
The Collective Rot Growing Within the Shadows of the Great Real Estate Depression
We are just 11 years past the beginning of the Great Recession. Some estimate the US suffered a $14 trillion loss in wealth. Others estimated the loss as high as $21 trillion. This event is more commonly referred to as The Great Real Estate Depression by those of us who are or were in the real estate industry back then. About 8.7 million jobs were lost, GDP contracted 4.2% and nine million families lost their homes due to foreclosure. Millions of families are still trying to recover from their losses. That is the damage caused just within the real estate industry. For many, it has been a decade of lost opportunity, a decade of survival instead of economic growth. Many have still not clawed their way back to their pre-recession level of financial stability. Most Americans still aren’t as rich as they were before. The pain still lingers and it appears that the Bankers and Regulators are at it again.
Our bankers and regulators (more accurately described as facilitators) have declared war on the Appraisal Industry on four fronts:
- Appraisal Waivers – Fannie Mae instituted a program to waive the requirement for an appraisal thru their Desktop Underwriter. Freddie Mac followed with a similar program. Is it prudent for Fannie and Freddie, both still in a conservatorship, to be waiving any appraisals on loans? I think not!
- Raising the De Minimis – The FDIC, Federal Reserve, and the Comptroller of the Currency raised the loan “de minimis” (definition: too trivial or minor to merit consideration) on some commercial real estate transactions from $250,000 to $400,000. Then, the NCUA Board of Directors quadrupled – from $250,000 to $1 million – the appraisal threshold for nonresidential real estate loans. Later in August of 2019, FDIC raised the de minimis loan value from $250,000 to $400,000, to loans wholly or partially insured or guaranteed by, or eligible for sale to, a government agency or government-sponsored agency. Appraisers fear that “some loans” would soon become “all loans” under $400,000 and that some commercial transactions would soon become all real estate transactions. Read what Ken Harney had to say about all of this. btw: approximately 38% of the active residential listings in our MLS are priced at $400,000 or less.
- New Valuation Products – They’re fast and cheap and many of them can be manipulated by the lender to produce acceptable underwriting results. These alternative valuation products are being pushed on to the consumer as a replacement for the time tested, standard URAR 1004 appraisal. These new valuation products include AVM’s (Automatic Valuation Models like a Zestimate), Desktop appraisals, Hybrid appraisals, Drive By appraisals, BPO’s, and Evaluations. These products are designed and intended to minimize the role of the appraiser in the lending transaction, remove the appraiser entirely from the lending transaction, and/or reduce the time and cost of loan processing. None of these products are considered to be as accurate as the standard appraisal and none of them are intended to protect the public trust.
- Disinformation – A disinformation program intended to discredit the appraisal and appraisers. The banking industry has proclaimed that the new alternative valuation products built with big data and algorithms, can be just as accurate as and can replace the standard appraisal. The banking industry has asserted that there is a shortage of appraisers in this country and that this shortage has caused the time and cost of an appraisal to escalate and slow loan processing. This “shortage of appraisers” myth has been proven to be false and time and cost savings can best be found within the AMC model.
The banking industry is looking for ways to extend revenue streams and increase profits. Anything they can do to take control of the appraisal industry will work to their benefit. So, the doors are being opened once again by the Regulators to allow lenders to abuse the system, make risky loans and make imprudent lending decisions all in the name of greater profits. The stage is being set. And if their aggressive moves result in another meltdown in the real estate industry, so what! The government will be forced once again to bail them out on the backs of the US taxpayer.
Appraisers Petition:
Appraisers Warned The World In The Late 1990s And No One Listened.
It Is Now Time To Listen Again as History is About to Repeat Itself.
Prior to The Great Real Estate Depression, appraisers across the country became so alarmed about the unfair, fraudulent, and imprudent lending practices within the appraisal industry that they created and signed the Appraisers Petition urging the US Congress to stop the nonsense. Over 11,000 appraisers signed that petition and presented it to the Congress. The US Congress completely ignored it and, as a result, The Great Real Estate Depression followed.
Déjà vu: Or is it Déjà Poo (I’ve heard this crap before)?
I am proud to say, I was one of those appraisers who signed that petition. I was alarmed back then and today, I am alarmed again. Not long ago, I signed another similar appraiser petition. You can sign it too. Just click on: Take the next step! It is addressed to the FDIC, Federal Reserve, United Sates Department of the Treasury, and President Donald Trump.
Learning from past mistakes:
“We pulled back from the brink of depression only through a massive and unprecedented infusion of public dollars in the banking system, and in other systemically important firms, to prevent collapse. In other words, the public was forced into a position where it had to put a lot on the line to save the financial system from its own follies and from total ruin. And many were bitter about having to do so.
Now, it is time to pay back the American citizenry in full, and not just in the literal sense, but in the sense that there must be reciprocity and mutuality in our structuring of economic policy so that we do not travel this low road again. Bluntly stated, the government reluctantly provided the taxpayer funds necessary to unfreeze the financial markets and get our financial institutions on their feet again, with the expectation that the benefits would be directly meaningful to those taxpayers in their households and communities.
The financial institutions that have been bolstered directly and indirectly by government subsidy and aid must now seek to support those who have been buffeted and injured by the housing crisis.
This must go beyond the corrective actions that need to be taken to rectify current deficiencies. It means that financial institutions need to understand the effects their actions will have on consumers and the country as a whole, and factor those considerations in to their business decisions. This is the high road–a moral and economic imperative that must be the driving purpose that unifies and animates our efforts. Indeed, the high road demands that we become effective institutional innovators for positive changes in our communities and for housing practices that promote community well-being. When we traveled the low road, the only question was: Will this practice make me rich? Taking the high road means we continually ask: Do our financial and legal arrangements contribute to the public welfare and the common good?”
Remarks by Fed Governor Sarah Bloom Raskin – February 11, 2011
The next recession has already started.
- The Greatest Recession - April 10, 2020
- Appraisal Inspection Procedures & Protocols - March 9, 2020
- Coronavirus Will Cause Our Next Recession - March 4, 2020
Appraiser’s are only a necessary evil and a hurdle for the lenders, sellers and buyers. We will no longer be necessary soon after all the big wigs get their say. Then they can loan money to anyone on anything without any worry about we lowly appraiser’s cutting a deal…… Let’s see how that pans out.
https://www.insider-monitor.com/trading/cik36047.html
This represents the “Collective Rot” of inside trading of CoreLogic’s executive team.
Notice how much “insider buying” has taken place in recent years as they have TANKED the appraisal industry…… IT’S BASICALLY ZERO
Corporation buys back shares to bolster share price……
THEN INSIDERS SELL OUT…….like scared mice jumping off a sinking ship.
there is nobody to report this to with the trump administration covering up for his participation in insider trading; he is manipulating the stock market and he and his cronies are getting rich; and appraisers are wondering what happened? we have to vote this pig out!
One definition of insanity is to keep doing the same things that did not work before, and expecting the results to be different this time.
While we were all brought up to believe in the power of petitions, the fact is that they simply do not work at a federal level; and rarely at a state level in the larger states. They may serve as an effective rallying point, but absent some other actions specific to the problem, they don’t achieve anything. Sincerest apologies to the author. I wish this were not the case.
It’s like trying to fight a 21st Century war using the same strategies and Weapons that Napoleon or Alexander used. I applaud the effort but not wasted energy. They also diffuse other, more effective opportunities and efforts and effecting change. More effective means need to be employed. Bipartisan means where possible.
Federal politicians need every issue couched in ways that can make them look good to their constituents if/when they help (SPECIFIC constituents in this instance). Unions tie all issues to labor concerns; AARP ties them to age and seniors; NAACP ties them to equality, National Chamber of Commerce ties them to business needs and NAR ties them to real estate SALES needs.
Beyond the basic tie, there is the need for overriding reinforcement of benefits to (1) voters (2) taxpayers (3) consumers (4) business needs. One size fits all altruistic petitions to our regulators DOES NOT GET LAWS CHANGED! Regulator letters help on certain issues such as waivers in a given state by ASC, but even there perceived constituency needs trump letters. Look at North Dakota.
The final element of effective lobbying or advocacy is directing the plea to the right person, party or agency. Heads of government agencies work for the President. Sometimes that may be favorable to appraisers; other times it is very unfavorable. Mostly it results in polite generic “We are really concerned about this issue, blah, blah, blah…” do-nothing replies. Federal Agency Heads are NOT GOING TO buck their boss! Similarly, they are not going to say or do anything that gives the ‘other’ party leverage against their boss.
Today, the one single entity with the most direct influence over all issues appraisers face is the House Financial Services Committee Chaired by Maxine Waters (D-CA) & previously chaired by Jeb Hensarling (R-TX). Regardless of how an appraiser feels personally about either of these Congress Members, it is foolish to think they can be ignored; or that insults toward either sides party will achieve positive results for us.
Democrat appraisers will like her language. Republican appraisers will be offended by the anti-President Trump rhetoric. Independents will fall toward either camp. It’s a mistake to get bogged down in the rhetoric for or against either side and ignore the bigger issues being discussed AND ADOPTED in this House Committee.
Appraisers need to remember that other than FIRREA as originally passed; Dodd-Frank and creation of CFPB are the ONLY federal actions that have had any hint of benefit to appraisers & appraisal integrity. We don’t have to ‘like’ any of these bills or agency creation (CFPB) from our own taxpayer/voter perspectives but never forget for a minute that they are the only legislation passed at the federal level that had any hint of protection of our professional standards and needs for independence.
The article was right in many frightening areas. ‘Something’ does need to be done. Actually many ‘somethings’ need to be done. Since appraisers are terribly divided on the nature of the problems as well as solutions, those many different things are not going to have wide support from all segments of our profession.
Don’t forget that huge portions of our profession are employed directly by banks, AMCs, regulatory agencies, and ancillary or parasitic business advocacy groups. Some will have to be worked with. Others will have to be overcome.
The very first step is in joining a state coalition that has proven itself to be actively engaged in these issues. Then also joining a professional peer association that is similarly engaged. ASA, AI, and AGA are such organizations. Keep in mind though that each of their mandates from their membership is different. So too, will be their most probable solution ideas.
In any case, these are the very first steps. Then remember that we have unenforced C&R fees and laws already passed in some states that are on hold until the Louisiana case v FTC is resolved. While equally important additional issues have developed since C&R, that is still the core issue that affects all others.
A relatively new or recent development is the conceptual AND actual abandonment by state regulatory agencies and ASC that regulators must comply with USPAP SR3 or SR4 in determining OUR compliance with USPAP. Hand in hand with that is the successfully adopted misuse of CU from pure collateral risk rating software to appraiser grading and rating software; followed by every Tom, Dick and Harry software designers own proprietary version of the same thing. Anyone remember FNMAS PROMISES back when CU was released that it would NOT be used to grade or rate appraisers?
FNMA LIED.
Impact? THESE non compliant, phony risk rating algorithm based appraisal software ‘analytics’ ARE BEING IMPROPERLY & often ILLEGALLY USED AS THE SOLE BASIS FOR TUNING APPRAISERS INTO THEIR STATES FOR alleged USPAP VIOLATIONS!
Mr. Rossiter is right in warning that something must be done. I respectfully disagree with what that ‘something’ should be. A petition that fails to specifically state what legislators need to do to fix all our problems creates a false sense of accomplishment to the signers. That, in turn, dilutes other, potentially more focused efforts to resolve specific critical collective problems.
Many thanks to Mr. Rossiter for the necessary thought and discussion his article may generate.
It would help if they actually knew what we do. Spend a day with a boots on the ground appraiser, observing the property, measuring, photographing, drawing, copious note taking. The report itself; researching, detailing, composing, analyzing, verifying, reporting. Comp photos being chased by homeowners with guns, unaware of what we are doing. Then there are the rules, guidelines, laws and reporting requirements. By time we’re done, we have spent the better part if 6-8 hours on one report. It should truly be within the scope of their required work that they know what they are talking about, instead of listening to the bs being thrown out there by those who have skin in the game and the most to gain by reducing our profession to a pile of rubble.
Boring people to death has a strange way of being counter productive to the cause. Don’t worry, the politicians on the hill will get along and behave in a non partisan way when it comes time to sell the American people down the river for a quick corporate buck. Besides, it’s all voluntary. People whom don’t take on the debt and lending commitments don’t have the same risk factors.
Jeb Hensarling (R-TX) is one of the stupidist texans, and I know most of them are impressed by the trump cult! if you don’t want me to speak truth to other appraisers then you can kick me off this blog; I only get irritated when I know trump is a liar, a thief, a kleptomaniac and is getting help from russia in this upcoming election. I hope appraisers wake up and vote against this cult leader!
There are zero appraisers, realtors or investors that want to see bifurcation. The realtors I have met have all complained about these unlicensed individuals coming out to see sale listings. Bifurcation is a hoax being pushed by non-appraisers who have everything to gain by selling their software or other tools of manipulation. As long as REVAA is allowed to have a voice in D.C. the appraiser will continue to suffer. Only the appraisal management companies and lenders benefit by removing the appraiser and utilizing unskilled and unlicensed individuals. This week I completed 5 appraisal do overs because the bifurcation inspection was flawed and unusable. Im being bombarded by theses bifurcation companies to sign up and complete these flawed assignments of $50. These bifurcated appraisals are not even USPAP compliant! Corporations have no reason to be in the appraisal business other than to steal the appraiser’s fee. As we all know there is no appraiser shortage which is demonstrated daily by the $200 appraisal order blasts which drag for days until the AMCs finally has to pay reasonable and customary fees. It is the borrower and the appraiser who suffers now. Once the wall street investors begin to loose thats when It will gain national attention. I urge every appraiser to say no. I am 100% all for joining a class action lawsuit to put an end to this dysfunction. Lastly I just want to say all the appraisers that work at fannie mae I hope you have job security as you have been aiding in the downfall of your own profession! Good luck making a living off a handful of $50 bifurcation appraisals!!!! I determine the steps necessary to produce credible results Not Fannie Mae!
Pretty close to the mark. Exceptions noted: Several AMCs I’ve spoken with prefer a ‘cost-plus’ business model. The one size fits all national pricing pioneered by Coester VMS may be preferred by lenders, but it only causes problems for AMCs wo are expected to ‘make it fit’ when a fee is inadequate for an assignment.
There are also different kinds of AMCs. The kind that sells their service based on providing sound management and USPAP compliance which replaces the need for a lender to maintain the overhead of running their own national appraisal departments; and the others (such as Corelogic) that sell theirs based purely on market presence; and meaningful QC be damned. AMCs are NOT going away-though AMS may make a dent in their volume too.
FNMA appraisers have been reportedly told specifically to run known bad loan deals through by ignoring collateral deficiencies. They have no need to impose a repurchase, or even repricing obligation if there are no deficiencies. Some state they have been terminated for refusing to do so. (Yes, AGA has former FNMA appraisers as part of our membership).
Until all appraisal organizations can come together in a united front on opposing this hybrid garbage, the best and only effective means of stopping these things is for all appraisers to stop doing them!
people who work for fannie in the decision-making circle don’t care one bit about fairness, objectivity, or ethics in our work. they will only be happy when we are all out of work; then they can order appraisals from realtors who are gearing up to take our work and do computerized valuations that are driven by mls algorithms. wake up people, fannie makes a killing when we have a crash; they are helping engineer the next crash so people like mnuchin can take our homes if they are over-leveraged and prices go down.
“Honk if I’m paying your mortgage, AGAIN.” New bumper sticker and T shirt designs for 2020.
It’s all ramping up and it’s going to happen.
The baby boomers are tapped out you know. Wall Street was having a tough time bringing them back to the table, after fleecing them repeatedly over decades. Out with the old, in with the new.
Surprisingly, housing consumers jumped right back into aggressive mortgage lending and did not give a hoot about using their homes as ATM’s or the consequences of rampant inflation and runaway taxation.
REO is easy, provides a lot of investment opportunity for everyone not loaded up in debt. It was so wildly successful last time around, they can’t wait to do it again. I’m ready, are you?
“There is no such thing as safe debt.” Know your history, or be condemned to repeat it.