Appraisers = Buggy Whip Makers?
Appraisers Going the Way of the Buggy Whip Makers?
Ken Harney has another article all appraisers should read: Refinancing mortgage? Maybe you don’t need that appraisal after all
This discusses and discloses the Fannie and Freddie initiatives to eliminate appraisals ON CERTAIN TYPES OF LOANS.
Of course, the loan sellers/salespeople are all in favor of speeding up the process, eliminating costs, and promoting a ‘better relationship’ for their loan customers.
Appraisers, on the other hand, are wary of the processes which rely on dated property info kept in giant data bases, and disinterest by ‘those with the gold’ to really understand the property they are loaning on.
As Mr. Harney’s article mentions, appraisers are warning about the process which is akin to the low or no doc loans pushed and accepted back in the early to mid-2000’s, before the worldwide financial meltdown – which appraisers DID NOT CAUSE, by the way. Whether anybody actually listens is another matter because the whole focus is to SELL LOANS NOW regardless of future consequences.
Excerpt from the article:
Do we always need an appraiser to tell us what a house is worth? The two biggest sources of mortgage financing in the country — Freddie Mac and Fannie Mae — think not…Both companies emphasize that they only permit waivers of appraisals when they have substantial data on the property involved and the local real estate market….
Not surprisingly, appraisers view the whole trend as an impending nightmare — potentially sending them to the fate of buggy whip manufacturers, travel agents and others whose industries have been decimated by new technologies. Unlike buggy whip makers in an age of automobiles, however, appraisers argue that they have a legitimate, continuing role. There is simply no technological substitute for what they bring to the table: Eyes, ears, noses and the ability to independently analyze a home, its interior, the neighborhood environment and market conditions, and arrive at an accurate opinion of its current worth. Computer programs may be jam-packed with data and algorithms but they have no clue about what damage — or improvements — may be present inside a house.
Dave Towne on e-AppraisersDirectory.com
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- Cindy Chance Terminated - September 16, 2024
- Key Part of USPAP Not Available from TAF - July 19, 2024
Oh wow! I’ve got a Liberty Report article on this point exactly. In the absence of sanctioned gse activity, the free market would surely have much more robust checks and balances. I find the 12% volume cut from loan depot to be the most chilling aspect of this story. Just in Just in fresh off the press!; GSE’s have caused around 12% total work volume reduction on the entire appraisal industry. Everyone involved in mortgage lending just got a haircut. These approaches will not simply put more dollars in consumer pockets, although it may seem that way at first. Surely the arguments the data will get stale will eventually result in new jobs to cure that ailment. Then one wonders, why did they bother fostering new positions when the more accurate analysis provided by legitimate licensed appraisers was obviously the superior approach.
You can tell when you’re getting smoke blown in your face by lenders. Something about saving the borrower a dollar while the lender piledrives and tombstones customers around the ring, locking them into new 30’s left and right, constantly resetting term and rate to extend that ‘customer relationship’.
Fear of robots? An alternative viewpoint;
Myth-Busters: Is The Fear of Robots Overblown?
Sort of like a community that has reduced its crime rate to near zero firing half of it’s police force (the other half is still needed to do the non-crime stuff).
Imagine the shenanigans if the majority of the mortgages were made without an appraiser.
Having said that, the property being purchased with 40% down by someone with an 800 FICO score in a cookie-cutter subdivision really doesn’t need a full appraisal.
If the particular consumer has 800 fico and 40% down, they’re most likely in that position because they do care about checks and balances systems. This contrived idea that private lenders are promoting is that checks and balances are only necessary for high risk participators. Nothing could be further from the truth. The bottom line is these waivers are not for the benefit of consumers, they’re for the benefit of lenders to achieve higher closing proportions. If the lenders would not have restrained the appraisal free market we would have raised fees hired help and nobody would have had to wait for appraisal services. The implementation of an appraisal waiver program is just one knee jerk reaction to solve the previous knee jerk reactions which constrained the valuation markets, without tackling the actual problem.
Baggs-Exactly!
But as an alternative couldn’t they rely on major banks to honestly analyze all loan apps (other than the auto-funded ones that is). You know the really big and established ones…say like Wells Fargo or Chase?
Erick on October 27th (2016?) property in Porter Ranch was a solid investment in a steadily increasing market area. Generally in the $600’s (upper Ranch areas) to $750k+- with top end in the millions (all within a mile of each other).
On October 28th, a gas well ruptured spewing hundreds of thousands of tons of stored natural gas and methane all over the place for over a month..
Now the City of Los Angeles LADBS ZIMAS site reported no petroleum wells in the area so “Big Data” would never have ‘captured’ the risk even if officials hadn’t put blinders on.
Of course no one outside the immediate market area would have known that City of L.A. jurisdiction and hazard reporting ended 1/8th mile north where the County of L.A. had over 117 capped and active wells for the second largest underground gas storage site in the country.
Your 40% down guy lost that equity and even more overnight. Where health is concerned even people with 800 FICOS will walk away and litigate the issues later.
It doesn’t have to be gas leaks. It could be something like proximity to Mt. St. Helen; Three Mile Island, Mississippi flood plains, tornado alley, Los Angeles Harbor area land subsidence where 100 years of oil drilling resulted in sinking land or even something as simple to the effect of the Hyperion sewage treatment plant that routinely leaks millions of gallons of untreated sewage into the ocean each year (talk about STINK!). A 40% value hit is nothing when serious external factors are nearby.
Wow, compelling examples. Or even something more localized like the whacky neighbor with a completely unsightly yard full of trailers and art deco trash. Stigma is not always readily defined but you know it when you see it. FHA has a newer rule on power lines and easements. I wonder if FNMA CU systems are so advanced already in this infant stage, to effectively analyze property overlays against the myriad of governmental data systems out there. People who have worked for the government readily understand why and how data sharing is so complex, some of these departments are still on tape drives while others are lost in a quagmire of redundant data overlay systems trying to clean up data. In municipalities where the air to private data company incorporation is agreeable you’ll often find unnecessary redundancies because each system was a bonafied sale via legislative effort. ChaChing! In others where this taxation without tangible benefit is not agreed to, it’s unlikely they are coded for sharing, in some remote locales they are still on dial up. The dream of mass aggregation data is just that, a dream for city slickers which is not realistic for the public at large.
Things must have really changed from when I was a loan officer some 35 – 40 years ago. I can’t recall one time worrying about cultivating a better relationship with any loan customers. All we were worried about was seeing how many extra discount points we could add on to increase our commission..
The boutique outlets are running it like a car dealership. Keep calling back and that no will eventually become a yes. Hit the 5x’s and don’t stop until you get a fresh lead. Refried refi’s, care for thirds?
As an appraiser I couldn’t care less if FNMA or Freddie and any other GSE want to engage in high risk lending / gambling policies.
As a TAXPAYER, I DEMAND my elected Representatives and Senators immediately cut both loose from GSE status with a well publicized officially adopted policy…better yet make it a law, that there will be NO future bailouts of either entity for any reason. Assume they will crash and burn and that we will only have VA and FHA or portfolio lenders to replace them.
The only data provider anymore is CoreLogic. If they want to rely on CoreLogic then let CoreLogic indemnify them on all loans.
They have already forgotten the lessons and causes of the 2009+ super recession. BAD loan programs like 2% Option ARMS with pick a payment to be skipped annually and negative amortization coupled with a heated market.
Now I’ve heard some credit unions including my old favorite (NFCU) purportedly offer 1% start rate ARMS!
What could POSSIBLY go wrong? But just in case, lets double down on reckless lending policies by eliminating meaningful analysis of the collateral characteristics performed by people bound by federal LAW to operate in a certain manner in accordance with USPAP. Instead lets use drive by third parties that are not bound by any legally enforceable standards to see if the improvements are still standing.
May I suggest the Porter Ranch suburban area of Los Angeles as a test bed for the new programs? The gas company just got approval to start pumping gas back into the ground for underground storage again, Dont worry. No need to analyze that market or any other for that matter.
“Special” areas could just be red lined, right? You know…ALL of California with it’s earthquakes; any coastal area; the south and midwestern tornado regions, Mississippi flood plains. If that works then they could even start red lining based on race like they did in the 1940’s through early 1960’s. I mean they STILL compile racial data in the census info contained in every single property profile.
Yep! A fully automated system-that’s the ticket!
Careful Mike, you may have just invited Corelogic to run the FDIC program. They might take you seriously, as that’s the obvious answer to offloading while profiting. All they need to do is change who runs it, the revolving door is already in place. I’d ask the appraisers to pay attention to the $250k figure, that’s the mark so to speak. Not in terms of valuation but where real risk begins. So do you think the FDIC will be responsive to quantitative easing? Absent an audit of the fed, highly unlikely. The uphill slope here is just getting steeper and steeper. I’m not a valuator, I’m a mountain climber. Look how big these numbers got in only 20 years of virtual QE and GSE interference. FDIC, honk if I’m paying your mortgage.
Wiki – FDIC
Buggy whip manufacturers were disrupted by innovation and technology. Appraisers are becoming obsolete via neither innovation or technology but rather by greed on the part of the banking industry and bank owned AMCs.
Survival of the fittest no longer applies to appraisers. It’s now a matter of business evolution; your business will either evolve into something that has little to do with appraising or it will die.
I’m slightly more optimistic lately. Here I am, sitting at the desk, 550, 625,& 650, standard suburbia. Darwin was an insider whom plagiarized someone elses work anyways. Just google darwin fraud and you’ll get an earful. Be careful where you borrow from, now that the books of history are laid bare and open by the miracles of the world wide web.
“Darwin’s second big idea was that Nature is always ruthless: that the strong push out the weak, that compassion and compromise are for cissies whom Nature throws to the wall. Darwin borrowed the phrase “survival of the fittest” from the now forgotten and much discredited philosopher Herbert Spencer. He invented a consolation myth for the selfish class to which he belonged, to persuade them that their neglect of the poor, and the colossal gulf between them and the poor, was the way Nature intended things. He thought his class would outbreed the “savages” (ie the brown peoples of the globe) and the feckless, drunken Irish. Stubbornly, the unfittest survived.”
Sadly, I think you are right. Florida was a bell weather or the parakeet in the mine. we are going to alternate standards. So be it. I will make the most of it.
Which brings up another issue. I previously opposed any form of a national license in lieu of state licensing on the basis that it would encourage reduced lack of local competency.
After weighing this against the irrational, varied state by state interpretations of USPAP; and state by state coercion of unfair settlements on appraisers for either erroneous charges or minor offenses simply because they cannot afford the $25k to $50k typically required to defend an appraiser, I’m coming around to the idea that an NMLS type national appraiser license may well be necessary.
It is clear that the regulatory process is being abused by lenders and agents as well as non client homeowners when their efforts to coerce higher values fail. The lack of uniform comprehension of the standards we operate under makes it clear that a single regulatory agency instead of 50 to 57 is the apparently most sensible solution. Still open to discussion on it though; pros and cons.
As I learn more and more about how the TAF and ASC actually operate, and the less than impartial arms length overly cozy relationships with state agencies they have, I’m having increasing doubts about their future role.
I fail to see where they have done ANYTHING to promote or preserve the integrity of the appraisal process in the USA; or to seek balance or equality of treatment for appraisers as well as consumers….aside from to placate certain special interests.
Compliments of Charles
Mike, interesting commentary and as always, much appreciated. Coming around eh? This record keeps on skipping.
IVPI Proposal
Per the above link, let’s review some recent history;
IVPI proposal; non profit. HVCC; resulted in for profit and proliferation of amc’s, despite the hvcc sunset actions. Lack of the ivpi also essentially brought forth the CU system, and the CU likely was well received by major data aggregates like corelogic whom would certainly have been more restrained rather than less, if the ivpi were to have carried forward with their ideas of a transparent non profit operational platform with strictly protected data.
Now looking back, which one would have been more preferable?
IVPI Goals: Protect the public trust via establishment and operation of the ivpi as an independent nonprofit organization, / preserve the integrity and impartiality of the appraisal process, / establish procedures for the review, mediation, and reporting of complaints from consumers, appraisers, lenders, gse’s, government agencies, and investors / establish efficient secure professional delivery of appraisal services,/ provide uniform appraisal processing and quality control.
IVPI Approach; Establish a non profit organization to preserve the integrity and impartiality of the appraisal process by: consolidate gse appraisal policies and appropriate guidelines / develop appropriate ivpi audit, review, guidance, and compliance procedures / establish state review panels for compliance to gse standards / establish an open panel of qualified appraisers for gse appraisals / establish a centralized ordering and delivery system / establish a centralized protected repository for appraisal reports / monitor and review adherence to the hvcc / to provide a high level of expertise and coordination ensuring sound, creditable, independent, and reliable appraisers / establish a report function of the results of ivpi’s activities publicly to the ofheo and ag’s on a bi annual basis.
I’m 15 years in, almost 10 full years in completely independent certified. Looking back, I did not understand just how significant this IVPI dealie was, but now I certainly do understand. Join me in my quest to remove the primary obstacle to quality valuation services; monetization of the service and valuation data for anyone except the appraiser.
And just for fun, let’s checklist the actions amc’s were able to accomplish as they were at the time, deemed an acceptable substitute that would deliver more than the ivpi. 1. Protect public trust; Fail. 2. Preserve integrity and; Fail. 3. Establish procedures for all parties; fail, biased approaches does not qualify as effective mediation practice. 4. Establish secure delivery; Pass, (someone else did that for them via cu.) 5. Provide uniform processing and quality control; Fail, but points for trying. / 6. Protected repository of data; Fail did not even try to fight cu. 7. high level of expertise; Fail. 8. Transparent activity reporting; Fail. Oh yeah; 9; comprehensive approval panel; Fail, every last one of them has; XX,000 national appraisers at their disposal via the asc list. They market robust panels via copied names lists, but most could not deliver the volumes of promised contractor service.
There you have it folks, the proof is in the results.
Portions of the IVPI could have worked…perhaps.
Gratitude to Cuomo. He had his own schemes in mind (HVCC). He may in fact have been what kept the IVPI from ever being implemented.
CUOMO’S CROSSING – An Outsider’s Appraisal of the New HVCC Rules
What a refresher! Well, it’s all true and then some. He did not cover the previous business relationships with the lenders, although he touched on it.
If you are a licensed appraiser whom became licensed after 2010, you must read this article. To understand where we are now, you must know what happened and how policy shook out. This article is interesting as it’s from an outsider. Just google eappraise it mortgage fraud cuomo, or any variance, a mountain of articles out there. That event set record participation levels for real estate websites nationwide which have yet to be matched again by any other issue.
hvcc may be gone, but the modeling remains.
Let us not forget this tidbit; New York Attorney General Eric Schneiderman announced a $7.8 million settlement with eAppraiseIT, and its then parent corporation, First American CoreLogic.
The betting window is now open.
Baggins link to the Mandelman article is well worth going to and reading:: Wish Id read it in 2009 or even 2010.
http://mandelman.ml-implode.com/2009/08/cuomo%E2%80%99s-crossing-an-outsider%E2%80%99s-appraisal-of-the-new-hvcc-rules/
Long reading but well worth it…and while nothing about HVCC and appraisers plight can be considered humorous, Mr. mandelman does present the case in an amusing manner.
Thank you Mike. That is a tough read but interesting and meaningful in it’s presentation and writing style. I read through a half dozen yesterday and picked that as the best. Although I had been searching for an old article previously reviewed, regarding the ag’s previous business employment with one of those major lenders he supposedly ‘regulated’ when later sitting in the chairs of government. Oh boy, if people don’t understand how risky the revolving door is by now, there is no hope for them. We must all rise up and demand checks and balances remain in place, but we must also recognize the need to be free market forces ourselves and make wiser decisions with our personal consumer activities, implementing those checks ourselves and recognizing the legitimate value in their costs. People often think their actions are inconsequential, a drop in the bucket in such large bureaucratic systems. Every dollar counts, every action matters, our most meaningful votes are cast daily from our own wallets as we excercize free market decision making choices. Also for years I’ve been trying to find this series of articles which described in detail the challenges and proposals regarding placing appraisal fees in escrow, for the benefit of a few other blogs posters who mentioned that. That’s a can of worms to be sure. Still being a hopeful idealist, wishing that one day that home loans will be only for the home itself, and all service fees paid out of pocket. A system where monetary inflation is not primarily masked by real estate. If people had to pay the service fees up front, we’d have entirely more stable real estate markets nationwide, if the dollar can hold up. The process of mortgage lending is regrettably way too easy, regardless of what arguments are made regarding self created process challenges and self written regulatory schemes. We don’t need more loans and more commissions, more appraisers and more brokers. The country at large needs far less turnover and a return to equity based finances, rather than debt based. That’s my 2c, thanks for reading.