COVID-19 & Interior Inspections Liabilities
Pay attention to Phil Crawford’s comments on interior inspections and the liability that goes with them…
Fannie and Freddie have come out with updated guidelines for appraisals. There is much confusion on what is and what is not required. The below matrix simplified what is allowed by Fannie Mae.
Additional questions and answers can be found on Lender Letter LL-2020-04. The unknown to the appraiser is the ownership of the loan. Appraisers must rely on the lender or amc for that determination. VaCAP wants to remind each and every one of you that regardless of what an amc or lender tells you, it is ultimately your decision on what assignments you accept and which ones you put your signature on. Appraisers always have the final say!
Phil Crawford, Voice of Appraisal has a new show out. It is a long one, (37 minutes) however, VaCAP recommends every appraiser listen. Phil brings up a lot of good information and gives a little behind the scenes glimpse on what is / has been transpiring. Pay attention to his comments on interior inspections and the liability that goes with them. Make your own decisions on the types of assignments you are willing to accept and the fees you will accept. No amc or lender has the right to decide your fees.
No one can predict the fall out from the COVID-19 pandemic, so all the theories circulating about a quick recovery or a long term depression are speculation at this point. Appraisers need to pay attention to the data, talk with agents on current issues they are facing and incorporate relevant information into your analysis and discussion within your reports. Lender buy backs on loans gone bad tend to focus on appraisal deficiencies. Make sure you are including all the necessary / relevant information. Document everything an amc or lender requests as their liability has not even begun to unfold. Plan for the worst and hope for the best.
This maybe a sign of things to come…
JP Morgan Chase will raise minimum requirements for new mortgages. The company, stated beginning Tuesday April 14th, a 700 credit score and 20% down payment or equivalent equity will be required for all new mortgages. From the article, “The changes should help JPMorgan reduce its exposure to borrowers who unexpectedly lose their job, suffer a decline in wages, or whose homes lose value.” See the news article from CNBC here. We anticipate other lenders will follow.
Stay Safe
- The New Con: Hybrids, Waivers & AMCs Threaten Public Trust - December 16, 2024
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- It’s Just Responsible Journalism! - February 21, 2024
A day late and a dollar short.
https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200414a1.pdf
FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 323 RIN 3064-AF48 Real Estate Appraisals AGENCY: Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (Board); and the Federal Deposit Insurance Corporation (FDIC).
ACTION: Interim final rule with request for comments.
SUMMARY: The OCC, Board, and FDIC (collectively, the agencies) are adopting an interim final rule to amend the agencies’ regulations requiring appraisals of real estate for certain transactions. The interim final rule defers the requirement to obtain an appraisal or evaluation for up to 120 days following the closing of a transaction for certain residential and commercial real estate transactions, excluding transactions for acquisition, development, and construction of real estate. Regulated institutions should make best efforts to obtain a credible valuation of real property collateral before the loan closing, and otherwise underwrite loans consistent with the principles in the agencies’ Standards for Safety and Soundness and Real Estate Lending Standards. The agencies are providing this relief to allow regulated institutions to expeditiously extend liquidity to creditworthy households and businesses in light of recent strains on the U.S.
2 economy as a result of the National Emergency declared in connection with coronavirus disease 2019 (COVID-19).
and
FHFA and CFPB Announce Borrower Protection Program
https://www.fhfa.gov//Media/PublicAffairs/Pages/FHFA-and-CFPB-Announce-Borrower-Protection-Program.aspx
If no foreclosures happen, and no appraisals happen until December (Except for non-bank lenders) The market will stall at the last sale.
“Market Value” implicitly requires an “open and competitive’ market that results in a “fair sale”
None of which you will find with these new edicts from above.
What is market value right now? Nobody knows, surely the market is not open and competitive when a state (mine in Oregon) has forbidden open houses. I work in commercial appraising mostly, but have done some residential throughout my career so I would understand housing values and the appraisers who do them. I’ve done everything from a $150K house that needs a lot of work to mansions in Bel Air that cost $150Million to build. The most expensive homes tend to drop rapidly when there is a bailout (1989 & 2008); also lenders require borrowers who develop housing tracts to do them in phases of say, 10 houses at a time, in case the market turns. They learned that when vast tracts of 250 lots were being developed in 1990, and most of the office buildings must be at least partially pre-leased. Now that other professionals are working from home, many employers will realize that they don’t need as much office space for their employees because it is possible to work at home and be productive (I’ve done it for 35 years), and there will be less demand for office space. The last shopping center I appraised (January 2020) had four vacant stores out of 20. I asked them why they had been vacant for so long, they said it was because of “e-commerce”, or retail buying online. Stores like Nordstrom are trying a smaller store with lots of customer service and then they will ship what you buy, and it will save them a lot of money! Anyway, now that they think we are “essential” I think this is a good time to raise you fees to whatever you want, and wear a moon suit to inspect! Remember, no job is worth dying for! Get the covid premium of $500 on top of your fee because you will need to buy more clorox wipes, get a moon suit and take the time to write a long disclaimer that says that the contact for the property has signed a separate document stating that nobody in the home, or property was sick on the date of inspection. I’m not taking any assignment that doesn’t pay me a huge hazard pay because it is just not worth it, especially if you are bidding on a job for an AMC- we never get to find out what they make on our work, so I’d just “SAY NO” to them, then wait and see them go out of business. They make no positive contribution to the assignment, so they don’t deserve a cut of our fees! Perfect time for a strike!
OK, here is something to think about. We don’t tell the Client what form we will use, they tell us…We only tell them if they erred in that they ask for a 1073 Condo, but the Subject is actually a SFR Attached/semi-detached. they tell us what the purpose/intended use is for the appraisal Thats a little check box…Simple Right! Yep, that’s simple. WE don’t tell the Lender/Client we will complete a 2055, not the 1004 they ask for… So get ready folks, it’s our responsibility to inform the client we are not able to access the interior, for example the owner will not permit us to enter. It’s not our responsibility to determine what type of 1004 they want i.e Interior or a 1004 Exterior. That’s their job via the AMC to let us know what they want us to do… I don’t care about what type of loan it is… I just need to inform them and THEY will decide based on the loan What they want us to do! Stop letting them make you do their Job. If you disagree with me, then present your argument of why I am wrong.
Nationwide Real Estate market is now officially in a FREE FALL. We might be experiencing the WORST WEEK for Composite Home Price Index since the 2008 crisis..
Can you say DOWN 10%?
Be VERY careful accepting New Appraisal Orders from Non Bank Lenders and their AMCs. They are now pocketing upfront borrower paid appraisal fees to pay their employees/overhead and putting Appraiser’s invoices at the very END of the line.
Furlough/lay off an employee or pay appraisers?…….I wonder which they will choose? MANY OF THESE NON BANK ENTITIES ARE FACING COMPLETE RUIN
Don’t put a BULLS EYE on your chest working for them.
I just had a lender tell me that they wanted a desk top appraisal (1004) with a photo of the front of the subject. Well, If I have to drive to the subject to take the exterior photo, is that not a drive-by appraisal? It seems that some of the lenders do not know what they need. They are not following VA/FHA/FNMA guidelines which is also confusing things. The State Appraiser boards are going to have a field day with some of the appraisers with the “the lender told me” view of the world. If the lender tells me to make the beds, do the dishes and vacuum the carpet before I take the photos, should I do it just because they lender says? If the lender said they need something and I do not want to do it, I just decline the order, someone else can do it.
See the Fannie/Freddie FAQs on this topic. There is no requirement for the front view to be an appraiser-taken photo.
https://sf.freddiemac.com/faqs/covid-19-selling-faqs#collateral
Q2: How will the appraiser be able to obtain subject photos for a desktop appraisal report?
Photos can be obtained from sources such as third-party web sites, owners, or listing services, etc. NOTE: Any use restrictions on photos must be honored.
Why should we start trusting anyone else at a time like this when we never did before? Like always, I will only be offering full service complete interior for 1004’s. My decisions are never based on fear, but rather based on trust. My trust level of others and the system in general has not increased, but rather, has been decreased due to necessity of caution. Trust is not given, it is earned. And I don’t like what I’m seeing right now.
The “desktop” option is limited to sales. Even in our “regular” appraisals we rely on (trust) the same kind of data, every day. Comp data typically comes from MLS listings, etc.
It is a personal choice each appraiser. My intent was not to lobby for any approach, but to address an apparent misunderstanding.
I understand what VA/FHA/FNMA have said. If the lender wants a desktop report, but at the same time they tell me to go and take a front photo, that is no longer a desktop. Desktop would imply that the appraiser does not leave his/her office.
See my previous response for the Fannie/Freddie position. For the “desktop” option, for Fannie/Freddie, there is no requirement to leave the office.
Let me try this one more time. THE LENDER WANTS A CURRENT FRONT PHOTO FROM THE APPRAISER (not google earth, or the MLS) for a desktop report. I already know what VA/FHA/FNMA have said. The lender is not following the new guidelines. Just like I stated in my first comment. One more time, they want ME TO GO AND TAKE THE PHOTO, understand now?
The client can always add to the SOW in the engagement letter even if it is a desktop. It’s called Enhanced Assignment Conditions. I always add the engagement letter as part of the report. Charge accordingly.
For sure, agreed. Appraisers sit in an advantageous position in the midst of all of this. We get to simply analyze and measure the data as the information flows in. Navigating the market to set new benchmarks is the realtors and in turn, the lenders responsibility. My point is primarily that people don’t make sensible decisions when they’re panicked or under stress. That’s why appraisers exist, the unbiased participator. ‘ll continue to hold everyone to the same standard as I am accustomed to. I have not needed or requested any special accommodations. Cheers.
What could possibly go wrong in having a potential 10+ month gap between giving a loan today, and only later determining the true market value? Meaning, banks use their AVM’s models (+ 6 months back) to give a loan now, but the appraisals will have an effective date up to 120 days later. I could easily see a 10 to 20% difference between the numbers.
Seek the truth
Why does it matter to you as the appraiser? If your concerned as a Citizens, yes I can understand that.
Here is San Diego’s chart.
Shooting from the hip, considering home prices are up +/- 50% over the past 10 years in San Diego sb (up +/- $300,000), combined with mortgage payments, many have a few hundred thousand dollars in cushion.
Will it be enough, I don’t know.
Seek the truth.
Nice theory Bill, and it is the favorite theory of central planners, but sadly no. Factor in quantitative easing of the dollar first. You end up with a negative figure instead. It’s what we’ve been telling home owners, friends, and family for the past decade. These increases in price are not necessarily increases in value. There is just a lot more cash floating around. Our basis of economic output in this country has not increased that rapidly. See the NORM Economics link I posted below. It’s the ‘let them eat cash’ argument.
Good one Bill. The plunge protection team is hard at work. You know many short orders just got stiffed? If the central planners knew what they were doing, none of this would have happened in the first place. Logically, artificially freezing the market in time and only analyzing ‘pre covid’ data is not going to hold up. Enter parity pricing controls in the real property markets. How did that play out for farmers? And how exactly will that relate to a fluid economic climate for those whom enjoy no such parity, facing real time qualification standards as the economy adjusts? All they are doing with moves like that is filling up the dam before it eventually has to spill. Like all actions of central planners whom seek to kick the can down the road, they’re just delaying the inevitable and forcing the future market corrections to be much worse and more devastating than if they were faced and managed immediately.
I bought 200 dollars worth of meat to freeze last night. Each one of those plants they shut down for cleaning processes 5,000 cattle a day. It’s going to be at least 6 months before even such normal commodities as the supply of beef chicken and pork even begin to regain equilibrium with demand. Too many interconnected parts, it’s not just as simple as the farmers supply. That does not even hold a candle to real estate. Nobody is immune to the consequences of central planning and every action the government takes from this point forward will do more harm than good. The market needs time to correct itself. Invisible hand theory will hold up, it always does. Vested interests, the scale of their participation and influence, in the end, will not sway the angle of the return swing. Damocles sword. People should be careful what they wish for.
You might be a little optimistic with a mere 10% to 20% figure. Think firesale pricing as the titans fall. Really glad to have an extra ordinarily low debt footprint right now. History repeats.
https://www.history.com/news/what-was-the-sword-of-damocles
https://en.wikipedia.org/wiki/Doctrine_of_parity
http://www.normeconomics.org/
Every market to some degree will be different Baggins. With local historically high values and what seems to be 5 buyers for every seller, will that ratio continue, NO. But, I’ll bet you a Coke that locally the haircut a year from now will be no more than 15% (+/- $90,000).
It will be a slow drip, but eventually the bucket will turn back over and water will be added.
Seek the truth.
Yes, that’s important perspective right now. We’re all living this within our local sphere of influence. Some locations are hit harder than others. Economic effects seems to be related to politics and the ‘decrees’ set forth by local governance. Also related to the scale of most effected services within a state.
People need to understand that the legislative branch, not the executive branch, makes laws and rules. Executive branch decrees on the state level are mere best practices guidelines, and are not law. Judicial decrees as the third branch, were not intended to be the final authority. The Constitution is still the law of the land. People are concerned because they’ve never seen this much government overstep before. They are literally drunk on power.
That’s why we’re saying, get back out there. Liberty is the most essential element which glues our society and our economy together. Those seeking solutions and workarounds without prioritizing liberty first are behaving in a counter productive manner. Some positive new data is in, which is why WHO just got their US based funding cut. Many more people are likely to have this particular patented strain of the flu than initially thought, rendering statistical projections of the death rate to be far lower than expected by orders of magnitude. As long as you’re not in an affected group or have serious underlying conditions, you should not worry. If you have had the flu in the past 5 months, chances are you’ve already developed immunity to this particular patented strain of the flu. Unless you are on your deathbed, you do not need, nor should you for privacy and liberty reasons, get tested. This is incredible over reaction but that’s what happens when people hand all authority to the government.
“We had a problem with Covid-19 (TM). Then as the government stepped in, we have a much bigger problem.”
You are watching political theater. New faces on stage and some more modern theater props. Stop living in fear and get back out there. The government does not grant us liberties. If people are relying on the government for health or financial advice, they are doing it wrong. Lenders, more dangerous to liberties than a standing army. Turn off the television.
I don’t get into all the politics that may or may not have an effect of the housing market. i am aware of it…but that’s just all i am aware of it.. Look we take what data we have an work with it… I am not predicting anything…. with the exception that I state a trend. I don’t even indicate how long the tend is…we simply are not responsible for anything after the effective date and some of that between the effective date and signature date. If the market is going south…well its going south, I am in no position to change anything.
Banks-can-now-delay-appraisals-for-up-to-120-days-after-closing/
https://www.inman.com/2020/04/15/banks-can-now-delay-appraisals-for-up-to-120-days-after-closing/
“We simply are not responsible for anything after the effective date and some of that between the effective date and signature date. If the market is going south…well its going south, I am in no position to change anything.” [AP]
Listen to what the mortgage industry is saying.
No Appraisals Until 90 Days After Closing? – National Real Estate Post
Comment from a Lender…..
“We sent an inspector out to the property and provided the appraiser with that report. However, it’s the appraiser’s responsibility to verify any conclusions relied upon for purposes of this report”.
HITF can you verify from behind a desk????
“Drive by???….How fast you want me to DRIVE BY????
Just let the AVM’S handle this until it’s safe to appraise again. We appraiser’s need a vacation anyway!
It’s safe to appraise right now. Be careful what you wish for, because you just wished for a lifetime vacation from your chosen profession.