Foregoing Contingencies! But What About Fiduciary Duty?
By foregoing contingencies such as home inspections and appraisals altogether, mortgage lenders risk violating their fiduciary duty – which is supposed to prioritize the interests of the borrower above all else.
It is no surprise that some loan officers are salivating over the prospect of not having to wait for a full appraisal or a home inspection. After all, who doesn’t want to close more deals in less time? While this may be beneficial from a broker’s perspective, it could result in borrowers making decisions without being fully informed about their investment.
Kim Nichols, senior managing director of Pennymac TPO, recently spoke to Mortgage Professional America about the changes to valuation methods and why they can benefit mortgage brokers & borrowers alike. According to her comments, these changes will make it easier for loan officers and their clients to secure mortgages without having any contingencies like full appraisals or building inspections.
“On the Fannie Mae Desktop Underwriter (DU), loan officers now have the option of ordering a property data collection (PDC) in lieu of an appraisal. If an LO can get their arms around it and understand it, they can educate the realtor community that there is another option,” Nichols said. “Maybe their buyers won’t be beaten out by a cash buyer willing to forego other contingencies. They can really use it to help their referral partners structure more deals for their borrowers to win and succeed in buying the property that they want.”
It’s easy for Kim Nichols and other industry insiders to promote this kind of thinking as beneficial. However, she fails to recognize that not using appraisals or building inspections could put people in financial danger if problems arise with their property.
In addition, her suggestion goes against everything we know about fiduciary responsibility – namely that loan officers should always have their customers best interests at heart rather than trying take shortcuts which may help them win more deals but leave those same customers exposed later on down the road.
The value of an appraiser actually visiting the property cannot be overstated. While Property Data Collectors do collect data and assess condition, they are limited in their scope of inspection which may lead to missing critical factors that can affect a property’s value or identify potential issues for buyers. This lack of comprehensive market data can result in inaccurate valuations and could potentially have serious financial implications for those involved.
The lack of comprehensive market data means that buyers could end up paying more than they should for properties with hidden issues or flaws; something an appraiser would have been able to identify during their visit.
By foregoing contingencies such as home inspections and appraisals altogether, mortgage lenders risk violating their fiduciary duty – which is supposed to prioritize the interests of the borrower above all else.
Also concerning is the potential for privacy issues with the use of Property Data Collection services. As Property Data Collectors take video footage of entire homes, including all items in every space, it raises questions about where this data goes and who can access it. Furthermore, the recent case involving a convicted felon being hired as one such collector, highlights how serious this issue can be if proper measures are not taken in order to ensure that all personnel involved in collecting property data have been properly vetted and licensed accordingly. There is a legitimate fear that criminals might be able to use property data collections as a way to “case” homes for criminal activity such as robberies or sex crimes, creating significant liability not only for lenders but also GSEs, taxpayers, homeowners and borrowers who order or rely on these services.
In conclusion, while PDCs can expedite loan processing times & potentially increase profits for brokers & lenders alike – they also pose significant risks for borrowers. Any decision regarding valuation methods must take into account both parties’ interests before proceeding further down this path! The introduction of new valuation methods for consumers and loan officers should be approached with a healthy dose of skepticism. These changes have the potential to raise significant concerns about transparency, reliability, bias, cost and market stability. As such, individuals need to take time to carefully evaluate these new methods before fully embracing them in order to ensure that they are not placing themselves at risk or exposing themselves unnecessarily.
- FHFA’s Appraisal Waivers Expansion - October 29, 2024
- Lack of Evidence, Appraiser Challenges Discrimination Claims - October 24, 2024
- NFHA’s False Narrative Undermines the Appraisal Industry - October 18, 2024
Since when has anyone who works on a commission basis ever cared about the public?
Appraisers work is based on a client and a contract, not a commission. Appraisers license cites illegal instances and appraisers are either fined or lose their license.
RE Agents; Mortgage and RE brokers are in house OR collect a commission. Any sins they commit are subject to their contracts.
As an appraiser have you had a client litigating for selling too low or buying for his relative? or assembling for a trust
The Loan Officers and Brokers are missing a larger picture, with the reliance of FNMA data and other similar entities, how long do they really think they are going to be around. Checking the credit scores, job verification, etc can all be done already without a middle man. The borrower plugs the data entry in, the back ground checks, FICO scores, etc can run the automation they already have. I’m telling you, FNMA and other are positioning themselves and a one stop shop to replace, LO, title, Appraiser’s and eventually Realtors. All this automation will fail. Whom will they blame then?
These people are condemned to repeat history. The rise of moneyed institutions, hardly any resistance. The bureaucracy was originally set in place by the people for the people, to protect us from the bankers. So there would be accountability and paper trails, reliability in contract and tort law, true unencumbered land ownership. Now the status quo position is just trust the lenders, they’ll handle everything?
The linked article was ridiculous too. They’re still on with the tired old line of save some up front money on the appraisal. They never talk about the hidden fees, the real cost of amortized commissions being part of the loan package. As if a hundred dollars savings even matters when you’re questioning if the price may be tens of thousands of dollars higher or lower than market value, while staring down a cash equivalent multiplier over the full term which is twice if not three times your initial purchase amount. Your grandfathers appraisal… Oh yeah, like three generations ago they were dealing with this level of tyranny, ongoing implementations of technocratic control schemes and lending institution pilfering. I’d rather have my grandfathers appraisal, 100%, absolutely no doubt about it. There is not going to be penny auctions to scrape back the losses this time around, no sir. But, you know, like save a hundred dollars on the front end and stuff. Sign here.
I am quitting the profession after 23 years because of the unethical practices going on
When you talk to anyone on the mortgage side, they say it’s a done deal and no one is stopping this. Why would you want anyone without a license or having insurance in your listing or your home? Crazy
Real Estate professionals have ignored their fiduciary obligations for years. The Code of Ethics means nothing because the Boards will not discipline Brokers/Agents.
Whom disciplines FNMA? Boards can only take action if someone files a complaint. I’d imagine lenders will do and say anything to avoid state based complaints, in order to avoid the discovery process. This is the primary benefit lenders receive by utilizing unlicensed people and eliminating the appraiser all together, there will be several less opportunities for state regulatory authorities to even know what the lenders are up to, and this will put the consumers at an even greater disadvantage and vulnerable position when dealing with lenders, with reduced possibilities of recourse or to seek help.
https://www.whistleblowerllc.com/false-claims-act-penalties/
Is the FCA False Claims Act applicable in any way? If amc’s were to have billed the government in a manner they have been billing the american consumer for the past fifteen or more years, each and every billing instance may have fallen under FCA penalty. The penalty matrix expands with time. Each and every instance of this activity was $5k/$10k recurring, after 2018 expanded to $10k/$20k, currently up to $12k/$25k per instance of recurrent over billing practices. However, may be balanced by the ‘excessive fines clause.’ So basically it’s o.k. for lenders and amc’s to over charge American consumers, but you get in big trouble if one over charges the government. Equity!
https://www.whistleblowerllc.com/what-we-do/government-program-fraud/bribes-kickbacks-bid-rigging/
Bribery kickbacks rigging collusion. That’s everyday practice in mortgage lending and the amc world.
Is the FCA applicable to mortgage lending? Yes indeed, the DOJ published a summary of previous application of FCA penalties against lenders originating to FHA.
https://www.justice.gov/archives/opa/blog/false-claims-act-federal-housing-administration-lending
‘The department has settled and brought cases when the lender knowingly submitted loans for FHA mortgage insurance that contained material defects in the underwriting of the mortgage that rendered the loan ineligible for FHA mortgage insurance. Such material defects that have resulted in cases include failing to’ ——— ‘failing to ensure the property provides adequate collateral for the mortgage loan.’
Eliminate the ability for these monolithic institutions to rely on the unreliable automatic valuation models, coupled with requiring them to use appraisers and stop it with waivers and excessively high demins allowances, put a hundred thousand appraisers back in business if not far more, protect consumers instead of placing them in harms way. Bolster consumer protection instead of allowing the lenders to destroy sound checks and balances. Appraisal modernization is a serious job killer. Instead of creating a hundred thousand quality professionals whom serve as essential checks and balances for trillions of dollars worth of real property assets, professionals whom provide invaluable consumer protection functions within lending, FNMA has chosen to put the remaining twenty or thirty thousand appraisers whom still provide limited GSE service for this entire nations worth of mortgage consumers out of work permanently.
Who’s the corporate bozos at FNMA and Fannie kicking their crocodile skin boots on a rain forest desk, puffing a cuban cigar with 100 year scotch and saying to themselves; Create a hundred thousand new licensed professional appraisers, or put the last thirty thousand appraisers whom work with GSE’s out of work and eliminate their positions permanently? Hand everything to predatory appraisal management companies whom provide our preferred lenders kickbacks and favors. These people appear either grossly incompetent or criminal. New UAD forms redesign vid from Freddie hit my email today, I can’t even bring myself to look at that nonsense. The end is near for tens of thousands of appraisers whom have dedicated a lifetime to consumer protection, a hundred thousand more appraisers never even materialized due to a decade of gse imposed attrition. In their infinite wisdom the bureaucrats chose felonious third party data collectors, institutionalized junk fee billing, open back door avm tech programs to manipulate data without oversight. Talk about captured regulatory agency, a lot of that going around lately.
This all does make me wonder if all licensing will go away, people think everything is on the internet, they have access to AI and sites like Zillow and legal zoom, plenty of mortgage calculators available for free and it’s easy to shop rates. Just let the consumer take care of themselves without any help from professionals. This could work if you think like Milton Friedman and ignore fraud and the fact that markets are not perfect.
What’s perfect?
I trust; therefore, I am trustworthy.
Don’t you trust your priest, you realtor, your retirement agent, your son your daughter, your father, and MOM.
Due diligence is a personal requirement. Maby’s aunt Bee and the lawnmower are a little shaky.
https://www.zerohedge.com/markets/cre-nightmare-cmbs-holders-office-mortgage-delinquency-rate-suffers-biggest-6-month-spike
Interesting insights into commercial loans. Commercial markets taking a hit. Think PDC’s are a good idea for commercial?
The WSJ published today of a little bitty town Who wanted to float an instrument obligating the town to build a town silo.
A New York appraiser did an H&B report which states the area would not support the issue.
Thank God for honest Appraisers.
years ago, a client requested an appraisal of 40 houses in an area of 1/2 acre properties. The 6,000 sq ft lots required a small sewer plant with guaranteed maintenance.
They built it ANYWAY with the small Guaranteed sewer plant. 25 years later they connected the sewer.
My grandpa bought land in texas, just a suburban lot. At the time he said there were guys stringing electric up, lots defined, and he got first dibs on a lot, title, recorded, the works. Then the developer quickly went under without building anything, land was resold without further subdividing for the most part. Seventy years later, my grandpa has a dirt lot with no access, set behind an acreage property. He paid something like eight dollars a year in taxes. He was talking about owning land in texas from when he was younger and I immediately put on my cowboy hat and said yee ha, we’re moving to texas. He asked me to look into what happened with the land. Further research revealed a small set of vacant lots, unusually smaller than most surrounding properties, seemingly lost to time due to failure to plan land development appropriately in the fifties. I’m going to order a property data collection service from an amc on that one just for a prank one day. We’ll set up a betting pool how long it will take the PDC provider to find the lot or give up on the work order. / In other news, found this recent Corelogic one year market deflation map since the lending rates rose.
Eleven plus my grandfather bought 80 acres just outside of Bakersfield California when a grand scheme was ongoing about reserve oil for the Navy. The 80 ac’s was ugly, salty and didn’t grow anything so it must be potential oil.
One of the members kept up the taxes for about 60 years, finally hiring an attorney to separate the lands into those who would pay. The ownership had multiplied as estates passed on. One had a 365th interest in 1962, and my family is also large.
In the 1960s this land was not worth anything more than the inflation caused by the 1914 crisis for The Navel oil reserve.
I read now that this salty dry land, is getting dryer and whatever water rights are being restricted more & and more.
All kinds of STUFF happen, it’s good to have a trustworthy appraiser around ain’t it.