GSEs to Halt Hybrid Pilot Program?

GSEs to Halt Hybrid Pilot Program? Rumors or Fact?My colleagues in the appraisal industry and I have been confused/alarmed by the actions of the former GSEs Fannie & Freddie over the past several years in their efforts to raise mortgage volume. Banks continue to remain in the fetal position on risk post-financial crisis and low mortgage rates and inverted yield curves aren’t helping. As a result, the GSEs, who remain in receivership, are doing all they can to remove pain points for banks to lend more and as a result, exposing the mortgage process (and, of course, the taxpayer) to unnecessary risk.

As an appraiser, I’m clearly biased to this effort based on my first-hand experience because it has become clear that appraisers are a target of US Treasury’s efforts toward “modernization” which I view as code for “automation.” Think of replacing a large swath of boots on the ground mortgage appraisers with AVMs (automated valuation models) or the equivalent of “Zestimates” but the taxpayer is on the hook if the housing market goes bad. Fannie is already waiving appraisals on 12% of mortgages they take on. No matter what claims are being made today, the reliability of AVMs is beyond unacceptable. For reference, 50% of Zestimates are within 5% of true value and 50% are not within 5%. Junk.

The US Treasury is attempting to return mortgage-finance giants Fannie Mae and Freddie Mac to private ownership. Mark A. Calabria, Director of FHFA, who regulates Fannie & Freddie has been asked what keeps him awake at night to which he has replied “risk management.”

I have heard through channels that FHFA has told the GSEs to kill all the projects that involve “appraisal bifurcation” – the highly controversial process where an unlicensed, untrained inspector completes a non-standardized observation of a property and then a licensed appraiser completes a desktop appraisal. However, I haven’t been able to confirm this in writing as a source so please share if you have.

Appraisers know bifurcation would be a disaster for valuation reliability (i.e. quality) and be more expensive and slower. This is why the appraisal industry is so concerned about the GSEs’ intent to expand the use of bifurcation in the mortgage process. I’m sure there are times when such use is reasonable but not with wholesale adoption. The actual reason for the promotion of bifurcation is to remove a pain-point for lenders in the mortgage process. The idea of lowering costs or reducing turnaround is not something consumers have ever clamored for so such an effort is bizarre, otherwise.

Indy Politics recently interviewed Michael Calabria of the FHFA, the regulator who oversees both agencies.

Jonathan Miller
Image credit flickr - torbakhopper
Jonathan Miller

Jonathan Miller

Jonathan Miller is President and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm he co-founded in 1986. He is a state-certified real estate appraiser in New York and Connecticut, performing court testimony as an expert witness in various local, state and federal courts.

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27 Responses

  1. Avatar Scott DiBiasio says:

    I wouldn’t characterize it as a halt. A pause or a timeout to gather more information is probably a better way to describe the current status. How long that pause or timeout will continue is anyone’s guess.

    • Avatar Realrose says:

      This crap has happened on your watch. As a lobbyist for the appraisal industry, you have been a complete failure. I wouldn’t be surprised if you helped the American Enterprise Institute who has (along with Joan trice of Collateral Risk Network) destroy the profession we once enjoyed. I realized that you must be on the take with Koch Brother’s AEI when I read the September 18, 2019 Appraisal Buzz magazine that pushes all kinds of trial balloons that they invent to confuse appraisers and the American public. Their next convention is in two days…

      In the bailout of the S&Ls in 1989, appraisers were blamed, and licensing and stiffer regulations were required of us, and we got USPAP which we now have to take a class in every two years; in the 2008 bailout of the Banks where Wall Street stiffed investors, whole countries were infected with crooked banks and brokers, deflecting blame about the financial crisis they caused with derivatives and and brokers betting against clients, and so many people lost their homes, again, blaming the appraisers…. Flash forward to now, when we have Mnuchin in charge of the Treasury, and deregulation of everything, calling hybrids valuations and letting non-professionals and algorithms and indexes replace us, some think we can ignore USPAP, so they invent more “modern” ways that degrade our profession!

      I read today from the New York Times that Mnuchin forgot to disclose $100 million worth of assets when he was confirmed…. nothing but crooks in Washington DC which became a total swamp with you and others selling out the same people you are responsible for representing. You should be ashamed. I checked out your background back in 2013 to see what your qualifications were, and you’ve never been an appraiser, nor are you qualified to represent us! Prior to becoming the lobbyist for state regs you unsuccessfully ran for some local office in Baltimore, but never raised one cent. How could a guy who knows nothing about appraisal represent us? The people who organized this blog could do a much better job than you, who helped sell us down the river, and it is polluted with the muck of so-called “modernization”, thanks to you and Trice who testified in front of congress about appraisal issues and who continues to profit off the back of appraisers with their conferences full of new ways to peel the banana, but all of we who depended upon you and others to respect our profession, and our ethical standards might as well call yourselves pimps for inventing the AMC model, thinking the Koch brother’s tea party as our next savior, all the while you are throwing banana peels in our path to earning a living while we slip into oblivion.

      Now we have hybrids and the AEI want us to use their manipulated market trends they feed us while we sit like idiots at our desks doing bs with exterior photos from a non professional who does our inspection, take comps from the tea party and you have the nerve to speak on this blog when you have failed us. Resign because I have declared war on you and Garber who was a former lobbyist for a mattress company who handles national appraisal issues for the AI. Talk about artificial intelligence, you are what we get because the appraisal profession has been broken into bits, and you appear totally clueless- try reading this blog every day and you will learn that we are not all as stupid as you think we are, and that we are worthy of saving, and any bribes you took because the tea party corrupted WDC should last you for the rest of a comfortable retirement. I will not forget that you did nothing for us, and now I will let everyone here know who you are.

      Before we had the 2008 bailout, politics didn’t factor into our work. We are republicans, democrats, independents, and some of us can’t put 2 & 2 together to figure out what happened to our profession. I figured it out and watching you and that crook occupying our white house who launders money for russian oligarchs, takes orders from dark money from the tea party, all while being destroyed by incompetent lobbyists and industry crooks like you, garber and trice! Our hands are tied because we are licensed and carry E & O insurance, but to protect ourselves because we are bound to USPAP, we may as well flip burgers because now that you sold us down the river we are swimming in polluted waters, upstream in rapids, drowning and disgusted.

      • Avatar lance b says:

        after reading this from realrose, in my mind i keep seeing the death star blowing up in star wars.

      • Avatar The Law Firm of Ditcher, Quick, and Hyde says:

        Troll Alert: This comment/commenter was flagged as suspicious!

        Realrose appears to have to much time on his/her hands. I suspect that some of his excess time will soon be spent defending him/herself and Appraiserblogs from a slander lawsuit.

        • I don’t usually agree with RR’s partisan colored posts because any valid messages become lost in the clutter of the partisan rhetoric. Posting that way is her right.

          The Pseudonym ‘law firm”s response, on the other hand, is pure cowardice. It is an attempt to stifle free speech by one poster, and the forum in which all of us use to gain and give insight into important appraisal issues.

          The cowardly poster(s) relies on innuendo and inference to try to intimidate either R/Rose or the Administrators of AB into silence.

          I personally challenge the phony fictitious jocular law firm name poster to the following. Cite ONE specific jurisdiction and specific violation statute within that jurisdiction that you mistakenly believe could remotely cause either RR OR AB to spend time defending themselves from a slander lawsuit. By the way “Legal Eagle’ when the offense you infer is written it would be called “libel” not “slander”.

          I don’t believe the poster is either Mr. D. or any of his legal friends. Mr. DiBasio is a public figure as a political lobbyist for the Appraisal Institute (& others). He has spoken on their behalf on many occasions-public and private. He was present at a meeting I was invited to recently by the AI’s California Government Relations Committee. He is a big boy, and a professional. He’s not going to waste his time on something as spurious as this.

          If he ever did, I’m sure he’d get the distinction between slander and libel correct.

          • DiBiasio. Apologies for repretitive spelling error.

          • Avatar Scott DiBiasio says:

            Mike is correct. I’m a big boy. And I know exactly who this person is making these comments. She’s from Oregon and really needs to change her material. She’s been making the same tired statements – that I take bribes, that she’s out to get me, and that I’m a bad campaigner – since 2010. She hasn’t gotten too far with any of it. Although she is probably right on the last part. So, keep firing away DS – or maybe keep digging your hole is a better way to put it.

            • Avatar Realrose says:

              that is another lie. I didn’t know who you were until 2013, so even if you know who I am, and you are trying to avoid being accountable, people on this blog, and in the profession, feel the results of your incompetent efforts to protect us from the predators who don’t want us involved, the “who needs experts” trend; just like the denial of climate change. Tell us whose minds in congress that you have changed in support of appraisers! You are copying the trend that has infected our country, that fake, fake news bs. By the way, this is the first time I have ever criticized you publicly. If my statements are so “tired” there must be many others who have joined me in criticizing you for being a waste of AI member’s resources.

              • Baggins Baggins says:

                Wait, is climate change an appraisal thing? I can’t keep up.

                • Avatar marion says:

                  Heck yeah, you better be devaluing those water front properties that are going to be under water from rising seas, before the end of the mortgage.

                  And don’t forget about those climate impacted properties that are suffering when they are wet, or dry, or in the sun, or when it’s cloudy and their solar panels aren’t working, or when it’s snowing, and their solar panels aren’t working.

                  Heck yeah climate change is an appraisal thing. Put that in your report.

                  • Though meant in jest Marion you have raised a fantastic point. Seriously.

                    IF man-made (or other documented cause) is in fact, going to cause 10-30 +-feet plus or minus rise in tides in 10; 20, or 30 years, at what point are we obligated to start disclosing it in our reports, and measuring diminution due to long term threat to the existence of the loan collateral?

                    When does all the discourse translate to real perceived risk, and start adversely affecting the value and marketability of low lying coastal land? Are lenders only going to make 15-year loans for low lying coastal property with an elevation of less than 30 feet?

                    • Avatar marion says:

                      Within the past week, I was reading a news article about them building a greater seawall around the San Fran airport, because the Bart extension was built on dumped soil, which is still compacting, subject to erosion, and sinking, making the measurement look like the sea is rising, but the effect of underwater run ways is still the ultimate issue. Just glad I didn’t appraise it.

                      • Subsidence seems to be a recurring theme in California waterfront developments. In L.A. it was blamed (originally) on TUMS decades of drilling, so they started injecting water back into wells. What you describe seems much more likely. Many if not most areas are cut and fill down here.

                        • Avatar don says:

                          Long Beach sued Riverside, because of Long beach’s tasty domestic water. That was many years ago and it resulted in the Adjudication of many upstream water supplies Water Value became separated from land and banks, lenders had to re establish their positions within the justice system. WHAT fun that was for appraisers.

                          And what fun is coming when a building permit is dependent on proof of water. Didn’t Denver steel water from California when they taped through the Great Divide. Remember Land was patented by the Federals to the people, this included Navigable waters. The States control the water within their boundaries.

  2. Avatar TruthBTold says:

    I find it completely ironic that Fannie Mae was in financial trouble as little as three or four years ago, and now they’re moving into a multi-million dollar state of the art building. At the same time, they’re relaxing several of the requirements, rules and regulations banks have been trying to get rid of for years! Can you say PAYOLA?

  3. Avatar Anonymous says:

    Feudalism 2.0
    And they are never “acceptable risk” simply because someone has a good income and good credit rating.

    Unless of course, we believe strategic defaults or “walk aways” don’t happen when neighborhoods change, values are in transition or underlying issues are not discovered by buyers before they occupy those properties.

    Don’t talk yourself into they are okay, under all unknowable situations, simply because the buyers are “good people”. And many situations are unknowable, because YOU did not go see the property and the neighborhood.

  4. Avatar Cotton says:

    Bifurcation is code word for scamming the borrower out of a $600 appraisal fee while paying the unlicensed/not properly trained ex burger flipper $50 and $75 to the gullible appraiser. The result is the lender/amc retains the majority of the fee and the borrower/ investor get a product which is not reliable and most likely fraudulent. All the while the government ignores all the complaints so the GSEs can turn a larger profit selling overvalued/under analyzed collateral backed securities to an unassuming investor. This is modernization?

    I personally had my house valued for a home equity line of credit. Clearly I’m an appraiser so I know exactly what it is worth. The lender sent a realtor out. Value comes in at 315,000 which funny enough is what Zillow says. I’m fully aware my home is worth 375-395. I get the bifurcated report. The signing appraiser is not located in my state. Utilized 3 comps from an inferior school district. Square footage is off by 250 sqft and they missed the basement bath. I refused the loan. I filed a complaint with the state. Fast forward a month later I go to my local bank. They send a real appraiser. The real appraiser’s report comes it at 385,000. All the comps are in my township and school district. Clean report with no issues.

    Moral of the story. Pay crap and get crap in return!

    • Avatar Realrose says:

      We also got a refi and our bank (Key Bank) used a local licensed appraiser and a real estate broker (who didn’t have a card) who knocked on the door and asked to take exterior photos; didn’t ask to see the inside which was completely remodeled 2 years ago, also new roof etc, etc. … I told him he could take the photos and then added that he can’t be a very successful broker if he is out taking photos for appraisers, and told him to hurry up and get the hell off the property. They came in very low, but I want to call the appraiser and tell him I hope it was worth taking all the responsibility for a lousey few bucks. I want to know what they are paying these desperate appraisers!

      • RR if an appraiser signed a garbage hybrid and the value is significantly off you really need to turn the report into the state and let them look closely at it. I’ve done this in Indiana, Georgia, and Virginia. Indiana determined they had no jurisdiction; Georgia is or has fined the appraiser and Virginia is going to take a much harder course of action against the appraiser their because of prior history.

        While we prefer to help appraisers defend themselves, there is nothing about hybrids that IS defensible (from what we have observed to date). Please don’t ignore actual evidence of an appraiser working to undermine our profession. If we don’t self police, then we are subject to whatever others decide for us.

        • Avatar Marion says:


          It could take as little as one medical issue to flip an “acceptable risk” into, can’t afford the mortgage with the medical bills, and find out, the property was over valued, when it can’t be refi’d to clear medical bills.

          Do not make yourselves the target in the sucker game.

  5. Mike Ford Mike Ford says:

    I previously published MISMOs stated intent to do away with hybrids AND (eventually commercial appraisals as well). MISMO takes credit for creating TAF. It is responsible for the UCDP. Read up on it. Hard to find talking points/ opportunities for cooperation. Or you can search old articles here.

  6. Avatar Koma says:

    Hoping it’s because they can’t find appraisers to lend their signatures to this junk. In the past few months I have been getting jammed with calls/emails from AMC’s trying to get me to join them so I can “produce this wonderful hybrid product”. I politely inform them NO THANKS!

  7. Avatar E J Brown says:

    Lord have mercy, what’s next?

    I don’t know how the government can bail out anyone, we’re already in debt trillions of worthless dollars. WTF, the end is near!

  8. Avatar Ralph says:

    If you think it’s expensive to hire a professional, hire an amateur.

  9. Avatar Bill Johnson says:

    Sorry coach, you’re going to have to can that “How you can become rich doing hybrid appraisals” podcast you had planned. I know, I know, only work with A rated AMC’s.

    Seek the truth

  10. Baggins Baggins says:

    QE programs continue on, under a brand new name. What’s 75 billion dollars a day among friends?

    Right on time, coinciding with broadly applied reductions in risk management approaches through multiple sectors including housing, as predicted.

    The recession is guaranteed. Where when and how long it will last are still in question depending on policy.


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GSEs to Halt Hybrid Pilot Program?

by Jonathan Miller time to read: 2 min