Are ‘No Appraisal’ First Mortgages the Future?
A human appraiser usually goes to a home…
Appraisers,
The article, linked here, purports to say that future mortgage loans will be done without using the services of a “boots on the ground” appraiser… "the human appraiser". Why??… because speed and low cost are paramount when people want to finance their largest investment in their life.
From the article:
“The appraisal process, which typically is not automated, remains a problem. A human appraiser usually goes to a home, takes pictures, makes sure there’s nothing terribly wrong with the structure. It takes seven to ten days to turn around, van den Brand said.
But this, too, could be automated, he claimed.
“Appraisals are just data,” he said. Satellites could take pictures of a home. Comparable data for the neighborhood can be looked up. Eventually, an appraiser won’t have to come to the house, cutting seven to 10 days from the process.”
What an absolutely naïve comment by this lender! Appraisals are MORE THAN just data. Appraisals are a verification that the components of a home actually exist in confirmation that those do not degrade the value of the property. Apparently though, the fact that there ‘might’ be something terribly wrong with the structure is of no concern to this lender.
Satellites, or for that matter, front photos only taken by a ‘field inspector’ driving by at 40mph will not reveal all the specifics of a property that the lender really should know about.
I don’t claim to be an expert on the lending appraisal and underwriting requirements of the GSE’s and other agencies who insure mortgages.
But I can tell you this. The raising of the de minimus to $400,000 or higher will succeed in putting appraisers out of business, across this country. That will result in a factual “appraiser shortage” currently touted as fake news by various AMC’s and some lenders who do loans in ‘underserved’ counties. The same will happen if the regulators buy into the notion that property info is not really paramount for first mortgages.
I guess I really should get my resume rewritten to show my qualifications to be a bouncer at a Nevada desert bordello… as I mentioned in a previous essay I wrote. The only problem with this is there are few of those entities that exist, but there will be lots of appraiser applicants… definitely NOT an appraiser shortage.
Dave Towne on e-AppraisersDirectory.com
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I gave up doing drive by appraisals over 20 years ago for lending, except in special circumstances. Why? I would notice little things that weren’t quite right about the property, and would investigate further. Since I work in an area with lots of second homes, I was able to walk up to the house and look in the windows. Turns out that many of these homes had significant issues, such as being gutted, damaged, etc.
Some people argue that 2008 can’t happen again. Not only can it happen again, but it will be made worse if appraisals aren’t part of the equation.
Appraisers are doing desk evaluations … a few years back I consider them but once it was fair to see the expectations were the same as on a full report … I said NO!.
Appraisers need to find a way to express the value of scope of work and until they do .. I don’t care what USPAP says desk evaluations are not appraisals!
I do the occasional desktop valuation, but not the $50-$60 a piece valuations for lenders. Appraisers need to charge accordingly. If appraisers don’t place value on their own work product, neither will anyone else.
Aggressive realty agents count on it. Scooting the human full inspection appraiser out of the picture would be a godsend to the most aggressive salespersons out there. Their footprint is already increasing with the diminished quality of the appraisers services over the past 10 years.
Appraiser need to stop doing desk valuations… it not good for us and its not good for public trust.
I can’t believe anyone would claim 2008 cannot repeat itself while we are replicating the exact same market conditions just as fast as we are able! All while removing nearly every protective measure put in place to stop its recurrence.
Like I’ve been saying for years remove the boots on the ground aspect and your serving up your next crash on a silver platter. An appraisal is more than just data, the appraisal process is science and an art form combined and the people behind a desk making these decisions will never get it.
Ask the Zillow CEO where his program “estimated” his house at 1.4 mil than closed for 1 mil. Hmmm…wonder how that would effect things. Aaa what are worried about the big guys before never went to jail, so no worries.
As for desktops me personally I do not perform them. Just about every time a client asks me to complete one and I turn it down in comes a driveby for the same property @ 4 1/2 times the desktop fee. Your business your choice.
Anyone that knows what appraisals are knows vanden Brand doesn’t have a remote idea of what he is talking about. And THAT perception is one that WE need to change. As a profession we shot ourselves in the foot pretending good quality work can be done in five minutes or even a couple hours and that we have no ‘need’ to go view all the comparable sales or listings. It’s been proven over and over again that AVMs do not and cannot work (except by shear coincidence)…yet we keep pretending that for our own adjustments regression analysis is perfectly acceptable (or worse-required)… even when it can only capture 70% of significant value characteristics and the remaining 30% simply gets apportioned into the 70% adjustments. I’ll take the professional opinions of 5 or 10 (uninvolved in current assignment) agents in their own market as to market impact of physical characteristics over some computer program every day of the week. Their collective knowledge is far more relevant and accurate as rule.
For far too long we have allowed the “absolutists” and mathematicians to lay claim that everything we do can be accurately quantified. They choose to forget (or redefine) that our profession is both science and an art. In balance.
The nonsense in this article speaks to my last comment regarding “Enough is Enough”. Appraisers need to respond to this “greed steering”, every chance they get on social media. Get the truth out to the general public. Spend half an hour a day posting and commenting. The squeaky wheel gets the grease!
Amen, Mike Ford.
we commonally make too little of our own work and our own experience. Math is a part of our observation, neighborhoods are a part of local news. We tooo often use another’s pricing for our living wage. Only we can do something, lets do it ! Raise your price !
The core principal which needs discussed, loans are dangerous engagements. They should not be one button rocket mortgages… The ultimate point of these approaches is to slam dunk consumers so quickly, they don’t have time to apply fair consideration. And when notes go south, the fact the home was likely overvalued will then give the lender an additional point of leverage and profit. They will have more ability to force people out of the home, not save or rewrite the note, and instead evict, hold, resell, and profit from both write offs and the reo sale activity. Then they’ll step in with their llc companies and other large firms, scoop up all that real estate, and hold it long term for increased profit via rental.
That’s not theory, it happens every day everywhere.
It’s been such a wildly profitable venture, they want more of it. Enter raised demins, avm’s, hybrids, rocket mortgages, and never ending advocacy against safe carefully crafted loan approaches.
Smart consumers should recognize this dangerous landscape and take care to prioritize paying the note off and achieving actual home ownership as the highest priority. The lenders are like standing armies, standing between Americans and private property. You don’t own it until the very last payment is made. The only regular justification for refinancing is a notable interest rate reduction, or capturing a shorter note term. If you engage in any of these activities, you’re doing it wrong; refi for cash out, refi to higher rate, refi to longer term, paying point premiums at a brokerage when you could otherwise have saved that point at the credit union, or engage in a new mortgage loan via solicitation when you otherwise would not have done so, you’re doing it wrong. If a salesman calls you about a refinance, be afraid, be very afraid. If you’re getting advice for real estate from a tech nerd and software wizard, you’re doing it wrong. If you’re trusting in a salesman or commission based person to be honest, you’re doing it wrong. If you don’t take a minute to think about it, you’re doing it wrong. If you don’t know down to the dollar what your ‘cash equivalent’ savings or losses would be over the entire length of the term proposals, you’re doing it wrong. Who owns your home? If you’re diddling around with one button instant mortgages, it’s not you…
The top article which Dave linked to, is from a tech advocate at Quicken loans. Yeah… We need more of this?
Top 3,616 Reviews and Complaints about Quicken Loans – CONSUMERAFFAIRS.COM
Excellent analysis and advice Baggs!
My dream is to not pay a mortgage bill and own this home completely. If one ponders consumer spending power, the ability to thrive and have savings, one naturally seeks to eliminate the largest bill on a permanent basis. I wonder if all those people whom went cash out and bill pay during refinance realize they paid a minimum of 1.90c for each 1 dollar they borrowed to do so? Amoritizing debt over a 30 year period ain’t cheap. But it sure is easy with online mortgage apps, to simply click that debt away. My indebted principal amount only goes one direct, down.
If fellow appraisers can stop dissin (putting each other down), we can do a compilation of all of the wisdom that flows through this blog. Not just wisdom, but a contribution to society, valuation wisdom, “keeping the wealth of this country real!” with a 60 minutes flow. Classy as a Sinatra tune – video blog. I’m done for the day! Good night
I’ll take wisdom in real estate for 2,000 please Alex…
TruthBtold – you are right On the money. Based upon thousands of threads and put downs regarding the quality of another’s Appraisers work, on various Appraiser venues, read by Lenders, regulators and the general public Appraisers don’t even respect each other, why would anyone else.
I have never ever seen another profession rag on themselves the way Appraisers do.
With the ability to now see your peers comp information via A la modes SmartExchange, I don’t think there’s been enough raging on appraisers. I used a comp today where the MLS said it sold for $670,000, but public tax records said it sold for $660,000. Per SmartExchange, four other appraisers used the MLS sales price instead of the what proved to be correct, public tax records.($10,000 difference). Proved, meaning it took a phone call to the agent who acknowledged her mistake, and who later in the day updated the MLS.
Seek the truth.
The number of errors in CoreLogic RealQuest; Realist & Matrix is beyond incidental or periodic. In some areas they are wrong MOST of the time (land use and zoning for example). IN other areas such as acreage conversions to SF they have substantial rounding errors that produce net sf errors that always have to be separately explained in reports. When used in automated models, these types of reports produce hugely erroneous results. Other frequent errors are reported room counts, bedrooms and more recently quality and condition ratings.
Yet federal regulators & other advocates of AVMs are more than willing to write these off as statistically irrelevant. Even when we prove over and over again that RealAVM point values are 5% to 50% in error. Or that “ranges of value can run from 10% low to 30% high. A range that is so wide as to be misleading as a value indication for any purpose.
Bill,
There has always been explanations for differing Price. One common one is that the escrow reported on the final decision rather than the price going into escrow. Sales Prices = comps are arranged by several parties, ain’t nothing perfect, a concession was taken out of the loan, a seller’s debt was paid by the buyer, the HOA fees were paid in advance, Lots of stuff happens out there, and that is the main reason for an analyse by people not silicon chips.
Mike, it would seem lenders long term goals are to call the value shots themselves. Sans the middleman Appraiser who currently holds the power to put the breaks on a speeding train. Correct property characteristics aside, The AVM ranges you mention gives them a tremendous swath of leverage. They can lend way more than a property is really worth and after the paper is sold off to investors it’s not their problem anymore, it’s the taxpayers
Cert,
fifty + yrs ago lenders, banks etc were responsible for their loans. They didn’t resell them until the loan was aged and proven. They actually set the market, when savings were strong and the coffers were full they made lots of generous loans, during the winters they just raised rates and did public relations, the in house appraisers returned to the teller’s window.
FANNIE & Freddie slowly became political and took responsibility for debt both contracted and implied. Tranches of debt flowed more evenly during the years, and the market flourished.
Did your 401 increase???
All appraisers have ever done was report, the monied have always had control
True. Heck they could even require a six month payment escrow account so they could even sell technical first payment defaults as seasoned loans. Immediate response is, “Oh no. We have protections in place to prevent that.”
Just like the protections in place when Congress directed TAF to develop USPAP and USPAP had a REQUIREMENT that it be reviewed in the context of its intended use, by competent PEERS!
Current state trend is to look for legal, factual interpretations rather than common sense reviews in context of intended use as perceived by peers. TAFs resident attorney ASB member, and allegedly Ms Hambleton can be thanked for that.
Protect the American Public’s Trust? Sure. Just like one can buy the Brooklyn Bridge or get rich buying Florida swamp land. Appraisers AND the public have been betrayed.