Hybrid Appraisals, Invitation to Fraud
Until FNMA released their version of a test format for hybrids (1004P) there was not one hybrid form appraisal process and online form reporting system found that was not egregiously misleading in the entire country. Not one. Not Clarocity’s, nor Clear Capital’s or Mueller Inc.
A “typical hybrid” sample follows.
https://appraisersblogs.com/clearval-value-hybrid-appraisal
Not those crafted in Hyderabad, Pakistan for $8 Billion for just one year’s Wall Street Investments (as published by Cezary Podkul Wall Street Journal) where the preparers claimed to be able to produce 360+ per day by illegally using broker login credentials from state-licensed brokers in America. The entire hybrid concept is predicated on fraud.
When the term hybrid was first introduced it started out as an evaluation in order to sidestep FIRREA’s and USPAP & state regulatory limitations on non-appraisers offering professional appraisal opinions. That was not desired by the hucksters that sell loans securitized by those garbage reports.
So the definitions of different appraisal types were changed, along with the scope of work rule so that (Restricted Use) desk reports could now be mislabelled as “Appraisal Reports.”
In the face of nearly universal appraiser resistance (other than the appraiser owned high volume low fee national value factories), a counter (pro hybrid) sophist argument was put forth. That third party inspections are no different than our old traditional ‘third party’ trainee inspections used to be. Back when lenders allowed properly trained assistants to be used.
The argument was and remains false. We personally trained our assistants “in the old days”. They also had trainee licenses so they had a stake in preserving professional integrity and standards. Before licensing they had a burning desire to become great, reputable appraisers respected by their peers. Once adequately trained, we still interviewed them about every single property they inspected on their return to the office. We consulted with them in detail. We BOTH signed certification and the appraisal reports. We knew who and what we were cosigning for.
Hybrids are not the same. Advertised as 3rd party broker or other professionals inspections, they are uniformly performed by very low paid, untrained property ‘inspectors’ using a checklist – but with no appraisal training and skill. Boilerplate is inserted saying things like “The appraiser deemed the property inspection report by (for example) Mueller, LLC to be credible.” They won’t even list the unnamed, untrained inspector. Are they instead claiming the whole corporation inspected the property?
One originator of hybrids was First American Real Estate Services – just before they bought the number-two appraisal software company ‘ACI’. Their early attempt at a hybrid was so egregiously deficient that the Appraisal Subcommittee and related regulatory agencies had to step in and stop it. First American used to be CoreLogic’s partner which combined was effectively a monopoly.
Specialty niche lenders did not wait for FNMA or anyone else to suggest a form or format where hybrids MAY be credible products. They attempted to impose their fees and format and completion time requirements on the marketplace to establish low turn time and cost expectations. The ordering requirements on these do not meet the most basic requirements under Dodd-Frank to be independent or reasonably compensated for.
FNMA has introduced a test form which could be made to be USPAP compliant. I estimate it would take a minimum of four (4) working hours to credibly complete. Hybrid hucksters market their product as being able to be completed in from fifteen minutes to about forty-five minutes. Even using regression or AVMs to auto-fill the reports would not permit a USPAP compliant appraisal and report to be completed in one hour. That’s not even enough time to research ownership rights, or current zoning and development standards, and it is especially not enough time to verify and analyze online MLS data in sufficient detail to credibly compare properties or derive specific adjustments from the marketplace.
Especially if the appraiser doing the work on a property in Falls Church, Reston or Chantilly property is himself located in Pahrump, NV or Paducah, KY.
Having only a potential to be completed properly does not mean the FNMA hybrids are likely to be properly completed. That depends on Virginia regulators. If you allow NON-Virginia appraisers to desk appraise property in Virginia from other states you will have failed to protect the People of the Commonwealth completely.
If you must approve some format of hybrid use, then I urge you to follow New York and or Illinois rules. Require that the property inspector can ONLY be a licensed appraiser or licensed appraiser trainee; and that they too must disclose the extent of their inspection and sign the appraisal and the certification. After all if it is all done online, how tough can that be?
Establish a pragmatic C&R fee for both inspector (not less than $100 for inspection if they are to adequately inspect the property) and not less than 50% of the VA C&R non-complex 1004 full appraisal fee for the desk appraiser, as was established by the Richmond Regional Veterans Center for real appraisals. I personally think it should be $100 per hour x four hours, but Virginian appraisers and regulators will have to decide that for themselves. Just because it’s called a hybrid, does not mean Dodd-Franks C&R requirement does not apply.
The public and appraisers are watching both state and federal regulators closely. The greatest risk to real estate markets does not take place in identified difficult markets. It comes during the good times, as common sense protections are stripped away one by one in the interest of ‘progress’ & business facilitation. Loans collateralized by hybrid appraisals are the new subprime fiasco of this decade.
Respectfully submitted on behalf of our own Virginia Appraisal Guild Members, and our friends and professional associates at VaCAP.
M. F. Ford, Chairman, National Appraiser Peer Review Committee
V.P. Special Projects, American Guild of Appraisers, #44 OPEIU, AFL-CIO
http://www.appraisersguild.org
You do not need to be a resident of Virginia to comment. If Virginia takes a hard line on this, it will be much easier for other states to follow.
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Read this and at the end, click on the link to post your comments.
I have always thought that creative financing means you can’t afford it.
I copied the whole article from Mike Ford who wrote a very clear assessment of what needs to be addressed regarding the danger of hybrid appraisals. You can’t really call it an appraisal, it is just the same as stealing, so it should be a crime that is prosecuted by anyone who is doing hybrids, including corporations and LLCs who request them. This is no less than a new scheme to rid the banks and realtors of the bother and expense of an appraisal, so they can make deals and churn them out fast.
Just yesterday we inquired about a home equity loan; the rate went down in the last two weeks from 4.65% for a fixed, 20 year fully amortized loan; yesterday is was only 4.02%, and I am sure one could even get below 4% under some other circumstances. There are no fees if you don’t sell for 3 years or before; if you do then the fees are added at that time and I bet they will be steep!
The banker told me when I asked about the appraisal and she said: “We have an agreement with some of the local appraisers who do our appraisals”; I told her if it was a hybrid then I wouldn’t be supporting any program that didn’t hire a qualified appraiser; she said they will be doing hybrids. This is Key Bank! This is a national lender! Does anyone know who Key Bank’s AMC is? I want to know!
I am going to ask her for a list of fees that apply if we sell within 3 years or less; then I will ask if there is an appraisal waiver fee, and what we are going to pay for that!
I will also send her the letter I wrote, adding comments about how FNMA hired Interthinx, operating in Agoura Hills, CA (southern CA), a bunch of Pakistani people who were computer trained, but who had no idea what an appraisal was, nor did they even speak good English; this happened after the 2008 Financial crisis where Interthinx was hired to “review” appraisals and the reviewers were former appraisers with Countrywide and IndyMac, so you know what? Nobody was allowed to kill an original appraisal without a field appraisal done by a licensed appraiser and then only if you could kill all their comps! There was no consideration of USPAP violations, so who has ever been penalized for USPAP violations? I have never heard of anyone who has ever been convicted of USPAP violations!
your thoughts please
Well, it’s true, nobody goes to jail over lending crime. It’s true.
Consumers can avoid the risks created by lenders, by tracking a shortest possible game plan to complete home ownership. There is no such thing as safe debt.
Regarding some individuals at lender outfits spinning tales, telling lies, gaming the system. What’s new?
AMC’s are coming out of the wood work and emailing me to ask if I would complete Hybrids. Both the report itself or to do the property inspections. I’m guessing they are just going down the state registries and contacting each appraiser because I do not work with them. At first I would tell them no with an explanation, but now I just delete the email since they probably do not care why I will not work on these.
Fraud is a matter for the civil courts, not for State licensing authority’s. Licensing authorities revoke, fine or censure a licensee. lenders have the obligation to sue for loss, and insurers may defend against the loss from outside contractors. Our justice system is convoluted, difficult to understand. each and every one involved use this system to build a case for themselves.
Does this make us all guilty? or does this obligate us to each their own situation. That is for appraisers to do the best work, clearly written for the protection of our profession.