PIW & ACE Waivers Still a Hot Topic
A few weeks back, VaCAP asked appraisers to start a conversation with agents and brokers about the ACE & PIW Waiver Programs being used for purchases. This is an opportunity for appraisers to gain more non lender work. As it turns out, appraisers are not the only ones that are concerned about these program.
The National Association of Realtors (NAR) sent a letter Director Melvin Watts of the Federal Housing Finance Agency expressing concerns over the use of these programs. Specifically siting lack of transparency on how the use of these programs will ensure a safe and sound housing market. NAR reminds Director Watts of the housing market collapse, just a short 10 years ago. To date, the GSE’s have not made their due diligence information public, so the question now becomes: Was any due diligence done to ensure the housing market will remain stable with the use of these programs? See the letter here. Well worth the read.
The letter from NAR is not without controversy though. One appraiser has commented:
“I am offended that NAR is using an increase in appraisal fee as justification for the use of an AVM. If NAR is so concerned with the a minor increase in an appraisal fee to consumers, why are they not encouraging realtors to lower their commission percentage? This is massively hypocritical!
NAR gives no context to why there may be a trend in the increase of appraisal fees. Using the increase in appraisal fees as good reason for use of an AVM is a disservice to the appraiser members of NAR!”
What’s your take on the letter? Does NAR support their appraiser REALTOR® members? Is NAR out of touch with what is happening to the Real Estate Industry? Does NAR understand the increase of appraisal fees and the shortage of appraisals is a direct result of AMC’s? What about Zillow and other companies eliminating the sales agent? What is NAR’s position on this new development?
On the flip side of things, Freddie Mac CEO, Don Layton has made some pretty interesting comments in an interview with Politico Magazine. He talks about risk and the safety net of taxpayers. Here is one that stands out:
“We have tons of capital; it’s just off the books at Treasury.”
Is Mr. Layton stating he is not concerned about risk because he has the taxpayer’s money? Playing fast and loose with taxpayer money does not set well with most Americans.
And this one, concerning the ACE Program:
“Nobody’s unhappy except the appraisers.”
Well that is not exactly truthful. Did Mr. Layton read the letter from NAR?
Closer to home in Virginia, the Richmond Area Association of Realtors has taken a step to ensure the local housing market remains stable. The Central Virginia Regional MLS Purchase Agreement has been revised. Here is an excerpt of the new verbiage to help protect the local housing community and the buyers:
If the contract has an appraisal contingency and specifically states the appraisal must be ordered within the 15 days, does the lender or Freddie Mac have any legal right to waive the appraisal? Phil Crawford talks about this very issue on his show today. Listen to Voice of Appraisal E173 here.
Our friends and colleagues in West Virginia have come up with some talking points and solutions to discuss with your representatives: Please call, email, write, etc, your representatives on this issue. Thank you West Virginia for sharing!
Talking Points and Solutions:
THE ISSUE: As the House Financial Services/Senate Banking Committee actively debate housing finance reform, I am calling to raise concern with Freddie Mac & Fannie Mae’s new Property Inspection Waiver (PIW) program which causes unnecessary risks for property owners and taxpayers. The time and cost issues are solved by banks ordering appraisals direct, because AMCs are the inefficiency in the system, and not required by law.
BACKGROUND:Â Since 1994, GSEs has been exempt from appraisal requirements established by Congress on the basis they would make responsible decisions. The market place wants government to reduce instability in housing, not create it. The objective of the GSE to capitalize faster by implementing PIW pushes the risk of instability that could spread throughout the financial system with nothing to fall back on. Better plans exist to fulfill both lender and enterprise goals.
THE CONCERN: There is a race between Freddie Mac and Fannie Mae on who performs the least amount of care to homeowners and taxpayers. According to the Federal Reserve, the Federal Government owns 40% of the 8 trillion dollars of the Enterprises’ mortgage backed securities. Competition between Freddie Mac and Fannie Mae should not result in such power plays at tax payer’s expense. The appraisal fee is minimal in comparison to other costs associated with the mortgage marketing and servicing processes which are not being identified. The independent, visual observations and analysis of property conditions by appraisers are crucial to the stability of the housing economy for purchases and refinances backed by the Enterprises.
PIW sales exposed to the market place without proper vetting or alert present added concerns. It takes one inflated sale to ruin a neighborhood housing economy. It’s dangerous to allow the GSEs to double down against the market place and appraisers so specifically in this manner, especially while they’re still in conservancy.
This is not however the first-time the Enterprises have advanced appraisal waivers. Similar actions were taken by the GSEs in the early to mid-2000s, and the results were disastrous to our financial system and consumers. The GSEs currently hold more than 5 trillion dollars in securities in the world banking system. Reducing appraisal requirements sends the wrong signal to mortgage loan sellers about the importance of fundamental risk-management practices.
ACTION REQUESTED: For these reasons, I ask you to call on the Federal Housing Finance Agency to prevent the Enterprises from using the PIW until they demonstrate consistent safe and sound operations with full disclosure and transparency to the market place. Also, as Congress develops housing finance reform legislation, I ask that any legislation ensures the Enterprises’ appraisal requirements are used to enhance their safe and sound operations.
Thank you for supporting VaCAP and the Network of Coalitions throughout the country!
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- It’s Just Responsible Journalism! - February 21, 2024
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Overall I think the NAR letter was a well written, honest document with numerous valid concerns identified.
I also think it side tracked from focus on it’s own expressed concerns by suggesting AVMs may be or have been potential solutions to the temporary and isolated instances where turn times became longer due to temporary or cyclical upsurges in demand.
It had an element of ‘you really shouldn’t do this, but if you do…’ add some meaningless protections.
The cautionary recommendation by NAR to be careful and appropriately selective in the use of AVMs will get lost in the bureaucratic Federal Regulators interaction with FNMA and other GSEs.
Eventually ALL property will be deemed suitable for AMVs by self serving loan originators and profiteers…just as it was with the old 704 Drive-By that morphed into the 2055;. That ‘technological advance’ was so the pretense of a more meaningful analysis and evaluation than was actually performed, could be conveyed to investors.
Not ALL technology is beneficial to consumers.
By the way, once Big Data has supplanted the appraiser, who is going to need the Realtor® ? I have over 47 years experience in the RE & finance industry and would not think of buying or selling real estate without a Realtor®…but then I know of the pitfalls and benefits involved. Do the millennials really know the shortcomings of R.E. tech?
The reasons for my insistence on a Realtor® are many, but once automation comes into play, its promoters overlook all those reasons. Especially the ones about future liability long after the transaction.
I’m not anti technology or progress by any means. I LOVED my old FormFil PC+ appraisal software. It didn’t pretend to be anything other than what it actually was. I even liked the old dos Heyn/ACI, and WinTotal. I’d probably even like Narrative One if it were not an annual subscription service.
Unfortunately growth in technology and it’s benefits have not been honestly portrayed. It has developed in an amoral environment that carries over to the way software marketing is conducted. Is there ANYONE that really thinks social media or online blogs are reliably honest information sources ‘most of the time’?
The same applies to software peddling.
WHO does cloud based technology actually benefit?
The appraiser that has more than four times as much work to perform and report or; the developer that found out they can rent their product for as much per year as they used to sell it for?
How about for Brokers and agents? We USED to sit across the table from sellers with agents for both sides presenting a single offer and NEGOTIATING a deal suitable to both sides. Now its a case of “Present your highest and best” offer out of the gate and “offers will be accepted and reviewed over the next week or so and if you are deemed worthy” you may be selected by the sellers. A take it or leave it atmosphere.
Think you can enhance your offer by over bidding on the property? Be careful! Some actions being promoted by technology actually defy most definitions of market value. You will likely pay more than it’s worth in the market to anyone other than yourself.
When I sell my property, it will NOT be through a broker that thinks an emailed offer without both agents present is going to be acceptable.
Nor will it be through a broker that routinely advertises how they are always getting 5% or 10% more than the listing price. If they are that incompetent in determining what price to offer a property at, why should I trust them with the listing?
Whether they are so busy they cannot present their own offers for their $30,000 (gross @median) commission, or whether their software peddlers told them how much time they can save by using computerized forms and email or MongoFax, I’m not hiring a broker that I do not get the personal professional level of representation I believe to be necessary.
NAR pointed out numerous issues and challenges to be addressed but provided no firm solutions. They expressed agreement with low LTV 80% loans where appraisers are not needed but no one has said how that 80% threshold is going to be determined without an appraisal!
I have a possible solution. Let FNMA and anyone else that is not covered by any form of taxpayer guarantees; insurance or back stopping such as ‘too big to fail’ use whatever method they want to make loans. That includes no recourse to any FDIC bank for any reason by FNMA or it’s investors. NO BUY BACK provisions at all. No recourse loans.
Then give the SEC all the teeth and enforcement authority it needs to insure that investors in FNMA bundled securities are not being defrauded.
I guarantee the investors will then insist on valid valuation methods.
Methods that don’t rely on cyber-smoke & chicken bones; Ouija boards, crystal balls or twisted explanations of how ‘science’ and big data can be “leveraged” for anything other than prying taxpayers wallets open.
PS-Disclosure I’m an appraiser Realtor®…but that doesn’t mean I can’t or won’t think for myself.
I suggest to Brokers and Borrowers regularly that they should first try PIW if it is available and offered. Fast, cheap and gets the job done. If it doesn’t work or can’t be used for one of multiple reasons, then step it up to the next tier of collateral valuation which could include up to a full appraisal. Appraisers in many instances are simply rubber-stamps and in other cases are fraud-enablers. Appraisals done for mortgage transactions are done on behalf of the lender, not the borrower or R.E. agent, regardless of the “Appraisal Contingency Clause” in standard CA-RPA purchase agreements. NAR has a valid argument if the borrower is being charged for a ‘full appraisal’ but an AVM is delivered instead. In those cases, the borrower is probably being cheated by the AMC or other vendor. Properties do not have a “precise” value, although many appraisers believe this to be so. The automated systems need to be “close enough”. With regards to any physical property factors, the best money a buyer can spend on the entire process is for a Home Inspection Report. In those cases where PIW is used, and there is an appraisal contingency clause, an appraiser can be hired directly and independent of the lender.