Just Because You’re Paranoid Doesn’t Mean They Aren’t After You
It appears the government sees the future of appraising as one driven largely by Automated Valuation Models, Hybrids, and outright appraisal waivers….
The title for this article comes from a famous quote by Joseph Heller (the author of Catch-22 fame). I thought of his pithy quote when reading the recommendations by the Department of Treasury to the president. The title of the report: “A Financial System That Creates Economic Opportunities Nonbank Financials, Fintech, and Innovation” seems innocuous enough. However, some decidedly non-innocuous observations / recommendations regarding the appraisal industry appear starting on page 103.
The report starts off promising enough; the following quotes appear on pages 103-105:
Property appraisal practices, including a perceived lack of appraiser independence from loan originators and insufficiently stringent qualification requirements, were criticized in connection with the housing bubble and subsequent collapse in home prices. In response, lawmakers and regulators enacted changes to appraisal requirements that have fundamentally affected the appraisal industry. In recent years, lenders and homebuyers have pointed to the appraisal component of the origination process as a frequent source of delays and a driver of extended closing timelines.
Independent appraisers highlight post-crisis changes as exacerbating a mismatch between lender demand for appraisal servicers and the number of independent appraisers qualified and willing to meet this demand. Post-crisis appraiser independence standards enacted under Dodd-Frank have resulted in lenders channeling appraisal requests through appraisal management companies (AMCs) to subcontract with a state-licensed or state-certified appraiser. Partly as a result of more widespread use of AMCs as a market intermediary, independent appraisers report being paid relatively less than they earned prior to the introduction of the appraisal independence standard that gave rise to increased use of AMCs. Appraisers in some areas may be reticent to accept appraisal requests due to the compensation passed through to them. Delays in completing an origination or upcharges for rush appraisals to meet closing timelines may result and are ultimately borne by the borrower through higher origination costs.
Yes, yes. So far, so good. AMCs have largely decimated the profits in the industry, driven out some of the best appraisers, and have lengthened the turn-time for reports. So, your recommendation is to cut out the middleman and return fees to a rational level, right? Sigh…No!
Here are their recommendations, page 106:
Recommendations
Treasury recommends that Congress revisit Title XI FIRREA appraisal requirements to update them for developments that have occurred in the market during the past thirty years. Recent data has illustrated that approximately 90% of residential mortgage originations are eligible for appraisal exceptions established since the enactment of FIRREA by the designated federal regulatory agencies. An updated appraisal statute should account for the development of automated and hybrid appraisal practices and sanction their use where the characteristics of the transaction and market conditions indicate it is prudent to do so.
Treasury supports the GSEs’ efforts to implement standardized appraisal reporting, the GSEs’ and FHA’s adoption of proprietary electronic portals to submit appraisal forms, and the GSEs’ limited adoption of appraisal waivers. While Treasury acknowledges that automated valuation engines and appraisal waivers should apply to a defined and limited subset of loans, and that they may compete with traditional appraisers, these innovations offer borrowers upside through lower cost originations and faster closings, without sacrificing accuracy. However, further application of digital, automated property valuations must be carefully monitored and integrated with rigorous market standards where they are used in lieu of traditional appraisals.
Treasury recommends FHA and other government loan programs develop enhanced automated appraisal capabilities to improve origination quality and mitigate the credit risk of overvaluation. These programs may also wish to consider providing targeted appraisal waivers where a high degree of property standardization and information about credit risk exists to support automated valuation, and where the overall risks of the mortgage transaction make such a waiver appropriate. Treasury supports legislative action where statutory changes are required to authorize granting limited appraisal waivers for government programs. Treasury further recommends that government loan programs explore opportunities to leverage industry-leading technology capabilities to reduce costs to taxpayers and accelerate adoption of new technology in the government-insured sector.
Well, so much for recommending the easy solutions that could actually enhance appraisal quality and turn-time: removal of intermediaries and the return to full-fee appraising.
Some appraisers are not alarmed by the above, but I am. We appraisers make our living evaluating trendlines and it appears the government sees the future of appraising as one driven largely by Automated Valuation Models (AVMs), Hybrids, and outright appraisal waivers. That doesn’t paint a particularly rosy picture for the independent fee appraiser. And, as usual, in discussions involving AVMs and Hybrids there is absolutely no proof offered that such products are genuinely better and more accurate (or even as accurate). No discussion of controls, how to cross-check them, or how liability would be apportioned. Nothing. We are to accept on faith that the less-appraiser or appraiser-less future is something to be desired.
Appraisers are seen as an impediment. A roadblock to be driven around. An obstacle to be avoided. The ideal for the lending world appears to be infinite loans and infinite growth. The medical community has a word for unrestricted, unlimited, and unregulated growth: cancer.
Abdur Abdul-Malik on e-AppraisersDirectory.com
- Expert Wants to “Eliminate” Appraisers - January 7, 2019
- First Impressions of Clear Capital’s AVM - January 2, 2019
- Just Because You’re Paranoid Doesn’t Mean They Aren’t After You - August 3, 2018
Wow just WOW!!! “90% of residential mortgage origination are eligible for appraisal exceptions established since…FIRREA”
This could put us out of business
Needs to go viral. Please post a link on the AF for us would you please. An organized letter writing campaign? This website has 4+ rich years of disclosure, send them here.
I haven’t been able to login to AF. Not sure if I’m blocked or what.
Brian Jarrad
Well no sh**t
They never learn… if you think the 2008 crash was bad, just wait
Didn’t you read. “Property appraisal practices were criticized in connection with the housing bubble and subsequent collapse in home prices.” We appraiser’s were the cause of the housing & banking meltdown. Not the banks, Not loan officers, Not no doc loans, Not toxic MBS, Not Moody’s and Standard &Poor’s fake credit ratings….. Remember. So eliminate the appraisal process and all will be well.
Maybe this will only wipe out the swamp of bad actors again who want to take over the industry. I can guarantee you that it wont take long for lenders, borrowers, buyers and others to realize that the model being pushed forward will be flawed. I do feel it’s time for appraisers to take a stand about the data we provide in our reports. This data should not be mined and how do we stop this from happening. For example Zillow would not be Zillow without mls servers allowing them to mine their data.
Appraisers already ruined their own see addenda credibility with all this outsourced typing and inspection runner nonsense. Appraisers at large asked for a more automated climate by way of their weak standards in report development and over emphasis on quick easy automated approaches rather than holding to a more traditional labor intensive logical effort. Art not a science. The 48 hour turn time finally came home to roost.
Pg 90 and beyond are where it gets good from an appraisers perspective. We’ll just sweep the MERS clouded title issue under the rug, place emphasis on consumer savings, make sweeping assumptions about the credibility of hybrids based on the lenders benefit, and claim that because a portion of poorly informed millennial and older consumers want fast and easy, that traditional checks and balances systems are a thing of the past. Trust us, we’re here on behalf of consumers best interests.
Come on guys, the AVM comes back kills the sale by $40, 000 because it hasn’t seen the house, people screaming up and down that they finally want an appraiser, let the s*** hit the fan.
wait for the homeowner who just did a refinance that’s given $60, 000 more than he should have he then turns around figures it out and says I’m out of here.
how long do you actually think that this nonsense is going to last before somebody says we really need to go back to using live people again.
I agree 100% Chris. I think this will be short lived
This has been flying under the radar for 10 years, which is why we’ve all struggled for work despite upturns in lending volume. Re; Yesterdays article and all the privately submitted letters regarding commercial work and proposed hybrid regulation. They came out of the woodwork to object. To our surprise, confirmed by those article inclusions and this report, lenders have been gearing up for hybrids and testing them out in volume for a very long time now. Appraisers have been doing them by the millions.
They give token credit that the appraiser is the best person for the job of value analysis and then propose credits based avenues to licensing, simultaneously proposing a business model where fewer than 1/10th of the appraisers are needed to actually do the job. The lenders are likely to be most appreciative of having complete internal control over the valuation process without interference from this annoying vast network of independent state licensed appraisers. They’ll increase volume, consumer capture rate, and they’ll zip through these mortgage financing products before consumers have the necessary time to make sound financial decisions for themselves. One button mortgage. Already done.
I think the nugget in this report is “…these innovations offer borrowers upside through lower cost originations and faster closing without sacrificing accuracy” The report goes on to say these “innovations” must be carefully monitored. Who is going to be certifying the accuracy and carefully monitoring these “innovations”…the lender?…the GSEs? (it works so well when the fox guards the henhouse). The Treasury is overlooking the Public Trust piece in this report. Appraisers (the only unbiased parties in a home loan transaction) should be the ones who carefully monitor the accuracy of the valuation process with an appraisal. Faster and cheaper isn’t better for the stability of the housing market!
Just shows the utter STUPIDITY of the Treasury. Hopefully, Trump is smart enough to tell these idiots to “F” themselves and let’s do an AVM on their personal properties…
I just talked to her realtor, she had a home line of equity done, the person that they sent over to collect the data, did not know the difference between vinyl siding and aluminum siding, and ask the dumbest questions, the realtor said she was scared to death for somebody to do the evaluation on her house, they gave her some money but they low-balled the value of the property huge.
Abdur my friend, NOTHING about this proposal is innocent including all the non appraisal aspects.
Re-read words like “Harmonize” which I think is a technical term for hoodwink the voters. The 222 page proposal literally strips away every single protection consumers have won over the past 50+ years. You got further than I did. I gave up at page 77 (I actually have work to do today – lots). Just the first 25 pages is enough to tell it is pure garbage!
This is the worst proposal to strip away so many consumer protections in one fell swoop EVER! I think they are draining the swamp so they can replace it with effluent direct from the congressional toilets.
My favorite line was that they want to give financials institutions more room ‘…to experiment with safe new procedures…’ which is WHY we had to pass regulations in the first place!