The Elephant In the Room: Fannie’s Modernization Program
The Elephant I refer to is simply this: Fannie Mae’s modernization program is going to put a lot of appraisers out of business.
It’s all “lender centric”.
It’s all about better, faster, cheaper, appraisals (with lots more data) for lenders. As an appraiser, all I see are sticks… no carrots. Nobody wants to talk about the Elephant in The Room.
Post COVID 19, business was excellent; fees were high and we profited. High interest rates killed the market and most all of us now are not profiting. Losing money is not sustainable for any business and waiting for the next boom may be a failed strategy.
The need for appraisers in the next boom will be reduced by Fannie Mae’s modernization program. Fannie and Freddie will ratchet appraisal waivers up or down, as needed, to mitigate “appraiser capacity” problems. This modernization program, after all, is intended and designed to do exactly that; produce greater efficiencies for lenders… but it will come at the expense of appraisers.
Fannie and Freddie officials both claim that their modernization program is not intended to put appraisers out of business… rather, that appraisers are an integral part of the program. They speak with a forked tongue! While they’re telling us that they still love us and need us, their appraisal waivers have reduced our business by 30% to 50%! They even admit that the prevalence of waivers is likely to increase once the market begins to improve. Yes, they will still need appraisers, just not as many.
I’m scratching my head and wondering just how much business will be left for appraisers as this modernization program goes into full effect. I suspect that our software vendors, education providers, and AMC’s are holding their collective breaths too because without us, they’re all out of business!
The latest Appraiser Capacity graph indicates that our ranks may have already fallen by about 10,000 over the past two years to a population of about 30,000 active appraisers! And that has happened before this elephant even walked into the room.
Will desktops and hybrids be lucrative? Are we all supposed to become staff appraisers under the thumb of a few select lenders disguised as AMC’s? Just how profitable will this business be and will anyone want it?
Thrashing appraisers has become a growth industry. Appraisers get hit with charges of racial bias, reports are red flagged for “biased” words or verbiage, ridiculous, random complaints are filed against appraisers by Fannie Mae with state appraisal boards, and parasitic AMC’s continue to plunder appraisal fees.
Read the latest posts and remarks in Appraisers Blogs, and you will begin to understand the level of discontent among appraisers. Once you do, you will realize just how big this elephant really is.
Add it all up: record low mortgage originations, parasitic AMCs, low fees, unprofitable businesses, charges of racial bias, our advancing age, and a bleak future thanks to Fannie’s “modernization program”.
All this may be a “bridge too far” for a lot of us. Fannie Mae may find that there will be few appraisers left to come to their “roll out party” in 2025.
It appears to me that the AMC‘s have put the lenders in a very precarious position due to Trid and Aarea, as well as Todd, Frank. They have continually beat down appraisal fees without passing on any reduce price to the consumer when this surfaces there should be multiple class action lawsuits to turn the tide.
Next we have the statement from the Supreme Court regarding artificial intelligence. They have come out and said that artificial intelligence cannot, and will not replace the law or any other reasonable profession. This is because most professions that require reasoning, contain a great deal of “Gray areas“.
Artificial non-intelligence is more like it. Those softwares don’t program themselves. Qualified appraisers are not coding them in or playing any substantial role in their development either. Just a bunch of young tech people with rather distorted ideas of what appraisal valuation service is, and how the human elements of experienced qualified observation and reporting relate to the infinite possibilities in the real property housing realms, in the real world outside of the tech bubbles. I have a very special rule which I adopted a very long time ago; I do not talk to robots. I wrote a letter to Judicial Watch hoping they might get involved in something class action wise. Jeremy Bagotts latest article mentions ‘The Institute for Justice’, a story about how a state licensing board tried to prohibit the free speech of a retired engineer because he did not have an active license, how he fought back with the help of non profit legal advocates, and won.
https://ij.org/ Watch the video about the retired engineer. A similar vexing situation may be in store for every appraiser out there, whom may one day allow their license to expire as they have retired. Will we be one day prohibited from even advising people with your decades of expertise, even if you’re not technically ‘providing appraisal services’?
https://nitter.1d4.us/jbagott
No entities care about appraisers, our profession, or if we even exist, except us appraisers. The only way for us to become relevant again is for the public to see what happens when they take the only valuation professional out of the process and the very real harm it will cause to every homeowner. The exact way we currently PROTECT the consumer is the reason the greedy powers that be are pushing us out; so they can manipulate values to their liking just to get the deals done without checks and balances. Well, we’ve all seen and read about how that went in the past. Once enough homeowners start trying to re-sell or refinance and their homes are all worth significantly less than their last fake appraisal replacement was, I hope we all have a good seat to say, “we told you so,” while we once again watch the shit hit the fan, due to sheer greed.
‘Powers that be’. Mr Bagott wrote an article about that recently too. If anyone cares to pontificate how this protects the public trust, be my guest. The revolving door keeps on spinning. Your tax dollars, hard at work.
https://mailchi.mp/cfa902bc341e/meet-the-special-interests-who-have-captured-hud-9094146
There is one exception to your observation: “Losing money is not sustainable for any business”. FNMA manages to lose money year after year after year…yet stay afloat. Perhaps it’s time for appraisers to apply for membership in the Perpetual Conservatorship Club.
This comment made me think about the scale of these investments. Fannie’s profit loss summary, early 2023. Am I reading this right; 40% of seniors are on adjustable rate loans?
https://www.fanniemae.com/media/46286/display
https://www.msn.com/en-us/money/realestate/fannie-mae-quietly-scrapped-a-program-that-could-have-saved-americans-thousands-of-dollars-in-insurance-costs-reports-say-but-here-s-why-it-might-not-be-a-bad-thing/ar-AA1m33xu
That’s fun. They tried to pass some title waivers deal too, and it was shut down. The logic for scrapping was; ‘According to the Journal, after extensive backlash — mostly around Fannie Mae’s lack of experience with title insurance — the pilot program was scrapped’ / Why doesn’t that same logic apply to appraisers? Fannie does not have experience in providing valuation services either, that’s always been the appraisers position.
https://insights.issgovernance.com/posts/in-rare-jury-trial-fannie-mae-and-freddie-mac-shareholders-recoup-612-million-against-us-housing-agency/
FHFA sued by investors. FHFA advisory groups are the ones demanding Fannie and Freddie move forward with appraisal automation even faster. Who’s steering the ship?
This makes me think, are we complaining and arguing to the wrong people? Would the Securities and Exchange Commission be interested in the appraisal industries pending demise and all this risk people speculate will eventually be realized when they automate the appraiser away completely? Via the domino effect of systematically applied stale data and off base algorithmic avm modeling which will inevitably lose accuracy to ever greater degrees as fewer and fewer human appraisers provide contemporaneous data input and current analysis into the CU system? Take these concerns all the way to the top of the ladder with the SEC? The stakes are high. They’re circumventing sound checks and balances systems every time they issue an appraisal value acceptance waiver or allow an amc to manage order distribution. If it does not make sense for title, it does not make sense for appraisal either.
Though that was interesting, sort of a different perspective. I wondered, why is there perpetual conservatorship in the first place? Then I searched; ‘FNMA loses money’, with a 1 month and then 1 year time limit. Quite a lot. I’ll quit trolling now, thanks though.
https://www.sec.gov/
Fannie Mae’s introduction of “Data Collectors” in March of 2023 showed how much control they want regarding the valuation process from independent appraisers. A data collector is not insured, or licensed or certified. They are paid by the hour by the lender. Yeah, true independence!! But in 2009, we were told that because we were connected to a lender, WE were a problem, thus the need for AMC’s. Forked tongue indeed.
Remember, it was then ny attorney general Andrew Cuomo who filed the complaints against the fha fee panel leading to the creation of HVCC that resulted in the middle.men AMC getting our fees.
it took him becoming Governor and many lies for the rest of the world to figure out what they were doing. Now they want more and do not want the unbiased appraiser in the way.
Yes, our “great” ex governor almost killed off the appraiser’s income back then; now FannieMae is taking over the reins. It took me 2 years to regain the fee structure I had prior to that situation.
As a California Certified Appraiser that also holds a California Real Estate Broker License, I saw this day coming over 10 years ago.
99.5 % of my appraisal work is Estates, Divorce and Expert Witness Testimony which I use General Purpose Form Reports.
So I continue to stay busy, the other .5 of appraisal work my business plan of “Nothing but the Rush” which i complete reports in 48 hours from inspection and charge large fees.
No data collectors for me only Full Inspections and nothing else.
The new appraisal forms which appears to be a form with a shopping list of boxes to check is not part of my business plan now or anytime in the future.
I am still hopeful that during this Presidential Election Year, the mortgage rates will drop in 2024 and create both a Refinance Market and Sellers Market with more homes to be added to the Real Estate Market for Sale.
If someone starts any more wars, then all bets are off, which will continue to create lending hardships for the housing industry.
Hi Flash, totally on board with your process. I also do Estate and Divorce work and have been asked to be an Expert Witness. This work helps me know that being a Certified appraiser IS a profession that requires expertise.
There are several books available on How to be a Successful Expert Witness and How to Prepare for Depositions, Etc. In Court Testimony, all you have to do is tell the truth and artfully answer the questions.
Court work can require 100’s of hours of prep work and then can interfere new work coming in so you need to manage your time wisely.
Yup……..I did the same thing(gave up on lender work) back in 2003. No regrets. The transition took some time and my income decrease, somewhat. But, non-lender appraisal clients paid better and they have been more loyal than AMC/lenders.
Ditto, did the same thing 10+ years ago. Most of my business is pre-listing, cash sales, Tax Appeals and Estate (Date of Death Valuations). Also soon to be retired. 2025 will be horrible for our profession and I will be out of here! Thank GOD!
Will one of you appraisers whom is working estate and expert witness please write some articles about that? The stories I’ve heard of divorce related requests do not sound like my cup of tea. But estate, and working with the families through probate after passing sound like a reasonable opportunity. Can appraisers carve out opportunities in those realms without ever having to actually go to court and be on the stand as an expert witness with all that pressure involved? My primary goal is to stay out of government buildings, ha! Or just talk about that here, there are not very many limitations to this blog. Thanks.
Appraisal work for Divorce settlement can certainly be sticky. The best way to avoid this stickiness is to accept the appraisal as a 703 Expert witness bases. Under this a 703 witness, both parties agree that they will accept the appraisal(only 1 appraisal) without any objections.
Thank you. This is terminology not typically present in GSE lending work. 703 expert witness. Apparently this is also state specific.
https://www.law.cornell.edu/rules/fre/rule_703
A substantial portion of well developed appraisal is based on logical inference… Recognized methods is also a somewhat subjective topic. I’m more inclined to the idea of differential proportions, that all else being equal, the need for applied adjustments becomes minimized. Or alternatively that if there are scarce ‘good comps’, the adjustment scales may need to expand. Then you’ve got mismatching benchmarks to value when market participators, although theoretically applying the definition of ‘fair market value’, are not actually fully equal in the real world. It’s all subjective which is where the opinion based aspect of appraisal service comes in. It’s all inference and data gathering, that’s the whole enchilada, also what roots the aspect of non advocacy in place. ‘Best of ability developmental methods.’ Thoughts? Solutions? Appreciated, thank you.
hm, I do not do divorce cases because i have a speech impediment and will not be willing to speak on a stand in defense of my appraisal. What is the 703 expert witness basis you speak of? I am in Minnesota. Does this mean they can not call me to the stand?
In my state, a 703 expert means that both sides agree to “accept” the conclusions of an expert (appraiser) prior to court proceedings. Thus, the appraiser submits the report without any reviews or questioning process.
Yes, this was on the horizon 10 years ago; according to all parties involved in a transaction or refinance appraisers are too expensive, they kill deals and they hold up closings. The agents want it to close, the seller wants to sell, the buyer “loves” the home and wants to buy and the lender or FannieMae doesn’t make any money until a mortgage is signed, so there is NO ONE in our court; the Appraisal Institute has NO clout except to fine appraisers who commit a “typo” in the report, otherwise all they do is come out with the stupid USPOOP every 2 years, a bunch of doddling old farts sitting around trying to figure out a way to extract more money out of the hard working appraiser. Non-lender work is my goal for 2024 as well as portfolio lenders who make their own rules…I may take an income “hit” this year and I may have to dip into the money I made during Covid, but so be it…in my humble opinion the role of the appraiser for lending is almost a thing of the past except for the real oddball or complex property.
That’s the rub though. If not for these modernization programs, there would still be enough routine appraisal requests for everyone to get by. Amc’s redirected every single property inspection duty to realty or even non licensed people, rising demins cut away all the easy work which was invaluable to the trainee mentor structure, now waivers and value acceptance automated programs cut away even more working opportunities. It’s true that the only full requests these days are high risk high liability and/or dealing with tentatively qualified high risk borrowers.
Appraisal modernization is modernizing tens and tens of thousands of qualified professionals and associated companies whom provide us services, right out of their careers and jobs. In turn placing the financial stability of the largest mortgage lending apparatus and all of the investors behind them into a position of untenable risk with uncontrollable unpredictable consequences. Automating the human appraiser away is not to save anyone a dollar or a day as the talking heads claim. The GSE’s are failing in their duty to the public and their duty of care to provide reliable and fair access to lending systems. This is one big setup to short the market and drive untold volumes of properties and wealth into the hands of corporate owners. You will own nothing, and be happy.
Let’s check the old meme files for something elephant related. Here is a good one. Ignore the problem.
Understand this…the Appraisal Institute has never exhibited effective leadership or representation for the interests of appraisers preparing appraisals for “mortgage lending purposes”. So, don’t expect that to be or change in the future. AI is set up to address and/or represent appraisers in the NON-lending appraisal arena(condemnation, estate work, expert witnessing, complex appraisal work, etc). On the other hand, its a very know fact the appraisers doing work for lenders have never been a cohesive group w/o much influence. Thus, the lenders control the entire appraisal process.
Bummer.
USPOOP? That made me laugh. The rest of your statement rings true. I have considered on making the transistion to becoming a Realtor based on the first 4 sentences of your statement.
I think appraisers should have a Real Estate License as well and here is why. Many times in doing appraisal for Estates at a future point of time, because the heirs to the estate like and trusted me that they also wanted me to represent them as a listing agent.
As long as you disclose in escrow that you did preform a prior service for the seller say an appraisal, then you have met the disclosure rule and are able to receive a commission in a real estate sale.
Its a great way to have two streams of income and an umbrella policy EO Policy to cover both Real Estate Brokerage and Appraisal Work. Just selling one house commission is equal to writing in my neighborhood to 72 appraisal reports.
Additionally, I would never use a comparable sale that I had sold in any report to avoid a grey area of appraisal reporting.
That’s my business plan in a Nut Shell and somehow i just keep on staying busy as all getout.
I have been in the appraisal business nearly 39 years. Back then anybody with a clip board and tape measure could call themselves an appraiser. If you wanted to have genuine credentials you took formal training through one on the professional organizations, completed the coursework, got up to five years’ experience, you were tested for your knowledge and submitted a demonstration report that was examined by a national board. Only then could you receive a professional designation. Unfortunately designated appraisers were few and the quality of appraisals was “uneven”.
In the late ’80s the savings and loan crisis revealed that weakness and the federal government mandated minimal standards for and licensing of appraisers which generally improved the overall quality.
Ten years later another crisis occurred, real estate fraud from lenders, investors and appraisers conspiring to overvalue properties leading to massive losses. The result was to take steps to ensure appraisal independence from external influences. The goal was to insure not only competence but independent analysis.
Another ten years went by, and we had the great recession pointing out that the lending system was flawed in that the wrong parties, those who stood to benefit from originating and selling loans, still has far too much influence over those tasked with make secure loans (too little has been done to eliminate that).
That brings us to present times where the Fannies & Freddies of the world are moving to what they deem to be a better, faster, cheaper process. Under this new scheme a data collector with as little as three hours training in the use of a phone app and no training in valuation will do a walk-thru, take photos and then send the data for a value. In some cases, an appraiser will review the data and arrive at a conclusion. (remember the children’s game telegraph) In other cases, an in-house algorithm will estimate the value. In either case something is lost either from the lack of an appraiser’s firsthand expert observations or a truly independent value conclusion because the algorithm and the persons creating it are employees of the institution.
So, it appears that we have come full circle.
Parted ways with Lender appraisals long ago, especially through AMC’s. Love the profession without having to deal with those parties.
This outlook is bleak, and sadly spot on. The industry is on life support with no shortage of groups that are ready and willing to pull the plug. The tradegy is the skill sets most reasonably experienced appraisers are still sorely needed, the work still needs to be done by an unbiased third party. The markets have been very dynamic, prices have been trending up for so long people seem to have forgotten about 2008, prices do come down. As the rates doubled over the past year or so logic says prices should fall, yet the hold steady or even increase. Something doesn’t smell right. A few bad news reports about data collectors and a market correction lenders will realize using an actual appraiser is good business practice, and actually pretty cheap. A few hundred $ to save tens of thousands is a good investment imho.
Excellent analysis Mr Minzenberger. What is holding the market up, given the dramatic disruptions?
Word on the street is that corporate residential real property holders, whom not to long ago anticipated continued rises in rental income for investment purposes, are now divesting substantial portions of their real property stock, previously acquired and held as REIT’s in perpetuity?
Things are happening and for those well informed, this may appear to be the next working opportunity or client solicitation lead. Certainly has kept me going. Pure dumb luck really, as I have apparently landed the miracle short term client at a 1 in 1.3k probability ratio. (number of licensed FHA appraisers in the state of CO.) Sadly, not the case, because most of the available client solicitation opportunities along this avenue have fallen to the amc model.
Who needs an appraiser anyways? When one finds themselves outside of federally regulated market valuation guidelines, why not pander to the most readily available purchasing entities whom have cash in hand?
Thanks.
Mr Baggins, can you elaborate a little more regarding “the next working opportunity or client” I think I follow you, but I am asking because clarity is precious.
Stroke of dumb luck actually. Remember how I was always dreaming of professional lawn mowing? Scooped up a rare client ahead of amc’s. Estate investment related. Probably going to run out soon and it will be the end of the line for me, any day now. The sales agents are still having a good run so I will quite soon have to make a choice; Go with sales with focus on estates or find a new industry and career entirely. Sorry, I know that’s probably not what you were hoping for. Don’t mistake me for someone successful that’s for sure. I’m just good at research and reports and such. Have a good one anyways. Thanks.
there’s a big push to limit and outright forbid large corperations from buying up residential property in many towns across the country. Changes in the lending regulations is also in the works, it used to be investor rates were significantly higher, loans were renewed every 5-10 years …. if it were just a little harder for companies to gobble up SF homes the markets might stand a chance for a correction. Regulations —– Appraisal 101 is EGGS, Environment, Geography, Goverment, Scarcity —- change any variable, boom!
EGGS. That’s interesting, cool. I tried to search that and just got a bunch of stuff on chickens and green energy tech, lol. WAGS. Wild ass guesses. That’s for when the eggs break.
Lets hope some of those changes are incoming sooner than later, and some later rather than sooner. Like corporate investors are the problem why people don’t have houses and can never get a decent deal on a fixer upper or old home anymore. They don’t buy just one, these corps buy properties by the hundreds, by the thousands. If they invest in development they want high density stack and pack housing too, no more backyards or room to breathe for anyone. For your protection and the environment of course. More changes in lending regulations? It took me a decade just to get my mind around the last updated set of regs. Lenders write all of that anyways, consumers will never keep up. Wake me when it’s over.
EGGS came for Joe Mags, Joseph Magdziarz, MAI, SRA, AI-GRS, AI-RRS …. I was lucky enough to take my first three classes from this guy, fantastic teacher and very funny. I’ve taken several higher level courses from him through the years, he’s likely retitired by now.
Charles, its been said that many homeowners are renting their 3% mortgage rates with minimal motivation to sell(move up) and assume a 7% mortgage rate. Couple this situation with 1st time buyers being priced out the market, it seems that this current market issue will be around for 2024 and probably 2025. AMCs know that under a LOW activity home market they can push appraisers for lower fees and faster turn times. Its a vicious circle that AMC appraiser have NO controls over. I’m just glad I left mortgage work 20 years ago.