This morning I attended Washington Association of Mortgage Professionals (WAMB) meeting in Bellevue to learn more about the Home Valuation Code of Conduct (HVCC) which will dramatically impact conventional appraisals. It was a somber room of fellow mortgage brokers and correspondent lenders along with the panel of various representatives from the industry.
In a nutshell, mortgage originators (if paid commission) will no longer have contact with appraisers for conventional mortgages. Appraisals will be ordered via an appraisal management company–oddly similar to what Washington Mutual used before New York Attorney General Cuomo investigated. Although this is effective for loans delivered to Fannie/Freddie on May 1, 2009 or later, lenders will adopt the Code well in advance in order to be able to deliver compliant loans.
Lisa Goldsmith from Amtrust Bank discussed how they’re going to comply with HVCC beginning around April. Amtrust will treat mortgage brokers and correspondent lenders the same.
- When the loan is registered with Amtrust, they will provide an AVM (an unreliable estimation of value IMO). This is the only chance the mortgage originator has to decide whether or not they should proceed with the appraisal order.
- The order is placed with an Appraisal Management Company (AMC).
- A copy of the appraisal is sent to both the borrower and the mortgage originator.
The mortgage broker will have no idea who the appraiser is until the appraisal is delivered. Correspondent lenders may be able to order appraisals as long as they meet the HVCC (and I’m sure they’re a huge risk of buy-backs if correspondents opt for this route). In fact, mortgage originators (if paid commission) may not communicate with the appraiser.
A big issue is portability of the appraisal. If for some reason, a broker starts with a lender, like Amtrust, and then decides during the process they want to switch to another lender, Amtrust holds the appraisal. The consumer has all ready shelled out $400-$500 to one lender. It will be up to Amtrust to release the appraisal (if this is even acceptable) or another appraisal may need to be issued if the loan is switched. The power is not with the consumer and it’s not with the mortgage broker.
Quality is a huge concern as well. One mortgage originator stated that he currently has an issue with an appraisal that was provided via an AMC for a waterfront single family residence. What he received was an appraisal with 6 comparable properties–4 of them were condos! Second appraisals can be requested when it’s a question of quality–they cannot be done for “value shopping”.
It gets better…Fannie Mae amended guidelines earlier this year allowing appraisal management companies to be owned by lenders!
“The lender’s ownership of or affiliation with an appraisal management company is no longer restricted. However, any appraisal management company that provides the lender with an appraisal must adopt written policies and procedures implementing the revised Code.”
From Appraisal Press:
“In it’s current form, the HVCC discriminates against appraisers by (a) effectively requiring lenders to engage appraisers through appraisal management companies, which retain 40-50% of the fees paid by lenders, reduce competition as a result of industry consolidation, and deteriorate appraisal quality by forcing veteran appraisers from the workforce, and (b) creating an artificial preference for automated valuation models, which will result in fewer appraisals, reduced market transparency and the danger of increased in-house lender abuses. The HVCC will deprive consumers of their right to obtain independent, quality appraisals.
So let me get this straight… banks and lenders can own or have ownership interest in appraisal management companies. The AMCs (possibly owned by banks/lenders) can select which appraisers make their list AND they will reduce the appraisers incomes in an all ready challenging market. Who regulates the AMCs?
NAMB’s fighting HVCC and I don’t always support all of NAMBs views…I have to agree with them here. Once again, instead of dealing with the offenders, industries are in the process of being punished wiped out.
A consumer is entitled to a copy of the appraisal 5 days after making a written request to the lender, provided that the consumer has already paid for the appraisal. This is from the federal law, The Equal Credit Opportunity Act.
In terms of who regulates the appraisal management companies, I’m guessing that each state has a regulatory oversight licensing system in place to do that. Here is Washington state’s regulator:
http://www.dol.wa.gov/business/appraisers/
I’m not sure what’s changed that’s so upsetting in terms of using appraisal management companies. Can’t appraisers who already do good work for the lenders, just continue to work with that lender? (thanks for helping me understand.)
Do ALL lenders have their own appraisal management companies or just some?
This seems to me to be similar to the title insurance company problem of real estate brokers owning title companies. Yes, it’s harder to do business at that company but the other title companies are still doing business nonetheless.
Jillayne:
I’m writing a tome on this, but to answer # 1 quickly.
Yes, the borrower gets a copy.
BUT, the borrower cannot use the appraisal for anything but wallpaper, until it is released by the bank.
Kind of expensive wallpaper….
Jillayne, with HVCC the consumer is to receive a copy of the appraisal no later than 3 days before closing.
At this moment, I’m able to order an appraisal thru anyone I chose. I pretty much stick to one person locally who I’ve really grown to trust…and he probably charges on the low end. I used to work with a couple of appraisers but I began to notice a real difference in quality. The appraiser I work with has been in biz for over 30 years. He’s not the fastest appraiser (10-14 days in a normal market)–but I truly think he’s one of the best. I trust and rely on him.
Hi Rhonda,
After the new changes go into effect, will you still be able to use your favorite, trusted appraiser? Will he be “approved” by your lenders?
Rhonda:
Thanks for reporting this so quickly.
RCG Readers. Here’s why this is important to ALL borrowers.
Currently, the independent appraiser must evenly and impartially balance the interests of 3 parties to the transaction (4, if it’s a purchase); the Borrower, the Broker/Originator, and the Bank.
The Borrower
This is who ultimately pays for the appraisal. If the borrower is dissatisfied, he can express his displeasure to the loan originator who selected the appraiser. This has certainly happened to me in the past. However, since I have developed a professional relationship and dialogue with the appraiser, I can explain to the borrower why the value is what it is, even if we both do not like it.
The Broker/LO
Currently, the LO (loan originator) is the person who generally selects the appraiser. We value excellent service, timely turnaround (speed is vital in this business), clear communication, fair appraisals and a good price. We understand that different circumstances call for different appraisers. The appraiser is the first person (after the LO) that has direct contact with the borrower, and can make a good, or bad impression. The LO can discuss appraisal issues with the appraiser beforehand (value, special circumstances, scarcity of comps, special properties, etc.) and offer the best advice to his borrower, including whether or not it makes sense to proceed, and risk the non-refundable appraisal fee.
The Bank
Most all banks have approved appraiser lists (or blackballed appraisers), and about 75% of submitted appraisals these days go through a formal appraisal review process in underwriting. Banks fear overvaluing a property more than anything else (has ANY LO ever seen an appraisal sent to appraisal review for a value too low?). The banks are already decently protected from appraisal fraud by these measures.
The new measure puts ALL of the power in the hands of the bank, and the Appraisal Management Companies (AMC).
How?
The BANK chooses which appraisal management companies to use. Why does this matter?
The banks interest is to reduce risk, and increase profitability. Logically, the banks will reward those AMCs that reduce bank risk, and increase bank profitability, and penalize those that favor the borrower or the broker. The AMCs will figure that one out pretty quickly. It will not need to be spelled out to them, and there will not be any smoking e-mails to incriminate the banks.
The BANK retains control of the use of the appraisal.
They do NOT want the broker shopping around for the best fit for the borrower. Now, to be fair, the new regulations provide a process to transfer appraisals from one bank to another, but notably no penalties for failure to do so in a timely manner. It was as if the large banks and AMC’s WROTE this.
The BANK has no interest in ensuring the borrower gets good service from the appraiser.
If the service is bad, who gets blamed? The loan originator. If the cost is too high (AMC’s all charge more than local independent appraisers), who gets blamed? The loan originator. If the value comes in low, who gets blamed? The loan originator…OK that happens already, but at least now I can defend the appraiser, based on his previous good work.
In the proposed system, I cannot talk with the appraiser AT ALL!!
This change benefits banks, HUGELY benefits Appraisal Management Companies, and harms small businesses (mortgage brokers, correspondent lenders and independent appraisers), and most of all, consumers.
The good news is that it is may not be too late to stop this. More on that, later.
I gonna go play some music with friends…and my son! 🙂 Balance is everything!
Rhonda:
Thanks for reporting this so quickly.
RCG Readers. Here’s why this is important to ALL borrowers.
Currently, the independent appraiser must evenly and impartially balance the interests of 3 parties to the transaction (4, if it’s a purchase); the Borrower, the Broker/Originator, and the Bank.
The Borrower
This is who ultimately pays for the appraisal. If the borrower is dissatisfied, he can express his displeasure to the loan originator who selected the appraiser. This has certainly happened to me in the past. However, since I have developed a professional relationship and dialogue with the appraiser, I can explain to the borrower why the value is what it is, even if we both do not like it.
The Broker/LO
Currently, the LO (loan originator) is the person who generally selects the appraiser. We value excellent service, timely turnaround (speed is vital in this business), clear communication, fair appraisals and a good price. We understand that different circumstances call for different appraisers. The appraiser is the first person (after the LO) that has direct contact with the borrower, and can make a good, or bad impression. The LO can discuss appraisal issues with the appraiser beforehand (value, special circumstances, scarcity of comps, special properties, etc.) and offer the best advice to his borrower, including whether or not it makes sense to proceed, and risk the non-refundable appraisal fee.
The Bank
Most all banks have approved appraiser lists (or blackballed appraisers), and about 75% of submitted appraisals these days go through a formal appraisal review process in underwriting. Banks fear overvaluing a property more than anything else (has ANY LO ever seen an appraisal sent to appraisal review for a value too low?). The banks are already decently protected from appraisal fraud by these measures.
The new measure puts ALL of the power in the hands of the bank, and the Appraisal Management Companies (AMC).
How?
The BANK chooses which appraisal management companies to use. Why does this matter?
The banks interest is to reduce risk, and increase profitability. Logically, the banks will reward those AMCs that reduce bank risk, and increase bank profitability, and penalize those that favor the borrower or the broker. The AMCs will figure that one out pretty quickly. It will not need to be spelled out to them, and there will not be any smoking e-mails to incriminate the banks.
The BANK retains control of the use of the appraisal.
They do NOT want the broker shopping around for the best fit for the borrower. Now, to be fair, the new regulations provide a process to transfer appraisals from one bank to another, but notably no penalties for failure to do so in a timely manner. It was as if the large banks and AMC’s WROTE this.
The BANK has no interest in ensuring the borrower gets good service from the appraiser.
If the service is bad, who gets blamed? The loan originator. If the cost is too high (AMC’s all charge more than local independent appraisers), who gets blamed? The loan originator. If the value comes in low, who gets blamed? The loan originator…OK that happens already, but at least now I can defend the appraiser, based on his previous good work.
In the proposed system, I cannot talk with the appraiser AT ALL!!
This change benefits banks, HUGELY benefits Appraisal Management Companies, and harms small businesses (mortgage brokers, correspondent lenders and independent appraisers), and most of all, consumers.
The good news is that it is may not be too late to stop this. More on that, later.
I gonna go play some music with friends…and my son! 🙂 Balance is everything!
Jillayne, not for conventional loans. If we use an AMC, it’s a lottery/rotation system of appraisers who are registered/employed with that AMC company…it’s a crap shoot…he might pop up IF he’s working for that AMC and IF it’s his turn on the list.
“The banks interest is to reduce risk, and increase profitability. Logically, the banks will reward those AMCs that reduce bank risk, and increase bank profitability, and penalize those that favor the borrower or the broker. The AMCs will figure that one out pretty quickly. It will not need to be spelled out to them, and there will not be any smoking e-mails to incriminate the banks.”
Roger, this is a stretch for me. Let me paraphrase so I can be sure I understand you.
Are you saying that banks and appraisal management companies will work together to penalize appraisers that favor the borrower or broker?
For me this is slightly on the side of being paranoid, but I was not at the morning meeting so maybe I’m missing something. I’m sure you’ll fill me in.
Before the insanity that was the bubble madness, this is what lenders have always done: review the appraisal to make sure they’re making a loan on good collateral. It had nothing to do with penalizing the broker or borrower.
I see this new change as a pathway back to where we were way before either you or Rhonda entered the mortgage industry..
This isn’t new. It’s getting back to basics.
The real question is, what is the mortgage broker industry proposing to do WITHIN ITS OWN INDUSTRY to gain back the trust and confidence of the banks?
“The banks interest is to reduce risk, and increase profitability. Logically, the banks will reward those AMCs that reduce bank risk, and increase bank profitability, and penalize those that favor the borrower or the broker. The AMCs will figure that one out pretty quickly. It will not need to be spelled out to them, and there will not be any smoking e-mails to incriminate the banks.”
Roger, this is a stretch for me. Let me paraphrase so I can be sure I understand you.
Are you saying that banks and appraisal management companies will work together to penalize appraisers that favor the borrower or broker?
For me this is slightly on the side of being paranoid, but I was not at the morning meeting so maybe I’m missing something. I’m sure you’ll fill me in.
Before the insanity that was the bubble madness, this is what lenders have always done: review the appraisal to make sure they’re making a loan on good collateral. It had nothing to do with penalizing the broker or borrower.
I see this new change as a pathway back to where we were way before either you or Rhonda entered the mortgage industry..
This isn’t new. It’s getting back to basics.
The real question is, what is the mortgage broker industry proposing to do WITHIN ITS OWN INDUSTRY to gain back the trust and confidence of the banks?
Jillayne, this is no where near getting back to basics.
1) HVCC was developed because of Washington Mutual (a bank) leaning on eAppraisal (an AMC) to produce certain values.
2) HVCC is created and mainly targets mortgage brokers.
3) Fannie creates amended guidelines early this year which allows banks to have ownership in the AMCs. GEE…doesn’t this sound like my first point?
4) A mortgage broker cannot have ANY communication with the appraiser. If the mortgage broker wants to move the appraisal for the consumer, it’s up to the bank if they will release it.
5) Appraisers (should they decide to stay in the industry) are forced to work for half the income.
Jillayne, this is no where near getting back to basics.
1) HVCC was developed because of Washington Mutual (a bank) leaning on eAppraisal (an AMC) to produce certain values.
2) HVCC is created and mainly targets mortgage brokers.
3) Fannie creates amended guidelines early this year which allows banks to have ownership in the AMCs. GEE…doesn’t this sound like my first point?
4) A mortgage broker cannot have ANY communication with the appraiser. If the mortgage broker wants to move the appraisal for the consumer, it’s up to the bank if they will release it.
5) Appraisers (should they decide to stay in the industry) are forced to work for half the income.
Off topic:
On the Daily Show, John Hogman offers his ideas for fixing the economy (he’s the comedian that plays Mr. PC on the Apple commercials.)
http://www.calculatedriskblog.com/2009/02/daily-show-fixing-economy.html
Rhonda, question: Can individual appraisers still get on a bank-approved appraiser list and get themselves “in the rotation?”
Well I suppose if the banks own the appraisal management company (AMC) then they can’t very well sue each other.
Affiliated businesses are still legal under RESPA.
So is the real issue that the brokers cannot communicate with the appraiser?
(FYI, I was asked to review the entire HVCC and provide written comments on this for someone on the committee, I think it was Shane, an appraiser. Should I go get him and ask him to help us out? He’s awesome.)
Rhonda, question: Can individual appraisers still get on a bank-approved appraiser list and get themselves “in the rotation?”
Well I suppose if the banks own the appraisal management company (AMC) then they can’t very well sue each other.
Affiliated businesses are still legal under RESPA.
So is the real issue that the brokers cannot communicate with the appraiser?
(FYI, I was asked to review the entire HVCC and provide written comments on this for someone on the committee, I think it was Shane, an appraiser. Should I go get him and ask him to help us out? He’s awesome.)
Jillayne, I wish you a Merry Emergency Christmas! 🙂
Isn’t that hilarious? I love how John Hogman says, “it’s a financial crash, and who do you call if there’s a crash? Sully Sullenberger!” John was on NPR last Saturday and totally cracked me up when he was on TBTL a couple of months ago.
Hello again folks. I’m the WA state Certified RE Appraiser who last wrote about the incorrect use of the 442/1004D Form for Disaster Inspections. Dave is my real name….but the rest I’d like to keep private for now.
I have been in the biz since 2001, and work for local banks & credit unions, large national banks via (primarily) their AMC’s, local people needing a ‘private’ appraisal, attorneys & CPA’s. I’ve seen the good and bad side of the biz in these past 8 years.
A fallacy of the HVCC chatter is that big banks ‘must’ use an AMC to place the appraisal order. WRONG. Big banks (or any other type of lending entity) must have separation between the ‘production’ people, and the appraisal ordering people. That separation must be done per the HVCC guidelines, meaning no direct ‘influence’ contact from production to/thru ordering to the appraiser. So ‘Big Bank’ (any lender) can establish their own in-house ordering department if they so choose. Many smaller lenders have already implemented a policy like the HVCC mandates.
Yes, appraisers will apparently be chosen on a rotation basis of those on the ‘approved list’ with the ordering entity.
Unfortunately, most ‘Big Banks’ have gone to the AMC model, I believe, principally as a profit center since they retain part of our fee.
The HVCC only applies to Fannie/Freddie purchased loans – for now – but frankly I see it becoming a defacto regulation for everyone as time progresses. FHA and VA are not part of the HVCC yet. (Which means you can still ‘talk’ with the appraiser for those loans…for now.)
The AMC business model has caused a great deal of dissatisfaction among appraisers, even though approximately 65% of all licensed appraisers work for them. (I do) In the past, ‘Big Bank’ would order the appraisal direct, and would be charged a fair fee by the appraiser who would invoice the bank. Under the AMC model (often owned by ‘Big Bank’ – and permitted by the HVCC), the AMC is a middle-man. The AMC siphons off part of the appraisal fee that would have been paid to the appraiser, rather than adding their processing fee on top. These retained amounts are NOT being disclosed on the HUD-1, and at least two AMC’s are being sued under Federal RICO laws for this situation.
So the HVCC may lead to significant changes in the appraisal profession. Many believe only junky appraisers will work for the low AMC fees being paid compared to the past. I’m not so sure about that (I’m not in that category) but many other good appraisers choose not to work for AMC’s. For me (and other appraisers) it’s the only way I can be in the business, as other more long-time-established appraisers have the local business wrapped up. At least I can do ‘Big Bank’ work that way.
The HVCC has come about largely due to the old 80/20 formula. 80% of the problems in the mortgage lending industry have been caused by 20% of the MB’s/LO’s. These are the players who forced appraisers to ‘give me the number I want’ or “I’ll find someone who will.”
Granted, ‘we’ appraisers should never have played that game, due to the USPAP regulation we must adhere to. But guess what….80/20 affects us also. We have bad apples amongst our ranks, just as you do.
Finally enough of the 80%ers made their voices heard, and the damaging e-mails proved that values were being pushed by an AMC to favor their Big Bank client. That resulted in the initial Cuomo HVCC Agreement w/ Fannie/Freddie, since modified, but still retains the separation between ‘production’ and the appraiser. Personally, I think that’s a good thing.
‘Production’ people don’t like the HVCC because they can’t exert any form of influence to or coercion against the appraiser. They can’ t request a ‘free comp check’ to validate a loan amount.
Appraisers are skeptical because cozy relationships with MB’s/LO’s may be affected. They, like you, are bottom line oriented…i.e., “how’s this thing going to affect me financially?”
No one really knows for sure. But it is one step to improving appraiser independence that supposedly was mandated with the FIRREA law back in 1989/1990, and really never has been enforced properly. Remember, independence is to protect the Lender first, and the Borrower.
The HVCC requires a certain number of appraisal reports will be reviewed. Appraisers doing shoddy work will be forced to change their ways, or will be forced out. This won’t happen over night. But it will help improve the quality of reports so that underwriting can be supported properly.
The HVCC also says ‘you’ can’t blacklist an appraiser for not ‘meeting your value.’ That’s been happening far too often up to now. So we appraisers get some protection from abuse.
That’s my $.02. Now guess what…I get to work on an appraisal report!
Dave the Appraiser
Dave, I’m so glad to have your input here at RCG. 🙂 Especially on this topic.
Do you think HVCC is better for the consumer?
I actually had an appriaser who did many WaMU appraisals try to obtain my business by telling me if I’m waiting more than 48 hours for an appraisal from my seasoned appraiser, I was nuts…and when he left my office, he said, “you know some things are better in a phone call than an email–like if you have to reach a certain value” wink wink.
Appraisers have been equally guilty of fraud as loan originators.
Dave, I’m so glad to have your input here at RCG. 🙂 Especially on this topic.
Do you think HVCC is better for the consumer?
I actually had an appriaser who did many WaMU appraisals try to obtain my business by telling me if I’m waiting more than 48 hours for an appraisal from my seasoned appraiser, I was nuts…and when he left my office, he said, “you know some things are better in a phone call than an email–like if you have to reach a certain value” wink wink.
Appraisers have been equally guilty of fraud as loan originators.
Boy, I LOVE reading you mortgage folks banter around a heated topic! It becomes a discussion I can almost understand, but not quite:-)
Seriously, from a Real Estate Broker’s perspective, we don’t care so much who talks to who. But we do want to make sure if an appraisal evaluation comes in low, we have an opportunity to appeal if we have evidence and reason to believe the appraiser was wrong. In the past, the LO was the conduit for that communication. Now what’s the process going to be? Is there going to be a process? Can we appeal at all?
Appraisers frequently miss comparable sales that are pending but not closed transactions that Real estate agents are aware of. Other factors, such as recent zoning changes or proposed developments may be relevant and overlooked as well.
The whole lack-of-portability of an appraisal to a different lender disturbs me too. I’ve had a number of cases where loan programs have changed or even disappeared from the original mortgage broker the Buyer applied with. Then the Buyer has to switch lenders mid-stream. Taking the appraisal to the new underwriter not only saves the Buyer money, but allows them to keep to the original Purchase and Sale contract time lines.
These days (in the State of Washington) Buyers must inform the Seller of a change in lender or even type of loan after the initial loan application has been made. Portability of an acceptable appraisal, or lack thereof, could affect the Sellers willingness to allow such a change.
Okay. Different concerns from a different perspective. Now back to the Mortgage Brokers debate!
Jillayne:
RE #8
You ask,
“Are you saying that banks and appraisal management companies will work together to penalize appraisers that favor the borrower or broker?”
No, of course nothing so obvious will happen. It seldom does, and it’s even more rare for there to be evidence, like there was with the WAMU case.
What I am referring to is the “hidden hand” of Adam Smith’s economics.
Banks that still use the wholesale model will select which appraisal management companies to work with. They will select on a variety of factors, logically emphasizing those factors that benefit the selector (the bank), and de-emphasize those factors that benefit the borrower.
You could argue that the current system allowing the LO to select the appraiser, allows the benefits of that selection to flow to the LO.
That could be abused (LO pressuring appraiser, demanding kickbacks, etc) and the system SHOULD have additional safeguards from the present system.
However, if the LO/broker is acting in his clients best interest, openly, as in the fiduciary model, that conflict should be removed.
Taking the appraiser selection decision OUT of the hands of the person best able to represent the borrower (the independent mortgage broker/loan originator) is a bad move and harms borrowers, and small businesses, for the profit of the large businesses.
Jillayne:
RE #8
You ask,
“Are you saying that banks and appraisal management companies will work together to penalize appraisers that favor the borrower or broker?”
No, of course nothing so obvious will happen. It seldom does, and it’s even more rare for there to be evidence, like there was with the WAMU case.
What I am referring to is the “hidden hand” of Adam Smith’s economics.
Banks that still use the wholesale model will select which appraisal management companies to work with. They will select on a variety of factors, logically emphasizing those factors that benefit the selector (the bank), and de-emphasize those factors that benefit the borrower.
You could argue that the current system allowing the LO to select the appraiser, allows the benefits of that selection to flow to the LO.
That could be abused (LO pressuring appraiser, demanding kickbacks, etc) and the system SHOULD have additional safeguards from the present system.
However, if the LO/broker is acting in his clients best interest, openly, as in the fiduciary model, that conflict should be removed.
Taking the appraiser selection decision OUT of the hands of the person best able to represent the borrower (the independent mortgage broker/loan originator) is a bad move and harms borrowers, and small businesses, for the profit of the large businesses.
Dave:
Thanks for piping in.
You say:
‘Production’ people don’t like the HVCC because they can’t exert any form of influence to or coercion against the appraiser. They can’ t request a ‘free comp check’ to validate a loan amount.
OK, I guess I’m “production people”, since I help originate and produce the loan. Weird term.
I do not wish to exert any influence and certainly would NEVER coerce an appraiser to produce a certain value. However, the new system does not even allow for a DISCUSSION of value with the person best qualified to offer an opinion.
How does that improve the system? How does that produce a better outcome for the borrower? And really, how does that produce a better loan?
Many appraisers have worked long and hard to build solid professional relationships with local banks, mortgage brokers, and loan originators. While those relationships may seem “cozy” to anyone excluded from that relationship, it is not necessarily true that those relationships are anything but professional and beneficial.
Since I have a limited amount of business, I limit the number of vendors that I work with, and carefully choose those that provide MY clients the best service and price.
This ability to make good choices is being taken away by this proposal, and that is why I oppose it.
Jillayne:
Re end of #8
“The real question is, what is the mortgage broker industry proposing to do WITHIN ITS OWN INDUSTRY to gain back the trust and confidence of the banks?”
Now THAT is an interesting question…and worthy of an extended column. After all, without the banks consent, the mortgage broker industry would cease to exist.
I look forward to that post. Not sure I have spent a lot of time pondering that issue. Always felt I was on the side of the borrower, fighting the banks, and that I would always be able to do so.
Not sure that wins “trust and confidence” from the banks, but it sure gives them motivation to wipe me out.
Just because I’m paranoid, doesn’t mean they are NOT out to get me 🙂
Jim:
Re #16.
No, I do not believe there is an appeal process. A 2nd appriasal can be ordered (at an additional cost), but not to influence value.
On the plus side, RE’s CAN talk to appraisers, but LO’s cannot.
From Fannie Mae’s FAQ’s
https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/hvccfaqs.pdf
Does Section I.B.(9) specifically prohibit a lender from ordering a second appraisal?
No. Section I.B.(9) only prohibits a lender from ordering a second appraisal when they are attempting to influence the outcome of the first appraisal and are now “value-shopping.
Jim:
Re #16.
No, I do not believe there is an appeal process. A 2nd appriasal can be ordered (at an additional cost), but not to influence value.
On the plus side, RE’s CAN talk to appraisers, but LO’s cannot.
From Fannie Mae’s FAQ’s
https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/hvccfaqs.pdf
Does Section I.B.(9) specifically prohibit a lender from ordering a second appraisal?
No. Section I.B.(9) only prohibits a lender from ordering a second appraisal when they are attempting to influence the outcome of the first appraisal and are now “value-shopping.
This is another issue that goes to the heart of the problem inside the lending instituations. You’re not saying it, but the fact is there are more rules concerning the quality of the paper generated, the Note to be sold.
Taking out a loan today seems extremely foolish to me. The values will remain inflated because the banks are now in control. The quality of the borrower will be scutinized and the value of the property of course will need to high.
Bank interests are everywhere. Banks hold mortgages on almost every piece of property at inflated values. If you were smart the past ten years you sold. You made your move. You refied, or HELOCed or some other form of debt instrumnet was created.
Now banks are trying to direct the market by keeping those values, and the values of all other debt instruments higher than market conditions may warrant.
It’s all to sell to investors. It props up the financial markets by churning out a better quality of paper.
I’ve been saying that the only way to stabilize the housing market is to by pass lenders and pay down the debt of the mortgages. Foreclosure is one way to do that, but it seems to me people need to make more money and dedicate it to paying debt.
This is another issue that goes to the heart of the problem inside the lending instituations. You’re not saying it, but the fact is there are more rules concerning the quality of the paper generated, the Note to be sold.
Taking out a loan today seems extremely foolish to me. The values will remain inflated because the banks are now in control. The quality of the borrower will be scutinized and the value of the property of course will need to high.
Bank interests are everywhere. Banks hold mortgages on almost every piece of property at inflated values. If you were smart the past ten years you sold. You made your move. You refied, or HELOCed or some other form of debt instrumnet was created.
Now banks are trying to direct the market by keeping those values, and the values of all other debt instruments higher than market conditions may warrant.
It’s all to sell to investors. It props up the financial markets by churning out a better quality of paper.
I’ve been saying that the only way to stabilize the housing market is to by pass lenders and pay down the debt of the mortgages. Foreclosure is one way to do that, but it seems to me people need to make more money and dedicate it to paying debt.
Jim, my appraiser used to be able to contact me to say he was having issues with finding comps for a house…I would then contact the RE agent to let them know and they could provide comps. If it’s a unique home, it would also give me the chance to contact our underwriters to see if they would prefer comps further out, older or different style…even with having this opportunity for dialogue, it does not guarantee that an appraisal would “meet value”.
This is going to be a lot like how VA appraisals have been done were we willl not know who the appraiser is.
Jim, my appraiser used to be able to contact me to say he was having issues with finding comps for a house…I would then contact the RE agent to let them know and they could provide comps. If it’s a unique home, it would also give me the chance to contact our underwriters to see if they would prefer comps further out, older or different style…even with having this opportunity for dialogue, it does not guarantee that an appraisal would “meet value”.
This is going to be a lot like how VA appraisals have been done were we willl not know who the appraiser is.
This will be fustercluck to put it lightly. Seventy five percent of the time when I have ordered appraisals through AMCs it has been a nightmare either from piss poor appraisals, lack of communication, and just down right laziness. AMCs will be like trying to hirer government employees with no incentive to perform above the bare minimum required.
No more getting appraisals done in 2 days to get a rush deal gone. I guarantee if the AMC says 5 day turn around, you won’t get that appraisal until the fourth day and 23 hours. No more courtesy calls to prevent the borrower from wasting $300 bucks to let the LO know that the borrower is full of it when they told you their home was worth X and it really is just worth Y.
I can see many retail banks using this as a way to prevent borrowers from rate shopping. They do everything else that way. Forcing buyers of REOs to qualify/use the bank that owns the house. Trying to poach clients when you order a payoff. Refusing to subordinate seconds unless you get the first mortgage with them. The list goes on and on. I don’t see how this will be any different.
This will be fustercluck to put it lightly. Seventy five percent of the time when I have ordered appraisals through AMCs it has been a nightmare either from piss poor appraisals, lack of communication, and just down right laziness. AMCs will be like trying to hirer government employees with no incentive to perform above the bare minimum required.
No more getting appraisals done in 2 days to get a rush deal gone. I guarantee if the AMC says 5 day turn around, you won’t get that appraisal until the fourth day and 23 hours. No more courtesy calls to prevent the borrower from wasting $300 bucks to let the LO know that the borrower is full of it when they told you their home was worth X and it really is just worth Y.
I can see many retail banks using this as a way to prevent borrowers from rate shopping. They do everything else that way. Forcing buyers of REOs to qualify/use the bank that owns the house. Trying to poach clients when you order a payoff. Refusing to subordinate seconds unless you get the first mortgage with them. The list goes on and on. I don’t see how this will be any different.
Rhonda,
RE: #22
That is exactly how I operated with my lender too. I found about half the time it at least HELPED raise values. Even if it did not meet he value of the original purchase price. It was a lot easier to go back to the Seller armed with an appeal verdict than just the original appraisal. Sometimes Sellers just needed to be more realistic.
An agent’s goal here is to keep the transaction alive. Get both parties to agree on a new price, if necessary.
My question is, what now? Will we be able to do anything in this process?
Jim, I believe that the appraiser can speak with RE agents but not with the loan originator if they are paid commission…hmmm….makes me wonder….what if the loan originator is paid hourly?
It’s really a shame. I select who I prefer to work with based on service–not just appraisers–title, escrow and credit too…what’s next?
Jim asks:
“…what now? Will we be able to do anything in this process?”
A month ago, when the “revised” rules came out (with no significant revisions), I thought there was little hope of fighting this.
It turns ourt there may yet be hope.
But support, political and monetary support is needed.
I despise that it is necessary to pay for lobbyists, PR and lawyers, but unfortunatatly it is.
Not sure where NAR is standing on this, but NAMB is fighting it, and we must support their efforts, with time and money.
Sadly, the association that claims to serve appraisers is hopelessly dominated by Appriasal Management Companies, who benefit HUGELY from the proposed regulations.
So much so, that at the meeting organized by WAMP, the lone panelist representing appraisers supported the changes in HVCC.
Appraisers, your own organization supports putting independent appraisers in an inferior position, reducing their pay and stature.
How do you appraisers like that? I know we mortgage professionals did NOT like it one bit.
Rhonda….
No one in production is allowed to speak to an appraiser.
It will not matter how they are compensated.
An alternative would have been to just remove any indicator of value from the order–no purchase and sale agreement and no loan amounts. Just have the appraiser determine a value based on the home with no details to the transaction.
Roger, yep…I’m re-reading the HVCC:
“all members of the lender’s loan production staff, as well as any person who is compensated on a commission basis upon the successful completion of a loan…shall be forbidden from selecting, retaining, recommending, or influencing the selection of any appraiser for a particular appraisal assignment or for inclusion on a list or panel of appraisers….”
Sure, and another alternative would be to take the government assesed value, and eliminate the appraisal entirely, other than to verify it actually exists.
Or we could ask….
What was actually broken in the existing model?
And fix only that.
True. I’ve had plenty of appraisal waivers from Fannie… if loan originators or real estate agents leaned on appraisers to reach a certain value or if appraisers offered to reach a certain value in exchange for business, those individuals should be punished.
Rhonda:
Re appraisal waivers….I cannot get one for anything these days!
Inputting a rate term refi, 800 FICO, good income and assets, low LTV, borrower wants a 15 yr fixed. About the lowest risk loan I can imagine.
Property assesses for $400K, borrowing $180K. Even tried inputting the prop value at $300K, still no appraisal waiver.
6 months ago that was an easy appraisal waiver.
Rhonda:
The part that was broken was some unethical individuals and organizations , including banks, bank managers, mortgage brokers, loan originators, realtors, sellers and borrowers pressured appraisers to hit values, and/or conceal material facts.
Simply providing a way for appraisers to safely report such illegal actions, and have there be meaningful consequences for violators, would have been enough to get it stopped.
Instead, big players found a way to use the “crisis” to stick it to small players, who were NOT well connected and financed in the political arena.
It has happened so many times, in so many business areas, that you would think we ALL would know it by now.
There’s something that should be taught in H.S. Civics classes!
Roger…add to your list of unethical people the appraisers who rolled over and ‘just did it’…i.e, met the value as stated by someone with a financial interest in the transaction.
Others…
“Production” means anyone directly connected with selling or processing a loan. So the ‘processor’ working for the LO or MB is part of being in Production. If the ‘order placement’ side of the business complies with the HVCC, that will be the firewall between production and the appraiser.
Too many LO’s and MB’s have just relied on the homeowner’s inflated value estimate, and then pushed the appraiser to meet or exceed that value. Why is it that someone without direct access to sales transaction info for a given community over an extended period of time is the one you rely on for a value? What makes their perceived value more accurate than the appraiser’s researched value?
The only reason an appraisal is challenged is to get the value UP….which directly benefits you production people, including RE agents involved with a property sale. It does not benefit the appraiser at all once the original report is submitted.
The HVCC will hopefully eliminate all this value shuffling BS, and return sensibility to the mortgage lending markets.
To the poster who mentioned appraiser organizations being dominated by AMC’s……….kindly tell me who those organizations are. I belong to one organization, and am familiar with others. They are dominated by appraisers, not outside entities who are making appraiser’s stomachs churn.
Dave, it would be helpful if you reference which comment number you’re referring to (your last paragraph in comment 34). 😉
I’m curious if you have you ever worked directly with smaller mortgage companies or mortgage brokers?
You referenced working for “local banks & credit unions, large national banks via (primarily) their AMC’s, local people needing a ‘private’ appraisal, attorneys & CPA’s”
Dave, it would be helpful if you reference which comment number you’re referring to (your last paragraph in comment 34). 😉
I’m curious if you have you ever worked directly with smaller mortgage companies or mortgage brokers?
You referenced working for “local banks & credit unions, large national banks via (primarily) their AMC’s, local people needing a ‘private’ appraisal, attorneys & CPA’s”
Dave: Re 34,
I agree that there must have been unethical appraisers.
Don’t know any, but I agree they must exist. The folks that I use never “roll-over”, but if a variance exists between expected value and appraised value, they will explain it to me, so that I can explain to my clients. It is a hard message to deliver to the borrower, but times call for hard messages.
I never rely solely on the homeowner’s estimate of value…that is job suicide. Why would I risk hours of unpaid work on a flawed assumption?
Instead, I use Zillow (as it allows the consumer to see values), and several other non-public models to get a sense of value. I share that information with my borrower, and explain that it is THEIR money at risk paying for the appraisal.
That stops a lot of work (and potential income for myself and appraisers, I might add), but it’s just the right thing to do.
Appraisals are constantly challenged by underwriters. I have NEVER had an appraisal challenged by an underwriter claiming that the value is too low.
Perhaps your experiences are different. Perhaps you have worked with unethical loan originators and lenders.
Sorry about that.
I do not think HVCC will solve the problem. It will solve some problems, and create others.
It largely shifts the burden to loan originators and borrowers, and benefits appraisal management companies and banks.
I do not think that is fair.
Dave: Re 34,
I agree that there must have been unethical appraisers.
Don’t know any, but I agree they must exist. The folks that I use never “roll-over”, but if a variance exists between expected value and appraised value, they will explain it to me, so that I can explain to my clients. It is a hard message to deliver to the borrower, but times call for hard messages.
I never rely solely on the homeowner’s estimate of value…that is job suicide. Why would I risk hours of unpaid work on a flawed assumption?
Instead, I use Zillow (as it allows the consumer to see values), and several other non-public models to get a sense of value. I share that information with my borrower, and explain that it is THEIR money at risk paying for the appraisal.
That stops a lot of work (and potential income for myself and appraisers, I might add), but it’s just the right thing to do.
Appraisals are constantly challenged by underwriters. I have NEVER had an appraisal challenged by an underwriter claiming that the value is too low.
Perhaps your experiences are different. Perhaps you have worked with unethical loan originators and lenders.
Sorry about that.
I do not think HVCC will solve the problem. It will solve some problems, and create others.
It largely shifts the burden to loan originators and borrowers, and benefits appraisal management companies and banks.
I do not think that is fair.
Dave:
It was me (Roger Ingalls) commenting on appraiser’s organizations being dominated by Appraisal Management companies.
Wish I could devote the time to produce hard evidence, so let’s just call it an opinion based on observation and intuition.
Small businesses and indivuiduals almost ALWAYS get beaten out by larger, better financed and better organized competitors.
Why?
Because small businesses and individuals cannot devote the resources to hire specialists to effectively lobby in public forums and legislative halls, and receive a commeasurate benefit for their investments and efforts.
Big businesses do.
This is why arcane tax codes, industry regulations and political benefits are skewed to benefit large businesses.
It is my opinion that HVCC was designed to help larger organizations at the expense of smaller ones.
I have been appraising in the greater Seattle area for over 20 years. When FIRREA became effective in 1990, banks were required to separate their loan production and appraisal departments. At that time, mortgage brokers were handling 15-20% of residential loan volume. Independent fee appraisers, like myself, received our appraisal requests from the bank appraisal departments and we had minimal contact with the loan production people after FIRREA.
As someone else noted, this situation upset the loan production people and most banks increased their wholesale operations. Within a few years mortgage brokers were doing more than 50% of loan volume because there was no restriction on mortgage brokers/loan originators having direct contact with appraisers. And I have seen reports that 80% of all residential loans are now done through mortgage brokers.
Since the revision of the Washington Mortgage Brokers Practices Act, effective 2007, mortgage brokers and loan originators have been prohibited from telling the appraiser anything more than the sales price of the property or the borrowers estimate of the value for a refinance. And they have been prohibited from asking the appraiser for anything more than a ‘area market survey.’ If a “comp check” has sufficient data to provide a value or range of value for a specific property, than an appraisal has been done. (See WAC 208-660-500)
When banks ordered appraisals, they paid an appropriate fee for the area and the complexity of the assignment, and the costs of operating their appraisal departments – processing the order, reviewing the report, interfacing between production and field appraisers, etc – was overhead expense. When they started ordering through appraisal management companies, they paid the appraisal fee to the AMC and all the overhead expenses were deducted from the appraisal fee.
The fee for a non-complex single family appraisal in the Seattle area has been in the $400-450 range since 1992. The borrower at, say Wells Fargo, pays $450, Wells Fargo sends the $450 to RELS and RELS (a subsidiary of Welles Fargo) offers a fee appraiser $225-275 for an appraisal. If that same borrower went to ABC Mortgage Broker, he would pay $450 for the appraisal – either into the Loans In Progress escrow account or directly to the appraiser. By law, the appraiser is required to produce the same quality report. We are legally required to perform the work appropriate to the assignment without regard to the fee we receive.
Is there anything else that costs the same now as it did in 1992?
AMC’s are not regulated in this state or any other state at this time, although a few state legislatures are currently considering legislation that would regulate AMC’s. Hopefully we will have a bill ready for next year’s session, but we did not get one drafted in time for the 2009 session.
Appraisal Bill, IMO AMC’s should be cut out…they’re a middle-man who’s cutting into the profits of appraisers. What is an AMC doing that’ is worth $200-$250? Are they doing any of the preliminary work for the appraiser?
Bill:
Good comments. As is usually the case, the states have done a better job of regulating mortgage lending than the feds.
A few corrections.
I do not think Mortgage Brokers/Wholesale Lending ever got to 80% of all residential loans, but I have seen numbers to suggest at it’s peak it was more than half. I have seen news reports that support the 80%, but no source is cited.
Tom La Malfa of Wholesale Access states that Morgage brokers account for 68% of the originations at the peak in 2003, and it had already fallen to 58% by 2006.
http://www.bizjournals.com/columbus/stories/2007/12/03/story3.html
Those numbers are considerably different now, as there are much fewer brokers, and fewer programs now than in 2006.
I agree it is curious that independent appraisers still get only what they were paid in 1992.
Of course there are many labor saving devices employed in the interim (computers and the internet come to mind) that may have affected that.
Regardless, the imposition of HVCC will only worsen the position and compensation of the experienced indendent appraiser, and send the work to less experienced and poorer paid appraisers.
On the whole, the consumer will have to pay more for poorer service, while the AMC’s (which are often owned by banks or title companies) will be enriched.
I cannot find ANYTHING to like in that.
I cannot imagine that any experienced, independent appraiser can be pleased either.
Bill:
Good comments. As is usually the case, the states have done a better job of regulating mortgage lending than the feds.
A few corrections.
I do not think Mortgage Brokers/Wholesale Lending ever got to 80% of all residential loans, but I have seen numbers to suggest at it’s peak it was more than half. I have seen news reports that support the 80%, but no source is cited.
Tom La Malfa of Wholesale Access states that Morgage brokers account for 68% of the originations at the peak in 2003, and it had already fallen to 58% by 2006.
http://www.bizjournals.com/columbus/stories/2007/12/03/story3.html
Those numbers are considerably different now, as there are much fewer brokers, and fewer programs now than in 2006.
I agree it is curious that independent appraisers still get only what they were paid in 1992.
Of course there are many labor saving devices employed in the interim (computers and the internet come to mind) that may have affected that.
Regardless, the imposition of HVCC will only worsen the position and compensation of the experienced indendent appraiser, and send the work to less experienced and poorer paid appraisers.
On the whole, the consumer will have to pay more for poorer service, while the AMC’s (which are often owned by banks or title companies) will be enriched.
I cannot find ANYTHING to like in that.
I cannot imagine that any experienced, independent appraiser can be pleased either.
Oh, and for clarity’s sake, I’d like to point out that the mortgage broker cannot keep ANY portion of the appraisal fee.
It must ALL go directly to the appraiser, and be supported by invoices.
I find it odd that everyone is talking about this, with appraisals being at the core, but no one stopped to talk to or ask an appraiser what may be going on from their perspective. I am an appraiser, an instructor, and a certified reviewer. It could affect me. However, AMCs are not REQUIRED by the HVCC no matter how hard AMCs try to convince you otherwise. Unfortunately, brokers and appraisers are the ones affected, but others get to escape. It is an unbalance approach to stopping mortgage fraud, appaisal fraud, and AMCs complicity.
If anyone needs an appraiser’s perspective feel free to call.
mai
Michael:
I have talked to numerous appraisers. Some were unaware of the changes from HVCC. None that I spoke to liked the changes. I do not claim it to be a representative sample, as I mostly work with independent appraisers, and not AMC’s.
I agree with you that AMC’s are not required: A bank COULD go thru the trouble of setting up it’s own appraisal department, acting in effect like an AMC wholly owned, but not controlled by the bank. It appears that on the wholesale side, that banks are leaning toward the AMC model, since that eliminates the requirement of proving autonomy for the bank’s appraisal department. A mortgage broker cannot create an AMC, nor can a mortgage broker interview and select a local and trusted AMC.
What has my undies in a bunch is the fact that for all practical purposes, I will be required to select from a limited number of AMC’s as selected by the bank which I originally intend to submit the loan to, or the bank’s own appraisal department, rather than hire an independent experienced and highly qualified professional, that I trust to give great service, and fair values for my clients, based on my previous experiences.
The new HVCC harms borrowers, and harms small businesses and independent appraisers.
Please share more of your perspective, and encourage other appraisers to share.
We would all benefit from hearing from more appraisers.
Michael:
I think having 3 appraisers (Dave, Bill and you) comment on a post may be a new record at RCG!
Rhonda, can you remember more appraisers commenting on a single post?
NAMB PLAINTIFF V. JAMES B. LOCKHART III, DIRECTOR OF THE FEDERAL HOUSING FINANCE AGENCY DEFENDANT. —VERY IMPORTANT INFORMATION – REGARDING THE HOME VALUATION CODE OF CONDUCT******
SEE:
http://www.icapweb.com/upload/NAMB%20HVCCC%20Lawsuit.pdf
Michael, ditto what Roger has said…I’m thrilled to hear from all and any appraisers regarding this. I thank all of you for taking time out of your day to shed some light…it means much more hearing from you than it does correspondent lenders, mortgage brokers or bankers. 🙂
Dana:
Thanks, I’m reading thru the Complaint now.
It states the case quite nicely, so far.
This should be required reading for ALL participants in the wholesale lending industry, and I highly recommend appraisers read it as well, as the effect on their future ability to conduct business and make a living are affected.
So far, it is not too dense.
Dana, thank you so much for sharing the link. It’s great to see NAMB move forward on what I truly believe will be harmful to consumers. I work for a correspondent lender–we have more options than a mortgage broker–I still want to see HVCC stopped. It’s wrong.
IF HVVC is successful, then I think the fees should be spelled out on HUD, the appraiser is making $250 and the AMC is making $250 (or what ever the fee is)…it’s outrageous. Especially since many AMCs are owned by lenders–it’s banks increasing their profits at the expense of appraisers.
Rhonda:
What additional significant options do you think correspondent lenders have over mortgage brokers in regards to HVCC?
Finished reading the complaint.
24 pages double spaced, and surprisingly devoid of confusing language.
Spells it out pretty clearly.
The code was adopted without due process, it harms consumers and small businesses, for the benefit of banks and appraisal management companies, and it should be stopped.
NAMB Files Lawsuit Over Controversial HVCC
The Home Valuation Code of Conduct Severely Limits Market Competition
http://www.namb.org/namb/NewsBot.asp?MODE=VIEW&ID=257&SnID=992184185
—————————————————————————–
Other related link
http://www.ibj.com/html/detail_page.asp?content=32089
Also see
http://activerain.com/blogsview/508619/Banker-Groups-Dissent-HARD-On-The-Home-Valuation-Code-of-Conduct
Specifically ALL the letters in opposition to HVCC.
https://www.namb.org/Forms.asp?MODE=NEW&Forms_FormTypeID=-24
Also see
http://activerain.com/blogsview/508619/Banker-Groups-Dissent-HARD-On-The-Home-Valuation-Code-of-Conduct
Specifically ALL the letters in opposition to HVCC.
https://www.namb.org/Forms.asp?MODE=NEW&Forms_FormTypeID=-24
Thanks again Dana.
I liked this letter to Rob McKenna, for the Washing State Dept. or Licensing (specifically from Cheryl Farivar of the WA State Real Estate Appraiser Commision , and Ralph Birkendahl Manager,Washing DOL Appraiser Program) asking that the Attorney General oppose the HVCC.
http://www.dol.wa.gov/business/appraisers/HVCCletter.pdf
This is an underhanded power grab, courtesy of Andrew Coumo, FHFA and the big banks.
I have had enough of their games already.
The links in 52 and 53 are both from around April of last year…as much as I admire the efforts–we need more action now–like what NAMB has done.
Are appraisers suing as well?
Here’s Freddie Mac’s q&a on HVCC http://www.freddiemac.com/singlefamily/hvcc_faq.html#c1
I don’t see anything that really varies from Fannie Mae.
Here’s Freddie Mac’s q&a on HVCC http://www.freddiemac.com/singlefamily/hvcc_faq.html#c1
I don’t see anything that really varies from Fannie Mae.
Rhonda:
True, the links are older.
I still think they have validity, and bear reading, since the revised proposal varies little from the initial proposal, which was widely opposed by lenders, appraisers, brokers and regulators.
You were there at the meeting, as was I.
Attendance was sparse….I’d estimate 35-40 (less than 1% of loan originators/mortgage brokers). Of those, some had no idea what this ruling meant, or why it should be vigorously opposed, and hadn’t bothered to read the scant 6 pages of HVCC.
Some, in fact, suggested that we learn to like it. Of the 4 panelists, 3 essentially recommended capitulation or accomodation to the ruling. The moderator was clearly opposed to the HVCC ruling, as was the lone originator/broker on the panel. The other 3 panelists represented
1) an Appraisal Management Company
2) a lender
3) a lender
While it was informative to hear how we might adapt to the ruling, frankly, I was surprised that WAMP (Washington Association of Mortgage Professionals) would fail to use the bully pulpit to strongly oppose capitulation.
I’d like to hear from a representative of WAMP, emphatically supportive of NAMB’s lawsuit, and a clear call to action to those whose livelihood is threatened.
Of course, I could be delusional.
Maybe no one in the business reads this stuff on RCG, except loan mod salespeople :).
Still, I’m always hopeful that more folks like Dana, Russ, Cathy, Rhonda, and other loan originators from the wholesale side exist, (plus the appraisers that have commented herein) and stay aware of these important developments, and do their best to spread the word about the harm being done to small businesses and to borrowers, by large banks and big goverment.
Rhonda:
True, the links are older.
I still think they have validity, and bear reading, since the revised proposal varies little from the initial proposal, which was widely opposed by lenders, appraisers, brokers and regulators.
You were there at the meeting, as was I.
Attendance was sparse….I’d estimate 35-40 (less than 1% of loan originators/mortgage brokers). Of those, some had no idea what this ruling meant, or why it should be vigorously opposed, and hadn’t bothered to read the scant 6 pages of HVCC.
Some, in fact, suggested that we learn to like it. Of the 4 panelists, 3 essentially recommended capitulation or accomodation to the ruling. The moderator was clearly opposed to the HVCC ruling, as was the lone originator/broker on the panel. The other 3 panelists represented
1) an Appraisal Management Company
2) a lender
3) a lender
While it was informative to hear how we might adapt to the ruling, frankly, I was surprised that WAMP (Washington Association of Mortgage Professionals) would fail to use the bully pulpit to strongly oppose capitulation.
I’d like to hear from a representative of WAMP, emphatically supportive of NAMB’s lawsuit, and a clear call to action to those whose livelihood is threatened.
Of course, I could be delusional.
Maybe no one in the business reads this stuff on RCG, except loan mod salespeople :).
Still, I’m always hopeful that more folks like Dana, Russ, Cathy, Rhonda, and other loan originators from the wholesale side exist, (plus the appraisers that have commented herein) and stay aware of these important developments, and do their best to spread the word about the harm being done to small businesses and to borrowers, by large banks and big goverment.
Roger, I have a different view of the WAMP meeting. I would say that a majority in the room were familiar and cared about HVCC. This was no free breakfast where folks just showed up.
I’ve only been to a handful of recent WAMB meetings/events…including going to Olympia to meet our legislatures and to show them eyeball to eyeball what a mortgage broker/correspondent lender looks like…most events have had that type of attendance.
How many WAMB events have you participated in this past year?
I know I should be doing more.
Where are the loan originators?
Some are being ostrich with their heads in the sand–not wanting to look up or out.
Some are just trying to get in as many loans as possible before their mortgage broker company is gone.
Some will never care about participating or speaking up.
The panel was interesting because this is what’s going on now. An appraiser would have been nice to have on there as well but we had limited time to use that room–there’s a fee associated for that event. The meeting could have gone on much longer–would you be willing to pay for it?
The AMC (a credit reporting company who also does escrow…which I find interesting) of course is for thi$.
The lenders were banks. One was wholesale and the other is a pure retail bank. It was interesting to me to see how the “retail bank” has been dealing with this and what’s in store for mortgage brokers with the wholesale lenders plans. I appreciated their time and efforts.
I guess my suggestion to you is that if you’re unhappy with WAMP, that you get more involved with WAMP….volunteer and if you can’t volunteer, consider a donation….they need your funds too….especially to fight this.
Roger, I have a different view of the WAMP meeting. I would say that a majority in the room were familiar and cared about HVCC. This was no free breakfast where folks just showed up.
I’ve only been to a handful of recent WAMB meetings/events…including going to Olympia to meet our legislatures and to show them eyeball to eyeball what a mortgage broker/correspondent lender looks like…most events have had that type of attendance.
How many WAMB events have you participated in this past year?
I know I should be doing more.
Where are the loan originators?
Some are being ostrich with their heads in the sand–not wanting to look up or out.
Some are just trying to get in as many loans as possible before their mortgage broker company is gone.
Some will never care about participating or speaking up.
The panel was interesting because this is what’s going on now. An appraiser would have been nice to have on there as well but we had limited time to use that room–there’s a fee associated for that event. The meeting could have gone on much longer–would you be willing to pay for it?
The AMC (a credit reporting company who also does escrow…which I find interesting) of course is for thi$.
The lenders were banks. One was wholesale and the other is a pure retail bank. It was interesting to me to see how the “retail bank” has been dealing with this and what’s in store for mortgage brokers with the wholesale lenders plans. I appreciated their time and efforts.
I guess my suggestion to you is that if you’re unhappy with WAMP, that you get more involved with WAMP….volunteer and if you can’t volunteer, consider a donation….they need your funds too….especially to fight this.
Rhonda:
I think we are largely in agreement on this, except that you may have interpreted my disappointment as a disparagement of those who volunteered to organize the event, and those few who attended.
I am very pleased that they did, and pleased that you reminded me of the event. Those efforts were not in vain.
I SHOULD do more, and give more. I encourage others to do the same. I think you laid out the many reasons they do not.
I have participated in 3 WAMP events in 2008, 2 DFI events, and several other industry-wide functions dealing with serious matters (where I frequently see you!). However, I’m not much interested in the golf tournaments that I am e-mailed about, and I dared not eat the breakfast (too many calories)! 🙂
My outlook tends to lean a little on the idealistic and iconoclastic side, in favor of the loan originator and their clients, which may, or may not, be welcomed in WAMP.
WAMP has only recently made serious attempts to reach out to loan originators (the name change was an indicator of that direction), and represent their interests as well.
Of course, I’m sure my dollar contributions are welcome, regardless of my views! :).
I am grateful that you DID go to Olympia, to go eye to eye with legislators and regulators. I have done so in the past myself, with mixed results.
Of course, survival is the first order of business for loan originators (and everyone else, too). Commenting here, and contributing volunteer efforts to WAMP and other causes takes time and money, both of which are in short supply, but needed. It’s tough to balance the two, as you must find to be true also.
I agree that most loan originators in attendance were against the HVCC, and perhaps felt like I did, that a more forceful case for opposing HVCC was called for. I wish the meeting could have gone on longer, and an action plan be hammered out.
The best suggestion I heard there was that a phoning effort be made to reach out to brokers and originators informing them of this issue, and soliciting their support.
I’ll go e-mail that person and offer my services again.
Incidentally, don’t you find it odd that WAMP doesn’t have an on-line forum to address issues like this?
I am grateful that you (and other writers) on RCG do, and do my darndest to make a useful contribution (instead of just complaining!).
Roger, it would be great if WAMP had an online forum but that would take hiring a person to create and monitor it. They have a controlled message they want to promote so it’s doesn’t lend to individuality. However, they could easily do something in a blog format. In my opinion, it comes down to time and money and I believe both are short.
I tweeted about this post (promoted on Twitter) today inviting RE agents, LOs and appraisers and I’m not seeing comments from anyone new…but maybe we have a few new readers.
I would add that I think a lot of mortgage professionals are not doing “blogging” whether it’s reading or writing blogs…they either have their own forms of gaining business, are not allowed to by their employer or maybe they just have nothing to say…who knows!
Time and Money are short.
Certainly, if I was being paid by someone other than my clients, I would not be allowed the time, nor perhaps the permission, to comment as honestly as I do.
I realized long ago that this was not going to generate much business for me…but I like the company.
Even if at the end of the day…we just end up talking to each other. We do not always agree, and we certainly arrived where we are now by different paths, but I do appreciate what you have to say.
Roger, I appreciate that. It’s all about priorities and our needs for sure. You do spend plenty of time commenting at RCG, which is appreciated… you could always focus some of that time helping WAMP if you’re concerned with their direction. 😉
I do what I can on various blogs I write for and Twitter to help promote the causes I believe in w/WAMB.
Well what have I walked into? So much discussion I just don’t know where to start. I’m a Real Estate Broker and Certified Residential Appraiser located in Florida. I would like to share the view of someone who owns and manages a small appraisal firm with 4 appraisers working full time. We work for large lenders directly, provide work through AMCs, small brokers, individuals, investors, and private investmentment organizations. We have plans to open a state wide management company if the HVCC goes through as written, and we are trying to adapt as needed to survive in this industry.
I hate this legislation and so does every other appraiser that I know. We are all for the layer of insulation this legislation seeks to provide, but the cost is too much to bear. To begin with, pressure is only as stressful as you allow it to be. I have no problem getting on the phone with a realtor or originator or homeowner. They have paid me to perform a task and I’m more than happy to discuss the file/market/value once the order is complete. Prior to completion of the file I will discuss comparables with a realtor, especially if he/she is farming the sub market area and knows about comps that may have otherwise escaped my attention. If they try to pressure me, I just tell them to back off. The law is on my side and if they are going to stop using me because they don’t like my value I have to ask myself if I really wanted that client long term. I’m here to build a lasting business and that requires professional and ethical practices. So once the pressure issue is out of the way who gains from this legislation?
The winners are large banks, large title companies, and large AMCs which are owned by large banks and large title companies. This legislation WAS written by these organizations as far as I can tell, and I’d bet anything that they are pulling the strings on this package. It is a windfall for a few companies at the expense of small business and the consumer, but what else is new…
The small organizations like mine will be crushed by this legislation because the vast majority of appraisals will be REQUIRED not by the HVCC, but by the mamoth lenders that will demand use of their mamoth AMC organizations and this is already taking place. The truth is that this legislation allows these AMCs to grow to a critical mass which will allow them to control the vast majority of the appraisal industry. These are nothing but profit centers for the lenders and a few title companies. In some cases the AMCs are using FOREIGN (yes India) back room staff to call and literally auction off appraisal orders to the lowest bidder. I was on the phone with one of the largest AMCs last month and wanted to drum up some business. The switchboard transfered me to India and I was told in no uncertain terms that the DECISION MAKERS are in India and that is where the orders are generated.
Let’s be clear about just how much these AMCs are taking/stealing. We had an appraisal last week which we were providing for $195 due to competitive bidding against rookies from 80 miles away working from their homes. When my appraiser went to the modest condo the owner was upset with us because she paid $700 to the bank for the appraisal. Two years ago the appraisal would have cost the consumer $350 and we would have received 100% of that fee. How is this fair to the consumer or the appraiser?
Comment 8 from Jillayne – The AMC will use the appraiser that charges the lowest fee as long as they are minimally qualified. As long as the appraisal is technically correct, they could care less about accuracy of the value, experience of the appraiser, or anything else relevant to the contractor. This is years of experience working with these companies talking. Lowest bidder, minimum qualifications, send it back 48 hours from inspection, thats it, period!
Comment 14 from Dave – True there are options other than using AMCs, but the legislation makes it harder for many companies and people are using AMCs just to go with the path of least resistance. I’m sure you know that Wells Fargo, BOA, Citi, and a handful of the other very large institutions are already starting to DEMAND use of their AMCs for ANY loan submitted. This is a virtual monopoly by a handful of corporations, the new American model at work again. There is no doubt that there are bad apples throughout this industry, but why not just charge a $20 per file tax to pay for some regulators for a change. How about a Federal review agency that physically looks at a meaningful number of appraisals to get rid of the bad guys. I’d rather lose $20 to a regulator than $200 to a thief. Yes the HVCC requires appraisal “reviews” but how many of those are electronic? How many are being reviewed by people located 2,000 miles away who have NO idea what your local market is?
Comment 33 from Roger – Your dead right. Try reading “shock doctrine” it discusses the utilization of crisis for gain.
Comment 34 from Dave – I’ll be the first to say again that we have bad apples and I’ve seen plenty of bad/illegal work which I turn in to the authorities on a regular basis. Taking what this legislation dishes out is not going to help get rid of the bad apples. People willing to push numbers will also be willing to provide rushed/inferior work for reduced fee BECAUSE THEY ARE UNETHICAL. I have appraisers coming into my territory from over 200 miles away and they don’t even have local MLS. Do you think a local would hire an appraiser from 200 miles away? Would you? An AMC will as long as they are the LOWEST BIDDER.
So what if someone challanges your work, just defend your work. We have changed maybe 2 values in the last 6 years due to presentation of information that we were not aware of. Out of about 100 challanges we find 99% to be unfounded and we just send back notes to that effect and which specifically address the concerns of the challanger. The inconvenience of proving the validity of my work is worth more than the 50% of my fee that these AMCs are going to strip away for sending a fax from point A to point B.
Comment 43 Roger – I’m here, I’m sharing, your right! There should be a more reasonable solution to the problems in the current model. If you can find another solution that benefits 10 mamoth companies and puts 10,000 small businesses in the poor house while imparing the service provided to the consumer then go ahead and send it to Cuomo, I’m sure he will go for it.
Comment 48 from Rhonda – Amen on the HUD disclosure. It will never happen though. Even if it did it would be too late for the borrower to do anything but complain. The lady who paid $700 for our $195 appraisal certainly would be suprised when she reviewed the HUD, but what is she going to do about it at that point?
I have much to say on this subject and I’ve submitted a letter to HUD/FHA/Everyone on the planet that will listen. It can be found at:
http://www.fdic.gov/regulations/laws/federal/2008/08c23Appraisal.pdf
Anyone interested in reading a couple of thousand words on the subject please give it a read.
Well what have I walked into? So much discussion I just don’t know where to start. I’m a Real Estate Broker and Certified Residential Appraiser located in Florida. I would like to share the view of someone who owns and manages a small appraisal firm with 4 appraisers working full time. We work for large lenders directly, provide work through AMCs, small brokers, individuals, investors, and private investmentment organizations. We have plans to open a state wide management company if the HVCC goes through as written, and we are trying to adapt as needed to survive in this industry.
I hate this legislation and so does every other appraiser that I know. We are all for the layer of insulation this legislation seeks to provide, but the cost is too much to bear. To begin with, pressure is only as stressful as you allow it to be. I have no problem getting on the phone with a realtor or originator or homeowner. They have paid me to perform a task and I’m more than happy to discuss the file/market/value once the order is complete. Prior to completion of the file I will discuss comparables with a realtor, especially if he/she is farming the sub market area and knows about comps that may have otherwise escaped my attention. If they try to pressure me, I just tell them to back off. The law is on my side and if they are going to stop using me because they don’t like my value I have to ask myself if I really wanted that client long term. I’m here to build a lasting business and that requires professional and ethical practices. So once the pressure issue is out of the way who gains from this legislation?
The winners are large banks, large title companies, and large AMCs which are owned by large banks and large title companies. This legislation WAS written by these organizations as far as I can tell, and I’d bet anything that they are pulling the strings on this package. It is a windfall for a few companies at the expense of small business and the consumer, but what else is new…
The small organizations like mine will be crushed by this legislation because the vast majority of appraisals will be REQUIRED not by the HVCC, but by the mamoth lenders that will demand use of their mamoth AMC organizations and this is already taking place. The truth is that this legislation allows these AMCs to grow to a critical mass which will allow them to control the vast majority of the appraisal industry. These are nothing but profit centers for the lenders and a few title companies. In some cases the AMCs are using FOREIGN (yes India) back room staff to call and literally auction off appraisal orders to the lowest bidder. I was on the phone with one of the largest AMCs last month and wanted to drum up some business. The switchboard transfered me to India and I was told in no uncertain terms that the DECISION MAKERS are in India and that is where the orders are generated.
Let’s be clear about just how much these AMCs are taking/stealing. We had an appraisal last week which we were providing for $195 due to competitive bidding against rookies from 80 miles away working from their homes. When my appraiser went to the modest condo the owner was upset with us because she paid $700 to the bank for the appraisal. Two years ago the appraisal would have cost the consumer $350 and we would have received 100% of that fee. How is this fair to the consumer or the appraiser?
Comment 8 from Jillayne – The AMC will use the appraiser that charges the lowest fee as long as they are minimally qualified. As long as the appraisal is technically correct, they could care less about accuracy of the value, experience of the appraiser, or anything else relevant to the contractor. This is years of experience working with these companies talking. Lowest bidder, minimum qualifications, send it back 48 hours from inspection, thats it, period!
Comment 14 from Dave – True there are options other than using AMCs, but the legislation makes it harder for many companies and people are using AMCs just to go with the path of least resistance. I’m sure you know that Wells Fargo, BOA, Citi, and a handful of the other very large institutions are already starting to DEMAND use of their AMCs for ANY loan submitted. This is a virtual monopoly by a handful of corporations, the new American model at work again. There is no doubt that there are bad apples throughout this industry, but why not just charge a $20 per file tax to pay for some regulators for a change. How about a Federal review agency that physically looks at a meaningful number of appraisals to get rid of the bad guys. I’d rather lose $20 to a regulator than $200 to a thief. Yes the HVCC requires appraisal “reviews” but how many of those are electronic? How many are being reviewed by people located 2,000 miles away who have NO idea what your local market is?
Comment 33 from Roger – Your dead right. Try reading “shock doctrine” it discusses the utilization of crisis for gain.
Comment 34 from Dave – I’ll be the first to say again that we have bad apples and I’ve seen plenty of bad/illegal work which I turn in to the authorities on a regular basis. Taking what this legislation dishes out is not going to help get rid of the bad apples. People willing to push numbers will also be willing to provide rushed/inferior work for reduced fee BECAUSE THEY ARE UNETHICAL. I have appraisers coming into my territory from over 200 miles away and they don’t even have local MLS. Do you think a local would hire an appraiser from 200 miles away? Would you? An AMC will as long as they are the LOWEST BIDDER.
So what if someone challanges your work, just defend your work. We have changed maybe 2 values in the last 6 years due to presentation of information that we were not aware of. Out of about 100 challanges we find 99% to be unfounded and we just send back notes to that effect and which specifically address the concerns of the challanger. The inconvenience of proving the validity of my work is worth more than the 50% of my fee that these AMCs are going to strip away for sending a fax from point A to point B.
Comment 43 Roger – I’m here, I’m sharing, your right! There should be a more reasonable solution to the problems in the current model. If you can find another solution that benefits 10 mamoth companies and puts 10,000 small businesses in the poor house while imparing the service provided to the consumer then go ahead and send it to Cuomo, I’m sure he will go for it.
Comment 48 from Rhonda – Amen on the HUD disclosure. It will never happen though. Even if it did it would be too late for the borrower to do anything but complain. The lady who paid $700 for our $195 appraisal certainly would be suprised when she reviewed the HUD, but what is she going to do about it at that point?
I have much to say on this subject and I’ve submitted a letter to HUD/FHA/Everyone on the planet that will listen. It can be found at:
http://www.fdic.gov/regulations/laws/federal/2008/08c23Appraisal.pdf
Anyone interested in reading a couple of thousand words on the subject please give it a read.
I read and I Thank You.
Dana Bain
President
Premiere Mortgage Services Inc.
http://www.BainMortgage.com
AJ:
Nice work. I’m taking your letter to bed 🙂
Loved your analysis and comments here. Thanks for taking the time to spell out what is ACTUALLY happening.
That part about routinely handling lower than expected values? Exactly like the guys I use here handle it. Wouldn’t expect it any other way, and in fact have never experienced it any other way, since I have worked with independent appraisers.
Re politics:
Politicians ALWAYS prefer to feed from a few large contributors, rather than many small ones.
Just ask Roland Arnall (Ameriquest founder…deceased).
Shock and Awe, haven’t read it yet…Working my way through “Chain of Blame” by Paul Muolo and Matthew Padilla, regarding the rise of Subprime, MBS, CDO’s etc.
Pretty good storytelling/reporting. Loads of details regarding Mozillo. So far it has been presented without an axe to grind.
I hope others find there way here, and are emboldened by your words.
What are your professional appraisal associations doing about this?
Have they been over-run by the AMC’s?
Good luck with starting your own AMC, but I almost see no point in it. You could only service a handful of local banks. I really hope you are right, and can succeed.
The national banks will choose national vendors (for greed, sure, but for convenience too…they do NOT want to manage 50 to 100 regional AMC’s), the mortgage brokers will continue to place their loans with national wholesalers.
I do not see a viable way under the proposed plan, that I could carefully select a local AMC to handle all of my loans. I’m not sure many brokers or correspondent lenders will.
Rhonda had mentioned correspondent lenders being treated differently, or having more options (#48), but I’m not sure how that will play out.
Do you (AJ) have any ideas on that?
I work for a broker/correspondent lender, and so far I have not heard a plan to deal with this locally, but I have seen Flagstar’s rollout, and experienced the crappy and expensive services provided by AMC’s
Anyways, thanks for chiming in from Florida!
AJ:
Nice work. I’m taking your letter to bed 🙂
Loved your analysis and comments here. Thanks for taking the time to spell out what is ACTUALLY happening.
That part about routinely handling lower than expected values? Exactly like the guys I use here handle it. Wouldn’t expect it any other way, and in fact have never experienced it any other way, since I have worked with independent appraisers.
Re politics:
Politicians ALWAYS prefer to feed from a few large contributors, rather than many small ones.
Just ask Roland Arnall (Ameriquest founder…deceased).
Shock and Awe, haven’t read it yet…Working my way through “Chain of Blame” by Paul Muolo and Matthew Padilla, regarding the rise of Subprime, MBS, CDO’s etc.
Pretty good storytelling/reporting. Loads of details regarding Mozillo. So far it has been presented without an axe to grind.
I hope others find there way here, and are emboldened by your words.
What are your professional appraisal associations doing about this?
Have they been over-run by the AMC’s?
Good luck with starting your own AMC, but I almost see no point in it. You could only service a handful of local banks. I really hope you are right, and can succeed.
The national banks will choose national vendors (for greed, sure, but for convenience too…they do NOT want to manage 50 to 100 regional AMC’s), the mortgage brokers will continue to place their loans with national wholesalers.
I do not see a viable way under the proposed plan, that I could carefully select a local AMC to handle all of my loans. I’m not sure many brokers or correspondent lenders will.
Rhonda had mentioned correspondent lenders being treated differently, or having more options (#48), but I’m not sure how that will play out.
Do you (AJ) have any ideas on that?
I work for a broker/correspondent lender, and so far I have not heard a plan to deal with this locally, but I have seen Flagstar’s rollout, and experienced the crappy and expensive services provided by AMC’s
Anyways, thanks for chiming in from Florida!
AJ, THANK YOU! What is NARs position on this?
Can you tell us which banks and title companies have interest in specific AMCs?
AJ, THANK YOU! What is NARs position on this?
Can you tell us which banks and title companies have interest in specific AMCs?
I just heard that the Seattle Mortgage Bankers Association will be addressing HVCC with a representative from FNMA at their next dinner meeting on March 24, 2009. I’m going!
Our trade organizations are primarily working on regulation of the AMCs, which the AMCs are crying about as they feel the market should sort everything out. Of course that would be my position too if I had that kind of market share but I digress. The Appraisal institute proposal can be found at:
http://www.appraisalinstitute.org/newsadvocacy/downloads/ModelProvisionsAMC.pdf
but I’m not sure if it’s up to date… The trade organizations are not so much over run with the AMC members. When you think about it their employee numbers are small, but their profits are huge. So a few people/companies set up a lobby and bypass the trade groups. The trade groups appear to be so shell shocked that all they can try to do is get the AMCs regulated. There is also dissagreement within the appraisal community regarding the HVCC, but I don’t understand why that is. Some of the people “representing” appraisers are actually management at the AMCs which is a joke in my opinion. My earlier comments address the concerns of those appraisers that are gung ho for this steaming pile called the HVCC.
The primary players involved can be found on the TAVMA site http://www.tavma.org (look at the board of directors). These are the winners if the HVCC goes through, and you can tell that by their propaganda on the site. Just look at they way they are trying to justify their cut of appraisal fees with things like licensing and continuing education listed as overhead. They make it sound like they have appraisal licenses and have continuing education requirements but they have none at this time. The people processing the orders don’t know the first thing about appraisals, let alone a license.
Owership is easy to find, it just takes time to dig which I did not have today. The main AMCs that have been involved over the past 2 years are:
Fidelity National Title = Fidelity
Lender Processing Services (LSI) = Spun off from Fidelity National 6 months ago and proceses more than half of all mortages in the US.
And lest we forget First American, the big stick down here in Florida. They own eAppraisit.
I know Chase has started a new company but I can’t seem to find the name right now.
Novastar bought controlling interest in PipeFire last year.
Wells Fargo sent out a letter 6 weeks ago declaring that they would not accept appraisals from anywhere else but a short list of AMCs.
Wells Fargo = RELS (see new lawsuit filed below) Currently being investigated for inflated fees for rigged apprasials. Oh yeah, great solution we have going here:
http://appraisalnewsonline.typepad.com/appraisal_news_for_real_e/2009/01/wells-fargo-and-rels-valuations-home-appraisal-practices-and-inflated-fees-under-investigation-.html
My friends set up the framework for an AMC 6 months ago when the HVCC did not allow banks or title companies to own more than 10% of any AMC. If that part of the legislation was still in the document, I’d be able to accept the good parts with the bad parts. The fact that Cuomo did a 180 on that part of the legislation just tells me that (1) the lobby did it’s job and (2) he needs money for his upcoming election. Makes me want to puke… Anyway, they/we can scale that AMC to be National, but why bother when these guys are setting up a monopoly of 6-8 vendors that will crush any competition?
I do not have much input on the coorespondent lender impact vs everyone else. I find the document to be somewhat confusing as with most legislation. My experience is that companies with a good firewall set up between loan production and processing are managing the orders in house. Everyone else is either switching to AMCs, waiting to see if this actually goes through as written, or making alternate plans.
I’ve seen some articles on the NAR site but I’m not sure what their position is. I can tell you that if they are putting up a stink, they are doing it quietly. As a realtor there is little direct impact in the legislation so that does not suprise me.
If I get some time later I’ll get a better list with AMC ownership together, but there are new companies being formed as we speak and the big guys know this is a cash cow. They will all have captive AMCs by the end of the year.
Now I would appreciate a small favor from you folks: If you like my letter that is on the FDIC site please send the link with a comment to your local House Representative. I can’t send it to anyone outside my district as their web sites all have filters. I’m having trouble finding anyone in Gvmt that cares, but you gotta try right?
Thanks to all for your interest
AJ
Our trade organizations are primarily working on regulation of the AMCs, which the AMCs are crying about as they feel the market should sort everything out. Of course that would be my position too if I had that kind of market share but I digress. The Appraisal institute proposal can be found at:
http://www.appraisalinstitute.org/newsadvocacy/downloads/ModelProvisionsAMC.pdf
but I’m not sure if it’s up to date… The trade organizations are not so much over run with the AMC members. When you think about it their employee numbers are small, but their profits are huge. So a few people/companies set up a lobby and bypass the trade groups. The trade groups appear to be so shell shocked that all they can try to do is get the AMCs regulated. There is also dissagreement within the appraisal community regarding the HVCC, but I don’t understand why that is. Some of the people “representing” appraisers are actually management at the AMCs which is a joke in my opinion. My earlier comments address the concerns of those appraisers that are gung ho for this steaming pile called the HVCC.
The primary players involved can be found on the TAVMA site http://www.tavma.org (look at the board of directors). These are the winners if the HVCC goes through, and you can tell that by their propaganda on the site. Just look at they way they are trying to justify their cut of appraisal fees with things like licensing and continuing education listed as overhead. They make it sound like they have appraisal licenses and have continuing education requirements but they have none at this time. The people processing the orders don’t know the first thing about appraisals, let alone a license.
Owership is easy to find, it just takes time to dig which I did not have today. The main AMCs that have been involved over the past 2 years are:
Fidelity National Title = Fidelity
Lender Processing Services (LSI) = Spun off from Fidelity National 6 months ago and proceses more than half of all mortages in the US.
And lest we forget First American, the big stick down here in Florida. They own eAppraisit.
I know Chase has started a new company but I can’t seem to find the name right now.
Novastar bought controlling interest in PipeFire last year.
Wells Fargo sent out a letter 6 weeks ago declaring that they would not accept appraisals from anywhere else but a short list of AMCs.
Wells Fargo = RELS (see new lawsuit filed below) Currently being investigated for inflated fees for rigged apprasials. Oh yeah, great solution we have going here:
http://appraisalnewsonline.typepad.com/appraisal_news_for_real_e/2009/01/wells-fargo-and-rels-valuations-home-appraisal-practices-and-inflated-fees-under-investigation-.html
My friends set up the framework for an AMC 6 months ago when the HVCC did not allow banks or title companies to own more than 10% of any AMC. If that part of the legislation was still in the document, I’d be able to accept the good parts with the bad parts. The fact that Cuomo did a 180 on that part of the legislation just tells me that (1) the lobby did it’s job and (2) he needs money for his upcoming election. Makes me want to puke… Anyway, they/we can scale that AMC to be National, but why bother when these guys are setting up a monopoly of 6-8 vendors that will crush any competition?
I do not have much input on the coorespondent lender impact vs everyone else. I find the document to be somewhat confusing as with most legislation. My experience is that companies with a good firewall set up between loan production and processing are managing the orders in house. Everyone else is either switching to AMCs, waiting to see if this actually goes through as written, or making alternate plans.
I’ve seen some articles on the NAR site but I’m not sure what their position is. I can tell you that if they are putting up a stink, they are doing it quietly. As a realtor there is little direct impact in the legislation so that does not suprise me.
If I get some time later I’ll get a better list with AMC ownership together, but there are new companies being formed as we speak and the big guys know this is a cash cow. They will all have captive AMCs by the end of the year.
Now I would appreciate a small favor from you folks: If you like my letter that is on the FDIC site please send the link with a comment to your local House Representative. I can’t send it to anyone outside my district as their web sites all have filters. I’m having trouble finding anyone in Gvmt that cares, but you gotta try right?
Thanks to all for your interest
AJ
AJ, isn’t it amazing that what was brought on because of a large bank abusing an AMC of sorts… that everyone else is being punished and the banks and AMCs are coming out smelling like ro$e$? It is enough to make anyone puke.
From the Seattle Times (regarding the Feds investigating WaMU for fraud):
NAMB withdrew their lawsuit earlier this week due to “the FHFA’s claim that no court may review their decisions while the GSE’s are in conservatorship.”
Read NAMB’s press release here.
I have been an appraiser for 18 years and have a small appraisal firm. The HVCC eliminates all my clients I have worked so hard to maintain and puts me in the same pool as all the newbie appraisers. As an employer, this basically destroys my business. When we are talking about the $225 fees the AMC’s are paying for the appraisal, the W-2 employed appraiser who works for an appraisal firm (not appraisers who own their own business) generally has a fee split of 50%-60% the appraisal fee. So, before my appraisers were making a comfortable wage of $50k/yr, now with the introduction of AMC’s taking half the fee, will be making $25k/yr? Who in their right mind is going to go through all the trouble to become a certified appraiser, which requires a min. 2 yr degree, then a 2 year apprenticeship, plus over 200 credit hours of appraisal course work…just to make $25k/yr or about $12 bucks an hour in this field?
Laura:
My condolences, to you and all of the decent hard-working professional independent appraisers whose small businesses are harmed by this.
I fought this as hard as I could.
A few AMC crooks get caught, and the bigwigs decide that everyone gets punished, and the AMCs get bigger rewards.
Let us know how it pans out fo you.
Your Appraised Value Could Fall 10% in Two WEEKS
OK, that was rather alarming, but I needed to get your attention on an urgent risk, and a limited opportunity. I will explain. Perhaps, too thoroughly.
No one, anywhere, is talking about this in the mainstream media. I have, to people that have inquired about refinances lately.
Effective May 1st (two weeks), ALL lenders, loan originators mortgage brokers and loan officers will be prohibited from selecting an appraiser, or communicating with an appraiser in almost any fashion. Most lenders have already implemented the changes, and some are waiting until May 1st.
I will provide links for further reading below, so for now, just humor me.
So, why does that matter to the average borrower, and why will that lower appraised values?
1. Appraisals will be ordered blind, through an appraisal management company (AMC). They charge more, and pay the appraiser considerably less, keeping the remainder. Typically it will make an appraisal about $100 more expensive, and they typically pay the appraiser about 50% of the charge. The payment is ALWAYS taken upfront, usually by credit card, before it is even scheduled, and NEVER at the door.
2. On a refinance, Loan Originators (like me), will NOT be allowed to tell the AMC or appraiser what the borrower thinks the property is worth. We will not be able to discuss beforehand if the assumed value is reasonable, nor challenge/discuss the appraised value (the bank can…to lower it!). That means that your $500 appraisal is more of a gamble than it is now.
3. Since the banks select the AMC’s, the appraiser is now more beholden to the bank, than he was to the borrower or the loan originator. Previously, it was evenly balanced. Banks do not backlist appraisers that understate value, but they do penalize appraisers that overstate value (which is why I NEVER pressured an appraiser to change his value). That will cause appraisers to instinctively become more conservative in valuations, as a survival tactic.
4. Independent appraisers usually are paid about $400-$450 locally. That allows them sufficient time to do excellent work, and really study the subject property, and to research the best comparables. Going forward they will be paid about half that amount. It is reasonable to assume they will attempt to recover their loss by doubling their work load, and spend half the time on each appraisal.
OK, so I could be wrong. And I am sure not EVERY appraisal is going to be undervalued.
But I think I am right, at least on average, and so does most everyone in the industry I talk to.
The difference between hitting 80% loan to value and 90% loan to value on a refinance is pretty easy to quantify. It means about 0.7% mortgage insurance added to the payment, or about $145/mo on a $250K loan. There are other examples, and they are almost all bad.
So, IF you are sitting on the fence, hoping for better rates, or dealing with more urgent matters (like getting your taxes done!!), I beg you to consider taking action now, while we can still use independent appraisers with a few lenders.
Before your appraised value falls 10% in two weeks. Maybe.
Your Appraised Value Could Fall 10% in Two WEEKS
OK, that was rather alarming, but I needed to get your attention on an urgent risk, and a limited opportunity. I will explain. Perhaps, too thoroughly.
No one, anywhere, is talking about this in the mainstream media. I have, to people that have inquired about refinances lately.
Effective May 1st (two weeks), ALL lenders, loan originators mortgage brokers and loan officers will be prohibited from selecting an appraiser, or communicating with an appraiser in almost any fashion. Most lenders have already implemented the changes, and some are waiting until May 1st.
I will provide links for further reading below, so for now, just humor me.
So, why does that matter to the average borrower, and why will that lower appraised values?
1. Appraisals will be ordered blind, through an appraisal management company (AMC). They charge more, and pay the appraiser considerably less, keeping the remainder. Typically it will make an appraisal about $100 more expensive, and they typically pay the appraiser about 50% of the charge. The payment is ALWAYS taken upfront, usually by credit card, before it is even scheduled, and NEVER at the door.
2. On a refinance, Loan Originators (like me), will NOT be allowed to tell the AMC or appraiser what the borrower thinks the property is worth. We will not be able to discuss beforehand if the assumed value is reasonable, nor challenge/discuss the appraised value (the bank can…to lower it!). That means that your $500 appraisal is more of a gamble than it is now.
3. Since the banks select the AMC’s, the appraiser is now more beholden to the bank, than he was to the borrower or the loan originator. Previously, it was evenly balanced. Banks do not backlist appraisers that understate value, but they do penalize appraisers that overstate value (which is why I NEVER pressured an appraiser to change his value). That will cause appraisers to instinctively become more conservative in valuations, as a survival tactic.
4. Independent appraisers usually are paid about $400-$450 locally. That allows them sufficient time to do excellent work, and really study the subject property, and to research the best comparables. Going forward they will be paid about half that amount. It is reasonable to assume they will attempt to recover their loss by doubling their work load, and spend half the time on each appraisal.
OK, so I could be wrong. And I am sure not EVERY appraisal is going to be undervalued.
But I think I am right, at least on average, and so does most everyone in the industry I talk to.
The difference between hitting 80% loan to value and 90% loan to value on a refinance is pretty easy to quantify. It means about 0.7% mortgage insurance added to the payment, or about $145/mo on a $250K loan. There are other examples, and they are almost all bad.
So, IF you are sitting on the fence, hoping for better rates, or dealing with more urgent matters (like getting your taxes done!!), I beg you to consider taking action now, while we can still use independent appraisers with a few lenders.
Before your appraised value falls 10% in two weeks. Maybe.
Roger, every story I hear about AMC’s is about poor comps–the one I heard today at the WAMP meeting I was at was for property in the heart of Kirkland w/plenty of comps but the AMC used comps in Bothell.
Correspondent lenders do have the option of not using AMCs as long as the meet the HVCC code criteria.
I think many hard working decent appraisers will tough out AMCs until they can find another career…imagine what that will do to the quality of an appraisal.
Roger, every story I hear about AMC’s is about poor comps–the one I heard today at the WAMP meeting I was at was for property in the heart of Kirkland w/plenty of comps but the AMC used comps in Bothell.
Correspondent lenders do have the option of not using AMCs as long as the meet the HVCC code criteria.
I think many hard working decent appraisers will tough out AMCs until they can find another career…imagine what that will do to the quality of an appraisal.
Rhonda:
Comps ARE hard to find today, and underpaid appraisers are not likely spend the extra hour to find the best ones.
Correspondent lenders and mortgage banks do not necessarily need to use AMC’s, but they have the same restrictions regarding contact between anyone in mortgage production (loan originators, managers, processers, etc) and the ability to transfer that appraisal to a different lender is restricted.
They must set up their own appraisal department, with compliant procedures and protections, and not many are going to want to do all of that, with its attendant costs and risks.
Is your company going to set up their own appraisal department?
I do not think mine is (we have correspondent and banking lines), though I suggested it months ago.
I have not yet heard of anyone doing that locally.
It will probably take a few months of weighing the costs and benefits of doing so.
So far, I have only done one appraisal (and one pending) thru an AMC, and they were definitely more expensive and harder to do. Many times a phone call directly to the appraiser from the LO regarding an issue is so much easier than the bucket relay system that is being put in place w/ AMCs.
Ah well, if this was easy, then everybody would do it!
Rhonda:
Comps ARE hard to find today, and underpaid appraisers are not likely spend the extra hour to find the best ones.
Correspondent lenders and mortgage banks do not necessarily need to use AMC’s, but they have the same restrictions regarding contact between anyone in mortgage production (loan originators, managers, processers, etc) and the ability to transfer that appraisal to a different lender is restricted.
They must set up their own appraisal department, with compliant procedures and protections, and not many are going to want to do all of that, with its attendant costs and risks.
Is your company going to set up their own appraisal department?
I do not think mine is (we have correspondent and banking lines), though I suggested it months ago.
I have not yet heard of anyone doing that locally.
It will probably take a few months of weighing the costs and benefits of doing so.
So far, I have only done one appraisal (and one pending) thru an AMC, and they were definitely more expensive and harder to do. Many times a phone call directly to the appraiser from the LO regarding an issue is so much easier than the bucket relay system that is being put in place w/ AMCs.
Ah well, if this was easy, then everybody would do it!
Your appraised value could be overvalued by 20% in 2 weeks.
Sorry to get you excited, but it really could happen. My point is that rushed appraisals in a volatile market will lead to innacurate appraisals which can be high or low. In a declining market, I would say they are more often high than low, but I’ve never heard a complaint from you originators for an over valued home (-:
As an appraiser, if you are working for 1/2 your normal fee you will have to put through twice the volume to keep your kids fed, mortgage paid, etc… Now imagine that you are going through MLS looking for comps. What is the easiest and fastest thing to do? Are you going to spend a couple of hours reviewing the community activity, sub market, foreclosures, short sales, call local realtors that farm the community, call for concessions, etc, etc. Most of the time I suspect you would grab the last 4 sales and a couple of pending listings and slam that file out asap.
That is what Laura and I are “competing” with. Fast and furious work does not necessarily mean you are getting conservative values. I just thought I would point that out.
I hope you are all surviving and working your way through these new rules from Fannie and HUD. One word of caution; watch your health/saftey/structural integrity issues. Fannie now requires a “subject to” value for a home with any of these issues just like FHA. Lead based paint flaking/chipping is my number 1 reason for conditioning an appraisal. I’ll keep checking in. I would love to hear some feedback on the quality of your appraisals provided through the AMC food chain.
AJ, at the Washington Real Estate Summit today, most of the focus was on HVCC. What a sham. I submitted a question to our panel regarding WHO is responsible for regulating AMCs… DFI says “not I” and DOL just seemed a bit squirmy…I hope our regulators got a good earful of what’s about to happen.
NAMB is *hopeful* this will be delayed…but who knows.
What are appraisers doing about HVCC? Are your industry groups taking any action?
BTW I thought that the last changes to appraisals was FHA following Fannie Mae.
AJ, at the Washington Real Estate Summit today, most of the focus was on HVCC. What a sham. I submitted a question to our panel regarding WHO is responsible for regulating AMCs… DFI says “not I” and DOL just seemed a bit squirmy…I hope our regulators got a good earful of what’s about to happen.
NAMB is *hopeful* this will be delayed…but who knows.
What are appraisers doing about HVCC? Are your industry groups taking any action?
BTW I thought that the last changes to appraisals was FHA following Fannie Mae.
Hi Rhonda. Glad to hear that the issue is at least getting some attention at the summit. There is an appraiser march on Washington being organized for April 28/29th which I’m considering going to. The industry groups are not taking significant action, but some of the State Boards have been sending in letters to Cuomo (including New York’s appraisal board I believe). What can they really do besides beg for action? Fannie/Freddie are in receivership, so apparantly they don’t have to answer to anyone in court for now. Nice position to take…
If this was legislation it would never have passed. This work around BS system of just springing these rules into action demands protests. Without some media coverage and/or an informed public we are going to get nowhere.
I would agree that FHA is following Freddie for the most part, but they put out some new rules in the last 30 days. Fannie is putting out rules/guidelines so often that I’m putting on seminars for my appraisers just to keep up. The efanniemae site for appraisers is easy to find and has all of the latest docs. They are not too cumbersome to read up on which I would suggest to anyone in the industry.
FYI if you are working with National City/ PNC they are now signed up with Streetlinks, who was formed from Novastar, who was being sued left and right for being scumbag lenders. Streetlinks informed me that they have 50 appraisers in my County that will work for 60% of our previous fee arrangement with National City. Then they emailed every appraiser in the County 3 days later indicating “experienced appraisers wanted”. I’ll bet they are left wanting at that fee…lots of low quality appraisals coming to a town near you.
Hey AJ!!
Welcome back!
Over valued appraisals….hmmm, I dunno, I’ll have to see the evidence.
I don’t think that is going to happen often. Let me explain.
Every lender’s underwriting department has certain metrics that trigger an appraisal review, typically if a property is near or above the lenders online comps.
I have NEVER, EVER, EVER, seen an appraisal review where the lender felt that the property was undervalued.
Have you ever heard of such a thing?
Some AMC’s are making valuation guarantees to the banks.
What do YOU think they are going to discourage more: over-valuation or undervaluation?
I think we can all agree that if you cut compensation of any worker in half, especially one that is paid per unit of output, that the quality of the output will suffer.
Yet,
Rhonda:
That was a VASTLY more useful meeting today than I had dreamed possible. That SHOULD have been the discussion at WAMP a month ago.
A few points from Mark Savitt (from NAMB) that I’d like to add to the record here.
Appraisers, PLEASE chime in.
Appraisal Portability.
This is a major issue. Let me explain the world as it is today, and the potential world, after May 1st.
Today, a mortgage broker, working for the borrower, orders the appraisal, and is free to take that appraisal to the lender of his choosing. The lender/underwriter reserves the right to reveiw that appraisal, and often does.
If the lender treats the appraisal too harshly, the broker has the option of taking that appraisal elsewhere.
After May 1, loan originators will be required to order appraisal thru bank approved AMC’s, or the bank’s own appraisal department. The BANK controls the appraisal, even though the customer has paid for it.
The new code says that there must be a mechanism to transfer that appraisal from bank to bank, at the brokers direction. Mark Savitt says that the rules of appraisals (USPAP) SPECIFICALLY prohibit this.
Loan originators, here is a suggestion.
Write to your favorite lenders and ask them for their written policy regarding the “portability” of the appraisal ordered thru their preferred AMC.
Tell them you intend to ONLY send business to those that provide you written assurance that the appraisal is portable, and the exact procedures you must go thru to move the appraisal, in the event that the lender changes the terms of the submitted loan (valuation, price, etc.).
Let me share a story from last week.
Working on a refi. Borrower and I agree that that a reasonable value is the 2009 assessed value. Home is about average for the area, no unusual features.
The independent appraisal comes back at 17% below the assessed value. Ouch! Lots of explanations required, but at the end of the day, we had to agree that it was a fair appraised value, or at least as good as we could get, considering the dearth of comps.
Sent the appraisal and full package to the lender, thinking the last thing I had to worry about was an appraisal review.
Wrong!
One day before ordering docs, we get hit with an appraisal review out of the blue, and the lender knocks another 15% off the appraised value, requiring the borrower to bring a suitcase full of cash to close!!
Pulled the loan, submitted it elsewhere, hoping for the best.
The big question is, will we be able to do that for our borrowers after May 1?
For you loan originators…will you be able to do that after May 1? It is in your best interest to find out now.
Rhonda:
That was a VASTLY more useful meeting today than I had dreamed possible. That SHOULD have been the discussion at WAMP a month ago.
A few points from Mark Savitt (from NAMB) that I’d like to add to the record here.
Appraisers, PLEASE chime in.
Appraisal Portability.
This is a major issue. Let me explain the world as it is today, and the potential world, after May 1st.
Today, a mortgage broker, working for the borrower, orders the appraisal, and is free to take that appraisal to the lender of his choosing. The lender/underwriter reserves the right to reveiw that appraisal, and often does.
If the lender treats the appraisal too harshly, the broker has the option of taking that appraisal elsewhere.
After May 1, loan originators will be required to order appraisal thru bank approved AMC’s, or the bank’s own appraisal department. The BANK controls the appraisal, even though the customer has paid for it.
The new code says that there must be a mechanism to transfer that appraisal from bank to bank, at the brokers direction. Mark Savitt says that the rules of appraisals (USPAP) SPECIFICALLY prohibit this.
Loan originators, here is a suggestion.
Write to your favorite lenders and ask them for their written policy regarding the “portability” of the appraisal ordered thru their preferred AMC.
Tell them you intend to ONLY send business to those that provide you written assurance that the appraisal is portable, and the exact procedures you must go thru to move the appraisal, in the event that the lender changes the terms of the submitted loan (valuation, price, etc.).
Let me share a story from last week.
Working on a refi. Borrower and I agree that that a reasonable value is the 2009 assessed value. Home is about average for the area, no unusual features.
The independent appraisal comes back at 17% below the assessed value. Ouch! Lots of explanations required, but at the end of the day, we had to agree that it was a fair appraised value, or at least as good as we could get, considering the dearth of comps.
Sent the appraisal and full package to the lender, thinking the last thing I had to worry about was an appraisal review.
Wrong!
One day before ordering docs, we get hit with an appraisal review out of the blue, and the lender knocks another 15% off the appraised value, requiring the borrower to bring a suitcase full of cash to close!!
Pulled the loan, submitted it elsewhere, hoping for the best.
The big question is, will we be able to do that for our borrowers after May 1?
For you loan originators…will you be able to do that after May 1? It is in your best interest to find out now.
Roger, I think what AJ meant by overvalued was that appraisals will be coming in at 20% less in the future due to AMCS–AJ, please correct me if I’m wrong (and confirm if I’m correct). 🙂
I didn’t go to last year’s RE Summit–I enjoyed this and especially found it interesting watching how DOL, DFI and other various regulators interact.
Loan originators, mortgage brokers, appraisers, real estate agents, please call, write or fax your elected representatives in Washington DC, and insist that due process be followed.
The HVCC was adopted behind closed doors without due process, and is grossly harmful to small businesses.
The fight is not over yet.
Loan originators, mortgage brokers, appraisers, real estate agents, please call, write or fax your elected representatives in Washington DC, and insist that due process be followed.
The HVCC was adopted behind closed doors without due process, and is grossly harmful to small businesses.
The fight is not over yet.
The difference between this year and last was remarkable.
Last year, the introductions of the speakers was far longer than the presentations, and I came away with the impression that style was far more valued than substance. The tone was much more serious this year, reflective of the rather bleak economic winter we have just experienced.
The interplay between our industry and the regulators was interesting to watch…there was greater mutual respect than I have seen in a long time. Both sides seem to understand the seriousness of the current situation, and the necessity of each part to the success of the whole. Neither could survive without the other.
A tip of the hat to keynote speaker Congressman Dave Reichert (R). He spoke plainly, not afraid to tell us what we did not want to hear, and his staff was totally on the ball. He deftly handled the questions he was knowledgable about (foriegn trade, TARP, immigration, budget deficit, loooming inflation). He knew nothing about HVCC, but after all how could he?
I probably disagree with 60% of his positions, but I at least think he represents his positions honestly.
Hey, finally at the 11th hour there’s a decent article in the Times.
http://seattletimes.nwsource.com/html/realestate/2009077167_realappraisers19.html
Yes I’m actually predicting that over valuations will be more common due to the HVCC. I understand that under valuations will be a bigger problem for loan funding, but I think quick and cheap work will result in higher appraised values in some markets,especially declining markets.
In my County we are experiencing ongoing value erosion and are currently approaching 2003 levels. My best estimate is that we will continue to see the 7-20% (depending on the community) annual decline rates for at least the next 6 months and probably for another year or two. We have about 2-3 years inventory, but of course absorption rates can change everything.
When I’m researching an appraisal in this market, I typically find a variance in sales prices of 20-35% or more, even when every home is the same model in the same community. This is primarily attributable to volatile market conditions, variances in seller motivation, how savvy the buyer is, etc… I have to individually research every sales comparable to make sure of the actual contract date and terms of sale (not included in my MLS system). This includes finding seller paid closing costs, point buy downs, etc… Then I have to look at the actives (50% variance range), determine the number of short sales/foreclosures, and generally look at market trends. When writing the report I go through an in depth market analysis filling out ALL of the 1004MC, marketing comments, top of page 2 (actives/sales statistics), and generally just learn and comment on everything I can about the community trends and sub market competition.
My competitors working for 1/2 my fee pumping volume through their shops don’t spend the same time and care in analysis. They will go through those sales I started with and find 3 good statistical matches. These will be 3 sales with very similar statistical characteristics (closest 3 sales prices for example). Using these 3 sales is the easiest way to go because all of the stats will look pretty in the report. In other words tight ratios and low gross/net adjustments. They don’t call the listing agents to confirm terms, condition of the property, seller motivation, buyer motivation, etc, etc…This results in less comments, less questions from underwriting, and generally will allow a fast turn of the file. What this does not do is result in the most accurate value.
I am amazed at how often I am given copies of appraisals that do not include time adjustments, or have time adjustments based on closing dates instead of contract dates. I was given an appraisal from a homeowner this week that had closed on a new construction in March with a purchase price of $385K and their appraisal came in at $440K. When I went through the thing the appraiser had used builder sales with 12 month old contracts that had closed in the prior 4 months. When I looked at recent builder CONTRACTS the prices were 8-10% lower, which was in line with value declines over the prior 12-16 months. I came in at less than $400K in less than 30 days from her prior appraisal, and she deserved an honest opinion of value the 1st time. Now I look “conservative” when I’m the one who was accurate. By the way, the 1st appraiser did not have the correct lot number, parcel number, or correct floor plan (even though the home was built when he went there).
My point is that inaccurate is inaccurate, not necessarily high or low. These hit and run appraisers are not verifying sales and are, in my humble opinion, the least ethical of the appraisers in the business. You are more likely to have a value “hit” by an appraiser who is playing ball than by one who is not playing games. I take my job seriously and do not feel that I’m doing anyone a favor by just rubber stamping the deal. If you have ever used a rubber stamp, you know it is fast, and that is the key to the new industry model. Fast and cheap, not accurate and qualified. Every review that I get seems to be written in fantasy land with obvious lack of research, comments, analysis, and poor comparable selection.
Now I have a question. I see on blogs that AMCs are starting to throw out numbers related to the fee % they are giving to the appraisers at 75-80%. That is not the case for the top 6 AMCs in the industry including Streetlinks, eAppraiseit, & LSI. All of those guys are in the neighborhood of 50%. I wanted to know if anyone ever asks the AMCs what % they are paying the appraisers in their panel. I would love to hear any feedback.
Yes I’m actually predicting that over valuations will be more common due to the HVCC. I understand that under valuations will be a bigger problem for loan funding, but I think quick and cheap work will result in higher appraised values in some markets,especially declining markets.
In my County we are experiencing ongoing value erosion and are currently approaching 2003 levels. My best estimate is that we will continue to see the 7-20% (depending on the community) annual decline rates for at least the next 6 months and probably for another year or two. We have about 2-3 years inventory, but of course absorption rates can change everything.
When I’m researching an appraisal in this market, I typically find a variance in sales prices of 20-35% or more, even when every home is the same model in the same community. This is primarily attributable to volatile market conditions, variances in seller motivation, how savvy the buyer is, etc… I have to individually research every sales comparable to make sure of the actual contract date and terms of sale (not included in my MLS system). This includes finding seller paid closing costs, point buy downs, etc… Then I have to look at the actives (50% variance range), determine the number of short sales/foreclosures, and generally look at market trends. When writing the report I go through an in depth market analysis filling out ALL of the 1004MC, marketing comments, top of page 2 (actives/sales statistics), and generally just learn and comment on everything I can about the community trends and sub market competition.
My competitors working for 1/2 my fee pumping volume through their shops don’t spend the same time and care in analysis. They will go through those sales I started with and find 3 good statistical matches. These will be 3 sales with very similar statistical characteristics (closest 3 sales prices for example). Using these 3 sales is the easiest way to go because all of the stats will look pretty in the report. In other words tight ratios and low gross/net adjustments. They don’t call the listing agents to confirm terms, condition of the property, seller motivation, buyer motivation, etc, etc…This results in less comments, less questions from underwriting, and generally will allow a fast turn of the file. What this does not do is result in the most accurate value.
I am amazed at how often I am given copies of appraisals that do not include time adjustments, or have time adjustments based on closing dates instead of contract dates. I was given an appraisal from a homeowner this week that had closed on a new construction in March with a purchase price of $385K and their appraisal came in at $440K. When I went through the thing the appraiser had used builder sales with 12 month old contracts that had closed in the prior 4 months. When I looked at recent builder CONTRACTS the prices were 8-10% lower, which was in line with value declines over the prior 12-16 months. I came in at less than $400K in less than 30 days from her prior appraisal, and she deserved an honest opinion of value the 1st time. Now I look “conservative” when I’m the one who was accurate. By the way, the 1st appraiser did not have the correct lot number, parcel number, or correct floor plan (even though the home was built when he went there).
My point is that inaccurate is inaccurate, not necessarily high or low. These hit and run appraisers are not verifying sales and are, in my humble opinion, the least ethical of the appraisers in the business. You are more likely to have a value “hit” by an appraiser who is playing ball than by one who is not playing games. I take my job seriously and do not feel that I’m doing anyone a favor by just rubber stamping the deal. If you have ever used a rubber stamp, you know it is fast, and that is the key to the new industry model. Fast and cheap, not accurate and qualified. Every review that I get seems to be written in fantasy land with obvious lack of research, comments, analysis, and poor comparable selection.
Now I have a question. I see on blogs that AMCs are starting to throw out numbers related to the fee % they are giving to the appraisers at 75-80%. That is not the case for the top 6 AMCs in the industry including Streetlinks, eAppraiseit, & LSI. All of those guys are in the neighborhood of 50%. I wanted to know if anyone ever asks the AMCs what % they are paying the appraisers in their panel. I would love to hear any feedback.
AJ, I’m hearing that AMC’s are taking anywhere from 40-50% which makes no sense to me. The appraiser is doing all the work and they’re just placing an order. Smacks of a RESPA violation to me.
And it’s just dangerous. This places quite a bit of control in just a few companies hands to dole out appraisals to (desparate–since their income has been cut in half or because they’re new) appraisers.
Neither over or under-valuing of property is good.
There is nothing good about HVCC.
I’d also like to know if the AMC’s are taking such a hefty cut of appraisal fee, are they liable for the appraisal in the event of a default?
AJ, I’m hearing that AMC’s are taking anywhere from 40-50% which makes no sense to me. The appraiser is doing all the work and they’re just placing an order. Smacks of a RESPA violation to me.
And it’s just dangerous. This places quite a bit of control in just a few companies hands to dole out appraisals to (desparate–since their income has been cut in half or because they’re new) appraisers.
Neither over or under-valuing of property is good.
There is nothing good about HVCC.
I’d also like to know if the AMC’s are taking such a hefty cut of appraisal fee, are they liable for the appraisal in the event of a default?
AJ:
Welcome back!
Yep, I can tell you’re a real appraiser, an ornery independent old cuss like the ones I use here in WA! Always disagreeing with me 🙂
I mean that in the most respectful way, even if it doesn’t make it thru in writing.
Interesting idea…, that appraisals will on average be higher. Might be, but it doesn’t make sense to me…Time will tell, I suppose.
Re percentage of fees going to appraisers…sorry, we LO’s do not get to see that info. I can say that on average AMC’s charge $50 to $100 more, and that the service rendered is FAR below what I receive now.
AJ, as far as asking AMC’s what appraisers actually get…HA, HA! All we get to talk to are phone reps. Name, rank and serial number, is about it.
It’s the difference between a vending machine sandwich and a fresh made deli sandwich…, but the vending machine charges more!
Rhonda, I have heard of AMC’s providing guarantees to lenders that the appraisal is supportable. How those guarantees are structured, and what dollars will actually change hands, who knows.
I have heard from at least one lender that they will NOT accept appraisals unless ordered thru their services…shoots the HVCC portability clause all to hell, doesn’t it?
Maybe we should start calling it HIV-CC…that might stick…!
Home Incompetent Valuation Code of Conduct
I reread the code, and found that a statement I made was in error. #80. I knew it, but had succumbed to wishful thinking.
Banks are NOT required to accomodate portability.
From Fannie Mae Q&A
Portability of the Appraisal
Q45.
May an appraisal be transferred to a lender from a correspondent lender and, if so, under what circumstances?
Yes, a lender MAY accept an appraisal from a correspondent lender that complies with the Code.
Q46.
A mortgage broker submits a loan to lender A, which orders an appraisal. The broker later decides to submit the loan to lender B because it is offering better terms, or for another reason. May the appraisal obtained by lender A be used by lender B (assuming the mortgage broker has no control over or involvement in the assignment)?
Yes, a lender may accept an appraisal from a different lender that complies with the requirements of the Code and in particular Section III.A. in connection with the loan being originated. Lender A must be named as client on the appraisal report.
The key word here is MAY…., not must.
Lenders CAN, but WILL they?
I reread the code, and found that a statement I made was in error. #80. I knew it, but had succumbed to wishful thinking.
Banks are NOT required to accomodate portability.
From Fannie Mae Q&A
Portability of the Appraisal
Q45.
May an appraisal be transferred to a lender from a correspondent lender and, if so, under what circumstances?
Yes, a lender MAY accept an appraisal from a correspondent lender that complies with the Code.
Q46.
A mortgage broker submits a loan to lender A, which orders an appraisal. The broker later decides to submit the loan to lender B because it is offering better terms, or for another reason. May the appraisal obtained by lender A be used by lender B (assuming the mortgage broker has no control over or involvement in the assignment)?
Yes, a lender may accept an appraisal from a different lender that complies with the requirements of the Code and in particular Section III.A. in connection with the loan being originated. Lender A must be named as client on the appraisal report.
The key word here is MAY…., not must.
Lenders CAN, but WILL they?
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86, yes I would say 50% on average, for faxing from point A to point B and running some automated software on 1 out of 10 files. Another one of my biggest clients is paying $395 per file and changing over to an AMC to comply with HVCC. Their new AMC is offering $175 per file if my office wants to keep the business. We are losing that business, which is preferred to working for peanuts.
Danger due to consolidated ordering point = bingo. There will be fraud on a National scale, it’s just a matter of time. That never would have been possible on such a massive scale until the HVCC came around. The AMCs have iron clad agreements releasing them for liability, and actually making appraisers responsible for “ANY” violations related to the appraisal, which might include an AMC violation of rules (see http://www.appraisalscoop.com). So now I’m going to be responsible for the AMCs mistakes/unethical actions related to my appraisal? That makes sense. They have zero liability locked into their contracts. They don’t even need E&O insurance!!!!
#87 – No offense taken, that is a compliment where I’m from. I’m not sure if appraisals will be high or low on average, I’m just saying they will not be as accurate and it is going to be a crap shoot. You are 100% right about the sole source for appraisals through a given lender. I know there are large lenders that will charge $400 for a review of a provided appraisal, so you basically just have to pay their AMC for a new appraisal because if the review comes back as a bad review, you are out $800 and still dont’ have a usable appraisal.
Anyone got a copy of the RICO statutes handy? RESPA?
Interesting situation today – I’ve seen some posts about appraisers being conservative because “no one is ever going to get in trouble for being conservative”. Let me tell you that being innacurate for any reason high or low can put you out of business in a hurry, which is why I try my best to be dead on every time. As of today I’ve been reported as targeting minorities due to a “low value” on an appraisal I provided to a local bank/borrower. Somehow the borrower has decided that one file represents a “pattern of targeting minorities” with lower appraised values. According to the borrower I’m colluding with the lender to redline multiple neighborhoods. Funny thing about that…I live in her neighborhood so why would I do that? Now I have to defend my appraisal (good thing is it rock solid) to multiple agencies this person sent her letter of accusations to.
All I’m saying is that we appraisers have to potentially defend every appraisal from accusations of being too high, too low, too lenient, too strict, etc, etc. That is why I’m dead on, straight line, best researched, best guess at the value every time. I don’t care if you need $5,000 more to make the loan work, or $5,000 less to make the divorce work in your favor, or whatever your situation is. I appraise to the best of my ability every day, because you never know when you will get challanged or why. The borrower that is coming after me was the sweetest old lady you ever met, and I took my time to provide her with a quality report, and now I”m getting attacked for it.
Thanks to Roger and Rhonda for the ongoing discussions.
86, yes I would say 50% on average, for faxing from point A to point B and running some automated software on 1 out of 10 files. Another one of my biggest clients is paying $395 per file and changing over to an AMC to comply with HVCC. Their new AMC is offering $175 per file if my office wants to keep the business. We are losing that business, which is preferred to working for peanuts.
Danger due to consolidated ordering point = bingo. There will be fraud on a National scale, it’s just a matter of time. That never would have been possible on such a massive scale until the HVCC came around. The AMCs have iron clad agreements releasing them for liability, and actually making appraisers responsible for “ANY” violations related to the appraisal, which might include an AMC violation of rules (see http://www.appraisalscoop.com). So now I’m going to be responsible for the AMCs mistakes/unethical actions related to my appraisal? That makes sense. They have zero liability locked into their contracts. They don’t even need E&O insurance!!!!
#87 – No offense taken, that is a compliment where I’m from. I’m not sure if appraisals will be high or low on average, I’m just saying they will not be as accurate and it is going to be a crap shoot. You are 100% right about the sole source for appraisals through a given lender. I know there are large lenders that will charge $400 for a review of a provided appraisal, so you basically just have to pay their AMC for a new appraisal because if the review comes back as a bad review, you are out $800 and still dont’ have a usable appraisal.
Anyone got a copy of the RICO statutes handy? RESPA?
Interesting situation today – I’ve seen some posts about appraisers being conservative because “no one is ever going to get in trouble for being conservative”. Let me tell you that being innacurate for any reason high or low can put you out of business in a hurry, which is why I try my best to be dead on every time. As of today I’ve been reported as targeting minorities due to a “low value” on an appraisal I provided to a local bank/borrower. Somehow the borrower has decided that one file represents a “pattern of targeting minorities” with lower appraised values. According to the borrower I’m colluding with the lender to redline multiple neighborhoods. Funny thing about that…I live in her neighborhood so why would I do that? Now I have to defend my appraisal (good thing is it rock solid) to multiple agencies this person sent her letter of accusations to.
All I’m saying is that we appraisers have to potentially defend every appraisal from accusations of being too high, too low, too lenient, too strict, etc, etc. That is why I’m dead on, straight line, best researched, best guess at the value every time. I don’t care if you need $5,000 more to make the loan work, or $5,000 less to make the divorce work in your favor, or whatever your situation is. I appraise to the best of my ability every day, because you never know when you will get challanged or why. The borrower that is coming after me was the sweetest old lady you ever met, and I took my time to provide her with a quality report, and now I”m getting attacked for it.
Thanks to Roger and Rhonda for the ongoing discussions.
AJ, forgive me if I’ve all ready asked you this (but) what are appraisers and your associations doing about HVCC?
This is a tragedy and I’m still very surprised at how many people are not aware of what’s going on and how much this will impact transactions.
AJ:
I have really enjoyed your insights!
No matter where someone comes from, it is easy to overlook the other perspective. It never occurred to me that anyone could go after an appraiser for a LOW value.
I’m sure you will survive, and hopefully prosper. While the world may not always appreciate and reward truth tellers, it certainly always needs them.
Hang in there!
Keep this in mind; the HVCC does not regulate appraisers, it regulates lenders. The lenders who are being “regulated” by this farce need to fight back! There is an appraiser “march on Washington” being organized by appraiserunion.org for the end of this month. I personally have written and called everyone in the government that I could think of and made my stand against the management companies by refusing to work for sub standard fees. There is little action being organized against the HVCC by the appraiser organizations which are trade groups, but what can they really do about it?
State level appraisal groups, including (unless I’m mistaken) the state of New York’s main appraisal organization, have written letters of protest and called for changes, a cancellation or review of the HVCC to no avail. They almost uniformly say the code will not accomplish it’s goals.
Cumo, the government, Fannie Mae – None of them will respond which appears to be an effective defense – Let your enemy die screaming while you quietly eat your dinner.
Resistance is futile… Consider the response from FHA to my original letter:
“The code focuses on appraiser independence and does not affect business or structure issues in the lending and appraisal industries”
Consider Fannie Mae’s legal defense that they are a GSE with immunity from any challenge in court because they are in receivership. Why didn’t they just use the “go away and leave us alone, we do what we want” defense?
What can we do against the interests that have enough power to have the HVCC re-written in the first place, removing the corporate independence clause against the interests of the consumer/appraiser/brokers?
92 – I will survive, thank you. It is a joke of a charge and my work speaks for itself, so I’m not worried. I am offended though, really, really offended…
Have a great weekend folks.
Keep this in mind; the HVCC does not regulate appraisers, it regulates lenders. The lenders who are being “regulated” by this farce need to fight back! There is an appraiser “march on Washington” being organized by appraiserunion.org for the end of this month. I personally have written and called everyone in the government that I could think of and made my stand against the management companies by refusing to work for sub standard fees. There is little action being organized against the HVCC by the appraiser organizations which are trade groups, but what can they really do about it?
State level appraisal groups, including (unless I’m mistaken) the state of New York’s main appraisal organization, have written letters of protest and called for changes, a cancellation or review of the HVCC to no avail. They almost uniformly say the code will not accomplish it’s goals.
Cumo, the government, Fannie Mae – None of them will respond which appears to be an effective defense – Let your enemy die screaming while you quietly eat your dinner.
Resistance is futile… Consider the response from FHA to my original letter:
“The code focuses on appraiser independence and does not affect business or structure issues in the lending and appraisal industries”
Consider Fannie Mae’s legal defense that they are a GSE with immunity from any challenge in court because they are in receivership. Why didn’t they just use the “go away and leave us alone, we do what we want” defense?
What can we do against the interests that have enough power to have the HVCC re-written in the first place, removing the corporate independence clause against the interests of the consumer/appraiser/brokers?
92 – I will survive, thank you. It is a joke of a charge and my work speaks for itself, so I’m not worried. I am offended though, really, really offended…
Have a great weekend folks.
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