Sep. 3: Appraisals & appraisers – is the process the stick in the lender’s spokes? Appraisers’ take on things

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. Read more...

Appraisals, appraisers, and the appraisal system continue to be of concern to lenders and others in the residential industry. We all know that a good appraiser can do 2, maybe 3, appraisals a day well. But the issues are bigger than that. Thomas A. contributes, “Appraisals are complicated not only by USPAP but also idiosyncrasies and urban legends imposed by out of date underwriters. AMCs are keeping 1/3 to 1/2 of the appraisal fee. There are no shortages of appraisers but only a shortage of appraisers willing to work for AMCs. Additionally, the state appraisal boards are under the scrutiny of the ASC so they serve as an attack dog over any mistake they can find in an appraisal most of which has no impact on value.”

 

And I received this from a broker out West. “It is unfortunate the government does not understand that competition is what makes any business work well. Making appraisers into an assembly line operation, the quality went down, and the reason for doing a good job was removed. I work hard for my clients, because I need the referrals. My auto mechanic, hairdresser, lawn person, etc., have to do the same thing. Do a good job, at a fair price, or you don’t receive the business.

 

“We need to go back to the old way. We have rules. When the rules are broken, you are fined and/or lose your license to operate. The HUGE problem with appraisers was with the appraisers employed by the big banks. They did whatever the boss said. Cuomo went after WAMU, and in the process created HVCC for everyone and everything, which created business for the AMC. Require appraisers be licensed and not on bank payroll.  Let them run their business and employ people. That is the American way – right?

 

“A recent article written by Lynn David regarding Fannie & Freddie requiring the appraiser have a complete RE contract entirely missed the point, and I was surprised that an industry publication would even print it is puzzling. Appraisers react to the market. They do not create the market.  Prices go up and go down. Since recorded sales are the only comps allowed, the recorded info available is always behind market moves. Most appraisers are hard-working business people that do the best they can. Blaming appraisers for the crash is ridiculous.”

 

And this. “Rob, I recently read an article [the one noted above] and thought the author was clueless to blame it on F&F. What ever happened to being responsible for your own actions? We still have AMCs and we still have appraisal fraud. It is not the industry as a whole – it is specific individuals. I know a large number of top flight appraisers who will no longer accept orders from AMCs. They said they were done, and would work with small banks and lenders with panels, or just attorneys for divorce and estate work. If the industry doesn’t get a handle on this disconnect and get the appraisers back into business, we are going to have serious issues in 5-7 yrs.”

 

This came from an appraisal vet on the story above. “The argument begins with an old false premise: HVCC was not created to keep appraisers honest, it was to create independence via protection from undue influence and intimidation on the part of lenders & mortgage brokers toward appraisers. Would have been nice if the Realtor community had been included in that mix, but as usual, they got a free pass.

 

“The argument about not including the sale price to the appraiser is always interesting. Some appraisers would prefer it not be included whereas others feel it established value. Worth and value are different animals and the appraiser’s job is to formulate a supported opinion of value. Worth is something some is willing to pay. Value is something a lender uses to determine what they’re willing to (safely) loan. It’s just information – and it requires other market-based data to be supportable.

 

“Articles like this are just a reflection of more people who lack a basic understanding of a larger process. The fact is that Fannie and Freddie deploy safeguards in the form of Collateral Underwriter which (theoretically) drives a clearer focus on better data to help guard against any undue market influence.”

 

[For a spirited discussion among appraisers bring up whether or not sales price should be included. Many believe that it doesn’t determine value. It defines worth to someone at a certain point in time based on some individual need or belief (or influence). Like a tattoo: a temporary feeling with a permanent reminder. An appraiser’s thoughts when there’s a compliant that the appraisal came in “low,” whether it be a purchase or refinance, is that it came in “at value.” The concept of “low” is a function of someone else’s sense of worth (or more typically their “need”).

 

But I received this comment on the same story. “The missing element here is the appraiser needs the purchase agreement to be able to evaluate seller concessions, what personal property might be included, and other possible costs that might impact price but not add to market value. Seller disclosures could be a part of this as well but are usually secondary. The author is correct that most appraisal abuse continues through improper communication between parties in the transaction and the appraiser who is seeking to be an independent voice. Closely held ‘appraisal desks’ and captive AMCs are often cited as parties that can easily cross the line.  But I still feel the system by and large is a major improvement of what existed pre-2007.”

 

Phil from New Jersey sent, “The appraisal independence rules have worthwhile objectives (preventing collusion and preventing appraisers from being pressured) but the mandated rules have clearly resulted in poor quality and/or incompetent appraisals.  Once the appraiser is no longer accountable to the client, the motivation to do quality work is gone.

 

“We received an appraisal for a NJ condo unit in a high-rise building which has identical floor plans for each floor. The subject unit was on the 17th floor overlooking the Hudson River and New York City skyline and was valued at $30,000 less than a very recent sale in the same line but on the 2nd floor.  How can apartment 17C be worth less than apartment 2C? According to the appraisal report itself, the units are in comparable condition. In this type of building, local real estate professionals know that the value rises between $2,000 and $5,000 for each floor you go up. Even assuming the minimum increase, the appraised value is at least 17% too low. Never mind that our company lose a deal; now the client loses the ability to refinance and save a substantial amount of money each month. And how do we even explain this to her?”

 

And this on appraisal turn times. “Another issue slowing the appraisal process is Big Data aggregators are selling MLS data to lenders or an entity reviewing appraisals. The MLS will report 9 rooms in a 1,500 sf house. Appraiser will report 6 rooms and the lender or lender’s critic will request a reason for the room count difference. Another example is MLS data reflecting garage capacity but the actual garage is a 4.0 stall pole barn that is not a garage at all. Granted, these are errors reported in MLS by agents that cannot count rooms, garage capacity, etc., and the critic/reviewer does not have the common sense to understand that a 1,500 sf house does not have 9 rooms. The appraiser loses 20 to 30 minutes of their life, the process is delayed 24 to 48 hours, no one benefits, and the value estimate is not impacted because the appraiser was physically in the property or drove by the comparable during the development of the appraisal. This topic is hotter than a $2 dollar pistol on a Saturday night.”

 

I received this from one originator. “The delays in getting appraisals back is only slightly better than trying to get addendums and corrections to the appraisals. Worse yet is when an appraisal fails a Fannie computer review, and a desk review. I just had one, and it delayed the closing by 3 weeks, incurred the cost for a rate lock extension, and in the end the borrowers paid the full price, received $1,000 for the seller to use to offset the MI. The purchase price was $210k and the review was $192k. The primary comp on the review was a home that sold 11 months earlier!”

 

And Brandon Ivey with IMFnews jotted down his take on loan processing times. “A shortage of appraisers and rising mortgage activity has prompted appraisal issues to account for more delayed closings, according to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey. For home sales closed in July after experiencing a delay, appraisal-related issues accounted for the delay 14.1 percent of the time, based on a three-month moving average. That was up from a 12.4 percent share the previous month and nearly double the 7.2 percent share in January.

 

“’Closing times are increasingly affected by appraisal delays,’ said Tom Popik, research director for Campbell Surveys. The share of loans that have closed on time has decreased in recent months while the share of all-cash transactions that have closed on time has remained relatively level. The on-time closing share for various mortgage products generally peaked this year in April. For mortgages delivered to the GSEs with private mortgage insurance, 76.1 percent of transactions in April closed on time. In July, the on-time closing share for such loans was 66.1 percent.”

 

Sam Heskel, president of AMC Nadlan Valuation in Brooklyn writes: “With regard to your recent mention of increased appraisal turn-times and costs, turn-times for appraisals in many areas have certainly increased, but I think it’s mainly due to the booming real estate and mortgage markets as opposed to TRID. Add to that the fact that quite a few appraisers have left the business and aren’t being replaced, and it’s easy to see why turn-times and fees are increasing.

 

“Colorado is experiencing a real slowdown in appraisal turn-times, as are parts of New England. We’re seeing delays and increased fees in a few counties in Massachusetts, Northern New Hampshire and Maine.

 

“Lenders and brokers are understandably getting upset when it can take two weeks or more to get the appraisal back. Appraisers have more than enough work, and many are asking for higher fees in order to accept the work and turn it around in a timely fashion.

 

“What’s the solution? At Nadlan we’re recruiting more appraisers and we’ve hired more back office staff to manage and follow up with appraisers. In today’s busy market, appraisers are taking three or four days to simply give an answer on whether they will accept or turn down an appraisal job. Our back office personnel are aggressively following up with appraisers to find out whether they will accept the appraisal, and if so, what their turn-time is. In some cases, appraisers are asking for an extra $50 or $60 to turn an appraisal around promptly.”

 

Is change in the works? Yes. Kim Perotti with nationwide firm AXIS summed her thoughts up, as well as many others. “We, and several companies, are trying to regrow the profession and find that the high level of education, additional course work, and years of apprenticeship, as well as states refusing to share those hours (i.e., if you move, you have to start over) as a challenge in developing the next generation of appraisers.”

 

 

Instead of the usual joke today, here’s one take on labor and government, specifically regarding EpiPens. From California Steve writes, “’Privatization is more efficient and leads to lower prices,’ some say. Examples where this is true are pointed out. But examples are not statistics. But the U.S. Health Care system dwarfs all these other examples. We have the most privatized health system in the developed world. Our system has led to the highest prices and lowest performance.

 

“When I was young, in an Eisenhower Republican family, I was taught that monopolies (or oligopolies) providing essential goods (like utilities) were regulated to prevent users from being ripped off. Somewhere along the line we forgot about that. I remember when California deregulated electricity and my rate at 2 homes each went up 4.5x in a year. When I was young, the regulated monopoly phone company had to run a phone line to every house at a certain fixed price, sine a phone was essential. But now I don’t have broadband at home due to no government regulation and congressmen saying that broadband is not essential, and the local phone company being a monopoly that won’t pay to run broadband up our short road.”

 

His note wraps up sarcastically with, “At least we have honest congressmen who aren’t influenced by large profitable companies. They all claim to be for ‘the people.’ As Pete Seeger sang, ‘When will they ever learn. When will they ever learn?’”

 

 

Rob

 

(Copyright 2016 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)