June 11: Letters & notes on password protection, mechanics liens, and the current state of the appraisal business
Who doesn’t have a computer these days? And probably another device to connect to the web at home? (My cat Myrtle has hinted at a new laptop, but sometimes you just have to say “no.”) And with increased numbers of computers, e-mail, networks, and access points, comes increased attempts by unseen hackers trying to infiltrate them. The Federal Financial Institutions Examination Council (FFIEC), on behalf of its members, issued this statement, in light of recent cyber-attacks, to remind financial institutions of the need to actively manage the risks associated with interbank messaging and wholesale payment networks.
Our Federal Government is not immune from them, and in fact may be not giving us the whole picture. (I know of plenty of lenders that have lost money through various schemes but don’t report them to authorities. That is not good.) The more than 50 cyberattacks reported between 2011 and 2015 on the Federal Reserve might be only a portion of the actual number because they represent only those subject to public record, according to reports that do not include data from the central bank’s 12 privately owned regional branches. Meanwhile, the House Committee on Science, Space and Technology is seeking details about a cyber-heist in which thieves stole more than $100 million from the Bangladeshi central bank’s account at the Federal Reserve Bank of New York.
The Credit Union Journal put out some information about password protection. “Over the past decade, the password has been repeatedly declared defunct by industry leaders and pundits. During this same period, technology and networks have evolved, but one thing has remained the same: 99% of access to IT infrastructure is with a password. Despite strident proclamations of the demise of the password, they are nowhere near dead. Download this paper to find out techniques hackers use to uncover passwords, what hackers know about password generation techniques, human factors that weaken passwords, methods to mitigate your password risk.”
Switching gears to some legal aspects of mechanics liens, Brian Mingham with CFSI Loan Management writes, “Did you know that in many states, including California, mechanic’s lien rights extend far beyond the completion of the construction or repairs on a home? In California, lien rights extend 90 past the last time a subcontractor provided work to a site or from the last time a supplier delivered materials to the job. This means that you could be ready to roll a project to a permanent mortgage, or to receive a payoff of your construction loan and a mechanic’s lien could materialize on the property. One way to accelerate the time clock on liens on a property is to have the borrower record a Notice of Completion with the county. From the day this form is recorded, all subcontractors and suppliers have 90 days, from the recordation date, to file a lien. Any lien received after 90 days will be deemed invalid. Failure to record a Notice of Completion can lead to liens being filed and potentially perfected, long after 90 days past completion.”
And appraisals are always a hot topic. I received this note from an originator. “Our appraisal environment is out of control. Appraisals we used to get in 1-2 weeks have quickly gone to 3-4 weeks. Appraisals that were just $400 are now $550 and sometimes up to $1,100 for FHA and conventional appraisals. With the rules regulating appraisers on how to become an appraiser and how appraisers have to monitor everything an apprentice appraiser does, it is causing our homebuyers hardship. With the appraiser’s current workloads and the amount of appraisers we have lost in recent years, there is no motivation to bring apprentices on (due to those regulations), leaving the current appraisers working night and day to keep up with their workloads. That is also causing them to keep moving up the appraisal fees (basically rush fees to keep pushing who can pay the most up the line).
“I don’t say this to be negative against the appraisers; they are doing what they can to keep up but we are left with $700 appraisal fees for our 1st time homebuyers on top of the other closing fees that are steadily climbing. Something has to be done. Either make becoming an appraiser a stringent faster process or make it where current appraisers can bring people on to help without having to monitor every process. Any thoughts?”
And this one. “The appraisers in my area are so buried, with turn times of 1+ months, they rarely consider training a new appraiser and eventual competitor. Are there ways we can start any program in our area to begin to train new appraisers without their help? Most real estate agents don’t care that LOs are struggling with this issue – they just want their transactions closed in a timely manner and rightly so. Borrowers, especially 1st time homebuyers, are struggling with the increasing appraisal costs. There should be discussion with Fannie Mae and Freddie Mac regarding going back to more appraisal waiver options from DU & LP approvals. We used to have more of those (800 credit score borrowers, 40% equity loan to values, rate/term non cash out refinances where we could get an exterior appraisal or even an appraisal waiver to get the loan completed) but now most automated approvals are requiring full interior/exterior appraisals. That is also burdening the system and the appraisers.”
The appraisal situation isn’t simple since a) nearly every home loan requires one, and b) the supply and demand of appraisals and appraisers is off-kilter in many areas of the U.S. I asked Michael Simmons, SVP of Axis AMC, a nationwide company. “Your reader raises several timely questions. Has the cost of appraisals risen? Yes, they have. Have the number of appraisers declined in the last 5-10 years? Again, yes they have. Have the rules governing the qualifications for becoming an appraiser changed? Not really – unless you count needing a 4-year college degree now to even be eligible to work toward certification – but then that’s part of the problem; we haven’t adapted qualifying criteria to the times.
“The development of technological tools (and the skills to use them) coupled with an explosion of data available today that didn’t exist before makes the training periods required to be a professional appraiser archaic. We have an appraiser on our staff who was trained and qualified as a pilot and flew some of the biggest commercial airplanes in far less time than it took him to become eligible to be certified as an appraiser. There’s something wrong with that picture.
“We’ve also seen a dramatic loss of appraisers; from 121,000 in 2007 to somewhere in the vicinity of 87,000 today. And even that number distorts the real dilemma facing the industry. Many of those appraisers have management positions, some get double counted because they’re registered in multiple states, others serve in quality control or review appraisal roles for lenders and AMCs – and many no longer accept work serving the mortgage lending space or take orders from AMC’s for a host of reasons good and bad. They do assignments for attorneys, accountants, local banks – and some have ‘graduated’ to commercial assignments. And, again, that doesn’t capture the full picture.
“The average age of an appraiser today is approaching 58 years old. What’s worse; some 34% of today’s appraisers are expected to retire in 5 years and some 60% in 10 years. Parenthetically, the statistics aren’t altogether different for loan officers although the ‘training’ period is substantially shorter…
“The unspoken question really is; are appraisers as a species endangered? Well … if the above is even close to being accurate, then yes – appraisers and the system we depend on to identify, define and translate collateral is in jeopardy. So … what can we do?
“In April I was in New Orleans at a Conference put on by the Collateral Risk Network. This is an organization dedicated to providing a forum for appraisers, lenders, regulators, technology companies, AMC’s, and all the other participants who touch the process of valuing real estate. We meet to discuss, listen and debate the condition and future of our industry. And of all the topics on everyone’s agenda, the fate of how and where will the next generation of appraisers spring forth, is foremost on everyone’s agenda.
“But understanding the questions are only part of the battle. Much of the above information came from a survey done by Greg Stephens, SRA and Chief of Compliance for Metro West, that he presented at this conference. We’ll use that data to give ammunition to organizations like the Appraisal Foundation and others in Washington to address the urgency of these issues. I have the privilege of chairing the AMC Committee at CRN and we have a dedicated team of CRN members working on mapping out actual steps to (safely) accelerate the training period for new appraisers. (We’ve done this on a small scale at AXIS and have ‘grown’ trainees into licensed appraisers – living proof it’s possible.)
“We’re advocating for better understanding of the process of determining customary and reasonable fees to protect lenders and support appraisers. We’re working at sharing how to help our lender–partners better manage their expectations by tracking the impact of shifting local and regional market dynamics. We have other Committees led by industry icons that are tackling Governmental Relations, Best Practices, Data & Technology, and Industry Relations. And there are other noteworthy organizations contributing from their platforms.
“I don’t profess to suggest these are new appraisal industry ideas; most aren’t. But what is new is the sense of urgency and unity. The velocity of our markets is increasing pressures and taxing resources across the spectrum of appraising and lending. The complexity of compliance and regulation sits like a weight on everyone. But our understanding of the challenges is better, our tools are more efficient, and our people are better equipped. And we’re engaged. I like our chances.” Thanks Mike!
What happens when your boss catches you sleeping at work? Depends on who your boss is.
(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.)