Daily Mortgage News & Commentary

Nov. 20: IMBs and CRA; letter on the inner workings of appraisers & AMCs: who, why, what, fees, and alternatives for appraisers

Thank you to Glenn F. who sent, “My sister-in-law will make what she makes every year for Thanksgiving: A scene!” Lenders have much to be thankful for as we head toward “turkey day” and the end of the year, especially if they’ve been accumulating servicing. STRATMOR features a primer on hedging it, and in his latest Musings, attorney Brian Levy recommends, “If you are hiring a subservicer that wants to limit their liability for errors or the failure to comply with laws or the contract, you should be very worried about why they are doing that. This is a negotiable point for these agreements and highlights why it is important you have an attorney review all of your vendor agreements.” Two other big issues for the industry are appraisals and imposing CRA regulations on non-bank lenders. Let’s jump in.

Independent Mortgage Banks and CRA

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The entire non-depository residential lending industry is puzzled by the move by a handful of states to impose Community Reinvestment Act requirements on IMBs. The CRA is designed to prevent banks from diverting funds out of a community where they take deposits in order to lend in other communities. IMBs don’t have deposits.

But this month the state of New York passed CRA for IMBs. I received this note from Scott Olson, Executive Director of the Community Home Lenders Association (CHLA), who sent a recommendation to regulators. “Like Illinois, New York has to fill in the blanks about how this is implemented, so CHLA’s letter provides detailed recommendations at the end of our letter on doing this in a way that does not create undue compliance burdens or forced contributions to community groups, while still achieving its objective.

“The letter also cites HMDA data to make the point that Massachusetts’ CRA law in 2007 has not been a success: The rate of growth of IMBs in Massachusetts since then has significantly lagged the rest of the country. The simple truth is IMBs get to decide what states they want to originate loans in, and cumbersome and inappropriate CRA rules can be a real negative factor in an IMB deciding whether to lend in a particular state. The Letter explains why CRA for IMBs is inappropriate, uses statistics to show that the 2007 Massachusetts CRA for IMBs law has been counterproductive, offers a number of more effective ways to serve underserved and minority borrowers, and provides implementation recommendations for states that have already adopted CRA, focused on streamlining requirements for smaller lenders.” Thank you, Scott.

AMCs, appraisers, and the appraisal process

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From Arizona, Matt Vasicek, Owner and Chief Appraiser of Expert Valuation and Consulting, LLC, Mortgage Broker/Owner of Expert Mortgage Financing, LLC, and Realtor – Realty ONE Group North Scottsdale, writes, “Some appraisers like me have given many talks to large audiences of first-time homebuyers, Realtors, groups of fellow appraisers, incoming appraiser licensee groups and the like but we are often shunned when it comes to directly addressing mortgage loan originator associations/mortgage broker groups. Normally we are looked at with morbid curiosity followed quickly by thinly veiled contempt and then a curt ‘no thank you’ when we attempt to get in front of those who can help us make a difference.

“I started as an appraiser in the days of gluing comparable photos into reports and having couriers deliver triplicate hard copies to clients (quadruplicate for FHA files) and heaven forbid any revision requests. If I had started one week earlier the firm that hired me would have not yet been on Windows-based appraisal report software. Speaking of the firm that hired me: minute one of day one of training started like this… “Everyone will find a reason to hate you from now on and try to manipulate you so if you don’t have a steel spine leave right now!” These were the immortal words of the late, great Alvin Kiang, the best mentor an honest appraiser could ask for. Sort of a scary start to a career that had already included what felt like countless classroom hours, difficult licensing tests, and cost a considerable amount for those classes, class materials, and tests. This is also BEFORE even one minute of field training, of a required 2000 or so hours, to gain requisite proficiency.

Fast forward well over two decades and many things have changed, and not necessarily all for the better. The parts that are the same involve appraisers being hated (or at least constantly questioned/scrutinized) by the uninformed/misinformed/ignorant for some reason or another, and still needing that steel spine. Another part that hasn’t changed much is the effective pay appraisers receive. Housing prices have risen substantially (yes, to even higher levels now than before the crash of the late 2000’s) so commission-based people in residential real estate (Realtors and mortgage loan originators) have seen hefty pay increases per file, and even mortgage processors make considerably more per file on average than back then, but appraisers have seen ‘scope creep’ to a point where some Engagement Agreements exceed TEN PAGES and each appraisal is about twice as much work as before but the pay certainly hasn’t doubled for many.

“Other things that have changed throughout the residential real estate transaction process have streamlined loan applications and origination and funding and made it much easier for Realtors to advertise and show properties, essentially making it easier for all of them to make more money, but appraisers still have a tough road to hoe. I often hear that I should “stay in my lane” and don’t know what I’m talking about regarding Realtors and mortgage loan originators, but it actually turns out that I can drive in all the lanes because I am not only an appraiser but am also a Realtor and mortgage broker/owner so I know precisely of what I speak.

“One huge change related directly to appraisers, and probably the most troubling change of all, has been the advent and proliferation of Appraisal Management Companies (AMCs), many of which seem to have been formed by former appraisers who couldn’t make it in the real world or by people with no appraiser-related background whatsoever. This basically coincided with licensing requirements for mortgage loan originators, which should have occurred years, if not decades, earlier. Of course the occasional threats of violence and/or death from ‘loan officers’ because a value came in “low” generally subsided after loan originator licensing and AMCs came to be, but that has been about the only upside from where I sit.

“Appraisers didn’t really have any input as to how or why AMCs should exist; it was all more a function of mortgage broker associations grasping at straws to remain relevant. The irony: The abusers helping to make the new rules about how to hold the abused down. For the uninitiated, residential appraisers basically woke up one day and were expected to take a massive pay cut if they did lender work but almost none of them had participated in the schemes that collapsed the housing market. The AMCs were/are just ‘middlemen’ and should have been set up to protect appraisers, not rip them off.

“I’ll tell you about some of the appraisal-related things I did to avoid AMC work for the last thirteen years. I became a Certified Machinery and Equipment appraiser and have was appointed Special Master by the U.S. District Court, District of Arizona. I did eminent domain work for the Arizona Department of Transportation. I became an expert witness and performed engagements for title agencies’ legal departments on diminution and cross-access easement claims. I work with estate and divorce attorneys. I was the exclusive appraisal reviewer for the Arizona Department of Housing’s substantial Neighborhood Stabilization Program. I continued with my robust residential appraisal practice but the clients were/are regional banks and wealth management entities with their own sophisticated appraisal oversight departments (no AMCs involved).

“The main reason I even mention these various endeavors is to point out that there are innumerable professional opportunities for residential real estate appraisers and many of them have taken similar paths to mine and that is the real reason that the mortgage loan origination world often complains of an ‘appraiser shortage.’ Outside of a small number of locations there really is no ‘appraiser shortage,’ just a shortage of appraisers willing to be pushed around by and split their fees with AMCs.

“I read the recent article in your Daily Mortgage News about ‘ghosting’ by appraisers and felt like adding a bit to the discussion. It is unfortunate but it seems that many appraisers are unwilling to get involved in sharing true insider information about all of this (probably for fear of losing business) and, as mentioned earlier, it is not often that actual boots-on-the-ground appraisers are asked to participate in panels at mortgage-related conferences, etc., so most of the information that is disseminated comes from AMCs or their representatives and many of those people have never even been appraisers.

“I have some insight as it pertains to the ‘ghosting’ situation that everyone seems to be talking about these days. First, almost all of the appraisers I have met behave in a professional manner but there are sub-par outliers just like with any profession. In the cases of ‘ghosting,’ these could simply be low self-respect individuals who just walk away from an assignment part way through, never to be heard from again.

“The bigger issue, however, is all the nonsense that leads up to someone feeling so insignificant as to let themselves abandon a project midstream. Many in the industry, outside of appraisers, have no concept of how many ‘bid requests’ appraisers receive from AMCs, and many times there will be bid requests from multiple AMCs for the same property. There are even ludicrous occasions where one AMC becomes a subcontractor to another AMC and then shops the job to appraisers (yes, the THREE-WAY SPLIT!). I personally receive well over a hundred bid requests each week, and this is after years of blocking, dumping and otherwise trying to hide from the senders, so I can imagine that other appraisers may even receive many more than that.

“This bid request situation often leads directly to the ‘fastest and cheapest’ (and RARELY best) appraisers gobbling up more work than they can handle and then bailing out on the hard assignments when they realize they are in over their heads.

“An even more prevalent challenge though is that many appraisers simply do not play the bidding game and have found work from different sources and this work from different sources pays considerably better than AMC work. (Do I want to average $1200 per appraisal or $415 per appraisal? Not a hard decision!).

“Now there are hundreds of AMCs that all have basically the same appraisers on their panels and they base their reasonable and customary fee analysis on this smaller ‘fast and cheap’ group and the rest of us appraisers don’t even get involved. Add to this situation the fact that there are CONSTANT assignment status/update requests from AMCs all day every day, not to mention often unnecessary revision requests (apparently, they don’t like to read the reports before asking for revisions or ‘corrections’) and it should be easy to see why a lot of us refuse to deal with this type of environment.

“Most appraisers are highly skilled professionals and highly educated individuals. Imagine accountants, doctors, lawyers, and other professionals putting up with this never-ending stream of update requests and ‘how fast and how cheap can you do it’ requests. It’s mind-boggling. What we end up hearing about (this ‘ghosting’ situation) actually occurs in an infinitesimally small portion cases and most involve a similarly small number of appraisers. The bottom line, really, is that more of the best appraisers would be glad to work for AMCs for proper fees, and wouldn’t ‘ghost’ anyone, but for most of them that ship has probably sailed.

“For a minute it seemed as if there might be some light on the horizon, as there is a large wholesale lender that recently began operating its own appraisal panel. This sounded like great news in that it would be similar to the operations of the regional banks and wealth management entities I mentioned above, but many of the appraisers are less than impressed with it at this point. All around the country we went and signed up right away to be on the panel and posted our fee schedules and all that but it turns out to have all the imprints of an operation that is run by someone who probably used to be involved with AMCs, as there are countless reports of fee suppression, disorganization, janky technology, not honoring agreed-upon appraisal fees, surprise payment processing fees (paid by the appraisers), multiple bid requests, unknowledgeable employees, cancelling orders after assignment because a cheaper appraiser was located, etc., etc. The jury is still out.”

Matt went on. “All of this sort of leads back to the real problem: mortgage-related appraisal fees for assignments that run through AMCs or similar operations are simply too low to attract large numbers of already-active appraisers and there is just too much time-consuming BS involved. Just let the pros do their job! Sure, the appraiser workforce is aging but there are also many appraisers taking on trainees and these trainees are extremely bright and already very well educated.

“A lot of people in the industry would rather talk about the ‘appraiser shortage’ and push desktop/hybrid/digital ‘appraisals’ as being the wave of the future (I was already hearing that AVMs would put me out of business in 1998 by the way) but actual appraisers with actual eyes on the collateral are still needed in a considerable percentage of residential cases. It’s astonishing that the people who have the most barriers to entry into a profession (highest educational requirements and most classroom hours, most apprentice hours, highest licensing costs, most expensive E&O insurance, etc.), and have the mighty responsibility of upholding the public trust, are also the ones treated most poorly and paid the least.

“Many times appraisers receive less than the loan processor in a transaction and almost always only a small fraction of what a loan originator or Realtor receives. Appraisal fees are also usually less than title fees, etc. The real reason for most of this seems to be that everyone is afraid to have a higher number show up on the settlement statement: can’t bury the appraisal fee like a lot of the other fees. Quality be damned!” Thank you, Matt!

For something a little different than the usual joke or trivia or video, Paul Newman’s memoirs are out, which deserves a Paul Newman story (which I hope is true).

A middle-aged Westport, CT woman is at the counter of an ice cream shop when she sees Newman walk in.

Of course, she is madly in love with him, but determined not to break the town’s unwritten rule of not accosting him, controls her breathing, steels herself, pays for her ice cream and starts to leave.

She then realizes she doesn’t have her ice cream.

She goes back and tells the counter person that he didn’t give her the ice cream.

He answers that he definitely did give it to her.

She asks him, then where is it?

He answers he doesn’t know, but he gave it to her.

By this time, they’re both getting angry and attracting attention.

Then she feels a tap on her shoulder, turns around and there’s Paul Newman, piercing baby blues and all.

He says, “Excuse me, ma’am, he did give you the ice cream. You put it in your purse.”

 

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “A Primer on Hedging Servicing.” The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).

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