Appraisal Scoop

Press Release: Average Distance Traveled by AMC Appraisers is 13 Miles

PITTSBURGH -- November 10, 2009 -- Findings Reconfirm AMC's Strong Reliance on Local, Independent Appraisers -- The typical driving distance traveled by independent appraisers, retained by the nation's largest appraisal management companies (AMCs), averages 13 miles in urban and suburban areas this year, according to a new survey conducted by the Title Appraisal Vendor Management Association (TAVMA).

"Our members, the nation's largest appraisal management companies, track a variety of metrics, including for distances traveled," said Jeff Schurman, Executive Director of TAVMA. "We polled our AMC members in light of unsubstantiated statements that AMCs send out-of-market appraisers great distances to value properties. Based on what our members are reporting to us that's simply not the case. Going forward, we will survey and report on average driving distances quarterly."

Schurman added that AMCs typically use one of three methods for controlling how far appraisers travel: Geo-coding; zip code to zip code mapping; and/or order form instructions not to exceed defined distance parameters.

"That an appraiser services a particular area, how often, and how recently are three critical selection criteria that AMCs use in selecting the most appropriate appraiser for an assignment," said Steve Haslam, CEO, StreetLinks National Appraisal Services. "Does this mean that in Montana or Wyoming, some appraisers aren't driving further than 13 miles? Of course not. The United States has over 3.5 million square miles of land area and about 60 thousand residential appraisers; a land-to-appraiser ratio of 59:1. The nature of the business is that appraisers sometimes travel outside of their own neighborhood -- but that doesn't mean outside of their sphere of professional expertise. In many markets, our selection criteria divide heavily populated counties into smaller zones that we don't let appraisers cross."

Mr. Haslam added, "Remember that as licensed and certified appraisers, the appraisers who work with AMCs are required under their industry standards, known as USPAP, to refuse assignments where they are unfamiliar with the markets."

AMCs currently provide approximately 60% of all residential appraisals used in the mortgage industry, and TAVMA's 40 AMC members together account for more than 80% of this volume. Although some AMCs employ in-house appraisers, most assign orders to local independent appraisers. Schurman added, "When you consider a 2007 national survey reported that 63 percent of the appraisers in the country work with AMCs, it stands to reason that AMCs will have a deep pool of appraisers from which to choose. Plus, the economics of the industry give neither the AMCs nor the appraiser an incentive to go great distances to conduct an appraisal."

Source: TAVMA

About TAVMA
TAVMA, the Title/Appraisal Vendor Management Association, is a non-profit professional organization that represents more than 75 companies including more than 40 of the largest Appraisal Management Companies (AMCs) with combined market share of 85 percent of the AMC market. TAVMA promotes the vendor management industry and presents its members' positions to government and media, protects its members' rights to do business without unfair and anticompetitive legislation and regulations and provides useful information about issues impacting the real estate settlement services industry. For more information about the organization, visit the website at www.tavma.org.

KB Homes and Countrywide Financial Named in Class Action Complaint Alleging Inflated Appraisal and Inflated Appraisal Fee Schemes

KB Home and Countrywide Financial Corp. have been named as defendants in a Class Action suit filed on October 30th, 2009 in the US Dist. Court for the Middle District of Florida - Orlando Division.  The attached suit details alleged predatory practices in an attempt to dominate mortgage lending and corrupt the loan underwriting and approval process.  Specifically, two schemes were identified.

Scheme 1 – Inflated Appraisals

According to the complaint, “Defendants KB Home, Countrywide and LandSafe, along with their network of staff and fee appraisers, formed and operated a criminal enterprise (the “KB-Countrywide Criminal Enterprise”) which through the “Inflated Appraisal Scheme” inflated the sale amounts of KB Home properties and loan amounts of Countrywide loans by corrupting the appraisals of KB home properties such that the appraisals would always indicate a value at or above the contracted sales price for the properties or were otherwise inflated.”

Scheme 2 – Inflated Appraisal Fee

According to the complaint, “Scheme 2 in this action arises from a scheme (the “Inflated Appraisal Fee Scheme”) between Countrywide and LandSafe to profit from:

(1) imposing marked-up appraisal fees on Countrywide borrowers; and (2) controlling the appraisal process and results.”

Scheme 2 works as follows:

According to the complaint, “Scheme 2 works because of:

1) Countrywide’s insistence that LandSafe be the appraisal firm that conducts the appraisal on the loan;

2) The secret agreement between Countrywide and Landsafe to mark up the actual cost of the appraisal and to have the actual appraisal done by a third party at a fraction of the cost listed on HUD-1 and final settlement statement; and

3) Concealment from consumers of the appraiser’s invoice to LandSafe. If Countrywide did not insist on LandSafe’s exclusivity, an independent appraiser would charge Countrywide the actual cost of the appraisal and Countrywide, through its subsidiary LandSafe, would be unable to skim off each appraisal hundreds of dollars for no services rendered.”

Click here to download and read the complete complaint: Download KBCountryWideComplaint

HUD Issues Mortgagee Letters on Condominium Approval (2009-46A & 2009-46B)

November 6, 2009
MORTGAGEE LETTER 2009-46 A
TO: ALL APPROVED MORTGAGEES
SUBJECT: Temporary Guidance for Condominium Policy
 
In Mortgagee Letter 2009-46 B, the Federal Housing Administration (FHA) announced the permanent baseline guidance for condominium project eligibility. This Mortgagee Letter (ML) waives five provisions of that guidance and serves as a temporary directive to address current housing market conditions. This temporary guidance is effective for all FHA case numbers assigned on or after December 7, 2009 through December 31, 2010, except as noted for the “Spot Loan” Approval Process…

 
November 6, 2009

MORTGAGEE LETTER 2009-46 B
TO: ALL APPROVED MORTGAGEES
ALL FHA ROSTER APPRAISERS
SUBJECT: Condominium Approval Process for Single Family Housing
 
In accordance with the passage of the Housing and Economic Recovery Act of 2008 (HERA), the Federal Housing Administration (FHA) is implementing a new approval process for condominium projects and insurance requirements for mortgages on individual units, as authorized under Section 203(b) of the National Housing Act. The requirements of this Mortgagee Letter are effective for all case numbers assigned on or after December 7, 2009, except as noted. This Mortgagee Letter revises and consolidates existing guidance, and therefore replaces Mortgagee Letter 2009-19…
 
To read these mortgagee letters and any attachments in their entirety, please visit: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/ view the 2009 letters and click on the letter of your choice. Mortgagee Letters from previous years can be found on the same page.
 
If you have questions about either of these new FHA Mortgagee Letters please email: info@fhaoutreach.com or visit: http://www.fhaoutreach.gov/FHAFAQ
 

Fannie Mae - Electronic Appraisal Delivery UPDATE - MISMO XML Standard

Announcement 09-14, Electronic Appraisal Reports, Enhancements to the Loan Delivery File Format, and Mortgage Fraud Reporting, stated that Fannie Mae will require the submission of electronic appraisal reports and their addenda in an acceptable XML format for all loans requiring an appraisal report. The date lenders will be required to comply with this requirement has changed from March 1, 2010 to sometime on or after July 1, 2010 (effective date to be announced). Also, the acceptable submission format has changed to accommodate XML formats that are commonly used in the residential appraisal marketplace. 

 
In support of electronic appraisal delivery, Fannie Mae is updating the 2000-Character Loan Delivery File Format. Knowing that many lenders are currently working on updates to the delivery format to accommodate other mortgage loan data requirements (as noted in Announcement 09-11 and revised by a recent Selling Notice dated October 6, 2009), Fannie Mae is advising lenders of the new data element that will be required to support electronic appraisal submissions.

New Delivery Field

The Document File Identifier is a 10-digit alphanumeric data element that will be assigned by the Collateral Data Delivery (CDD) system, Fannie Mae’s application that will be used for electronic appraisal data submissions. A unique identifier will be assigned at the time the electronic appraisal report data is successfully submitted to CDD, and will allow the lender to retrieve submission results and findings and make updates or corrections to the submitted appraisal data in CDD.

The lender will be required to deliver the Document File Identifier in a new field – Appraisal Document File Identifier – in Loan Delivery to enable Fannie Mae to match the delivered loan to the electronic appraisal in CDD. The updated 2000-Character Loan Delivery File Format and the corresponding Field Definitions documents are available on eFannieMae.com. Refer to field number 148 for additional information about delivery of the identifier.

Source : Fannie Mae - Electronic Appraisal Delivery Update - 11/4/09

What Should the Good Appraiser Do When the FBI or Any Law Enforcement Officer Calls?

The FBI is on the Phone for You
By Peter Christensen

The FBI released a report earlier this year entitled 2008 Mortgage Fraud Report "Year in Review". It indicated the obvious: that reports of mortgage fraud and investigations of it by the FBI increased significantly in 2008. The FBI further indicated:

"With the anticipated continued upsurge in mortgage fraud cases, the FBI has created the National Mortgage Fraud Team (NMFT); fostered new and existing liaison partnerships within the mortgage industry and law enforcement; and developed new and innovative methods to detect and combat mortgage fraud.

In December 2008, the FBI established the NMFT to assist field offices in addressing the financial crisis, from the mortgage fraud problem and loan origination scams to the secondary markets and securitization. The NMFT provides tools to identify the most egregious mortgage fraud perpetrators, prioritizes investigative efforts, and provides information to evaluate resource needs."

One result of the FBI's intensified effort seems to be that appraisers have been getting more calls than usual from FBI special agents wanting to ask questions about particular reports. The agents almost never indicate specifically what they are investigating (other than "fraud"), who initiated the investigation, or who is the direct subject of the investigation. Often, the agents try to be friendly and say something like: "I'm looking at your report here and I'm just wondering if you can tell me a bit about how you arrived at your value" or "I have a review of your appraisal that has a much lower value, can you help me understand why?" Sometimes, the agents suggest that giving them some information will help them close up the file and not have to bother the appraiser again. The agents will then often also ask the appraiser to come down for an interview or tell the appraiser they'd like to come by and have a look at the file.

I have no doubt that there are some appraisers spread across the country who actually may have crossed the line and may have some culpability for engaging in intentional fraud. My post here is not for those appraisers. The typical situation I see, however, is much more innocent.

The appraiser receiving the agent's call is more typically scratching his head trying to figure out why the FBI would be interested in the subject report. It usually seems like the report under scrutiny is no different than any other assignment, except maybe there's been a subsequent foreclosure on the property. And, I do think that in most of these cases when an FBI agent is inquiring about an appraiser's report, there is likely nothing wrong with the report itself. In fact, I've recently seen inquiries from the FBI and other state and federal investigative agencies that seemed to be based on nothing more than a lender having a foreclosed mortgage and a low-ball retrospective appraisal in the file.

What should the good appraiser do when the FBI or any law enforcement officer calls?

• First, of course, you need to be friendly and polite. The last thing you want to do is give the impression that you're hiding something by being short or difficult.
• Second, try to determine if the appraisal report that the agent or officer has in front of him really is your work. We've seen cases were law enforcement launched investigations without any idea that the report in their hands obtained from the lender had been altered or forged. Thus, without discussing the results in your report, try to ask the agent or officer to tell you information from the report in front of him.
• Third, if the agent or officer wants to talk about the specifics of the report, you need to realize that your USPAP ethics duty of confidentiality to your client prevents you from doing so, unless you've received a subpoena (or court order) or have been authorized by your client. (If the investigator is with your state licensing or enforcement agency, the duty of confidentiality, however, does not prevent you from discussing or providing the report.) Thus, you'll need to politely advise the agent or officer that you have that duty to your client and that you cannot violate it by talking about the assignment or results.
• The same thing goes for complying with a request (as opposed to a subpoena) for your work file. Use this as an opportunity to politely and professionally break off the discussion and then consult with an attorney.

Even when a law enforcement investigation is not covered by insurance, your E&O provider should be able to provide a reference to a knowledgeable and economical attorney with whom you can discuss the situation.

Source: Appraisal Legal Defense and Insurance Blog by Peter Christensen and Robert Wiley - Legal issues and insurance matters affecting residential and commercial real estate appraisers

Appraisal Practices Board (APB) to Commence Work in July 2010 - New Independent Board

Washington, DC, November 5, 2009 — The Appraisal Foundation, a Congressionally authorized non-profit organization dedicated to promoting professionalism in appraising through the establishment of appraisal standards and appraiser qualifications, announced today the establishment of a third independent board, the Appraisal Practices Board (APB).

Earlier this year, the Foundation Board of Trustees established a Task Force to study the issue of how to best address a void in the marketplace related to guidance on appraisal methods and techniques that would be available to all appraisers practicing in the United States.  This guidance will cover all valuation disciplines, with a focus on emerging issues.

With the unanimous consent of The Appraisal Foundation Board of Trustees, it was agreed that a new board be established, similar in structure and composition to the already existing independent boards, the Appraiser Qualifications Board (AQB) and the Appraisal Standards Board (ASB).

The purpose of this third board is to issue voluntary timely guidance to appraisers on emerging valuation issues that are occurring in the marketplace. This guidance will be of assistance to appraisers, appraiser regulators and educators. The new Board will enlist the help of market surveys to identify issues that need to be addressed and will empanel small groups of volunteer Subject Matter Experts (SMEs) to draft the guidance for review and approval by the Board.

The need for this type of guidance was underscored with the onset of the declining real estate market. Many appraisers had not previously faced this type of market condition and the impact of foreclosed properties and short sales. Because a majority of state licensed and certified real estate appraisers do not belong to a professional society, they had limited access to guidance.

“In unanimously supporting this concept, the Board of Trustees strongly believes that this is the best avenue for issuing voluntary guidance to appraisers,” said Paul Welcome, Chairman of The Appraisal Foundation Board of Trustees.   “We believe that this is the right thing to do for the profession, that it is the right time to do it and that we are the right organization to undertake the task,” added Welcome.

Those interested in serving on the Appraisal Practices Board should consult The Appraisal Foundation’s web site (http://www.appraisalfoundation.org/) for more details after the first of the year. Applications for qualified candidates will be solicited in the Spring of 2010, with the new Board to be constituted and commencing work in July 2010. We anticipate that selection of SME panels will follow in the latter part of 2010.

Contact: Paula Douglas Seidel, 202.624.3048, paula@appraisalfoundation.org

FHA Adopts Some HVCC Guidelines - Mortgagee Letter 09-28: Appraiser Independence

The Federal Housing Administration (FHA) today announced several significant policy changes that are intended to improve their exposure to risk.  The changes, effective January 1, include:

• Modification of Procedures for Streamline Refinance Transactions
• Adoption of Home Valuation Code of Conduct Guidelines (some not all)
• Updated Appraisal Validity Period
• New Appraisal Portability Regs
• New Requirement of Lenders to Submit of Audited Financial Statements for Review
• Adjustments to the Approval Process for Participation in FHA Loan Origination
• Increased Net-Worth Requirements for Lenders

Grabbing the attention of mortgage professionals was FHA's decision to adopt language from HVCC appraisal guidelines. The HVCC, which has been the subject of heated debate within the industry, was implemented by Fannie Mae and Freddie Mac on May 1, 2009. At that time the FHA decided not to adhere to the policy. This undoubtedly increased demand for FHA loan products as originators quickly learned of the multitude of problems associated with HVCC. The new requirements will prohibit any commissioned based lender staff member from ordering an FHA appraisal.

FHA will not require the use of AMCs or other third party organizations for appraisal ordering, if lenders do use AMCs and/or other third party organizations FHA-approved lenders must ensure that:

• FHA Appraisers are not prohibited by the lender, AMC or other third party, from recording the fee the appraiser was paid for the performance of the appraisal in the appraisal report.
• FHA Roster appraisers are compensated at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.  
• The fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal.  
• Any management fees charged by an AMC or other third party must be for actual services related to ordering, processing or reviewing of appraisals performed for FHA financing.
• AMC and other third party fees must not exceed what is customary and reasonable for such services provided in the market area of the property being appraised. 

FHA issued five new mortgage letters explaining the policy changes. Here are links to each mortgagee letter:

Mortgagee Letter 09-28: Appraiser Independence

Mortgagee Letter 09-29: Appraisal Portability

Mortgagee Letter 09-30: Appraisal Validity Periods

Mortgagee Letter 09-31: Strengthening Counter Party Risk Periods

Mortgagee Letter 09-32: Revised Streamline Refinance Transactions

Source: Mortgage News Daily

Analyze The Market! Qualitative vs. Quantitative

Appraisers have had blinders on for way too long. It is time to open our eyes wide, keep an open mind and to truly think outside the “check” box.

Most of us learned this crazy business by filling out a form.For me, it was actually preparing forms on the good old typewriter, and since clients didn’t accept White-out, if you made one mistake, you retyped the whole thing …. in my case, normally after almost completing the entire report. My education truly began when I started actually thinking, securing meaningful education and not merely form-filling thanks somewhat to George K. Cox, MAI, SRA.

It’s time for all of us to step back, re-evaluate and employ a little common sense. Most preprinted forms utilize a Quantitative Appraisal Method while a Qualitative Method is more is line with how buyers really act.

QUANTITATIVE METHOD

Paired Data Analysis: A quantitative technique is normally used to identify and measure adjustments to the sale prices or rents of comparable properties. To apply this technique, sales or rental data on nearly identical properties are analyzed to isolate a single characteristic’s effect on value or rent.

Where do you get these so called adjustments? I know, I know. Paired sales, right? Let me see them. Better yet, the next time you are in the hot seat be prepared to show your paired sales analysis to the court or your state regulatory board. I do believe it is possible to have a proper paired sales analysis and with regression analysis becoming more and more popular there is oftentimes support for your adjustments. However, I would bet that most appraisers do not have this data in their offices to support their adjustments.

Think about it! How many home buyers have you ever seen pull out a legal pad or a 1004 form and make line item adjustments for every little difference. Wait! A bathroom is worth $2,000, a garage $5,000, a deck is $2,000, etc. By the way, why don’t these numbers ever change? Buyers don’t act this way. Has anyone ever seen a buyer operate in this manner? Then why do we? Don’t buyers really analyze differences in the aggregate and make a decision in a lump sum?

At the 3rd annual Association of Texas Appraisers (ATA) conference in Austin, I asked a group of 72 appraisers how many of them had ever seen buyers act this way. The answer was none!

I have interviewed numerous appraisers/brokers nationwide, representing hundreds of years of experience in selling real estate and not one has seen a buyer act this way! If we are charged with analyzing the market, and market participants don’t act that way, why do we?

QUALITATIVE METHOD

Relative Comparison Analysis: A qualitative technique for analyzing comparable sales; used to determine whether the characteristics of a comparable property are inferior, superior, or equal to those of the subject property. Relative comparison analysis is similar to paired data analysis, but quantitative adjustments are not derived.

Most appraisers are probably already doing a qualitative method to develop their opinion of site value. Most appraisers don’t grid land sales and make adjustments. You can do the same thing for improved sales. To demonstrate my point, below is an exercise in The Columbia Institute’s course Survey of the Cost Approach, which is an excellent course for those of you who like the cost approach for a land sales analysis utilizing a quantitative method. Look at the results using this same data set performing a qualitative method

Both methods provide support of $43,400 for the subject property. The qualitative/relative comparison analysis provides the same results without guessing for an amount of single line item adjustments.

In the book Down to Earth, Sanders A. Kahn, Ph.D., SREA makes the following statement about Comparative Sales Grids:

“…it became fashionable for some appraisers, with the encouragement of some public agencies, to rate the degree of variation between the subject property and comparative sales. Quantification of the variations, usually by the use of a plus or minus percentage (or dollar amount) from the comp to the subject, became the vogue.

Actually this method is replete with danger. It looks so scientific, but in realty is only pseudo-scientific and converts subjective judgment into what pretends to be objective mathematical absoluteness.”

Consider analyzing property the way the market does: in a Qualitative manner.

Bryan S. Reynolds is a Certified General Real Property Appraiser and an AQB Certified USPAP Instructor. Mr. Reynolds serves as an adjunct faculty member of The Columbia Institute, and is an approved appraisal instructor in 31 states.

Reynolds is the owner of Reynolds Appraisal Service in Owensboro, KY, providing various residential and commercial valuation services, consulting and litigation support services throughout the area. He can be contacted at (270) 929-3088 or by email at bryan@reynoldsappraisalservice.com

N.Y. Times on Ordering Appraisals - " . . Lenders Now Control the Entire Process"

The New York Times story "In Appraisal Shift, Lenders Gain Powers and Critics", by David Streitfeld, the author does an excellent job of taking its readers through the HVCC time-line and illuminating the current issues with appraisal ordering and pressure.

Below are a few quotes from the Times story:

“We’ve been begging for years for enforcement of existing state and federal laws regulating appraising,” said Mr. Kennedy, a leader in the appraisal community. “We thought we were finally going to get that. But the code is doing nothing except putting ethical appraisers out of business.”

“The code [Home Valuation Code of Conduct] is a formula for continued problems with fraud,” said David Callahan, a senior fellow with the public policy group Demos who has studied appraisals. “Appraisers have been asking for a long time for a reliable firewall between themselves and lenders, and are further from it than ever.”

"The final version of the code gives much greater leeway to lenders. For instance, lenders can hire their own appraisers if they “recognize” that complaints will be forwarded to regulators."

"The appraisal world was stunned. Dave Biggers, the chief executive of A La Mode, a maker of software for appraisers, said, “It’s like telling me I can steal as long as I ‘recognize’ that complaints will be directed to the police.”

"Under the code, the role of deciding what is pressure is assigned to a new entity called the Independent Valuation Protection Institute [IVPI]. If appraiser complaints are deemed valid, the institute is supposed to forward them to regulators."

"Seventeen months after it was announced, the institute has no staff and no appraiser complaint hotline. All that exists is a single Web page."

Click here for the complete  N.Y. Times Article

Related Story: Let's Put the Praise Back In Appraiser

Lloyd's of London filed a lawsuit against appraiser for misleading the company on his application for E&O coverage

According to the story by Courtenay Edelhart, Californian staff writer, Insurer suing Bakersfield appraiser. 

"Lloyd's of London filed a lawsuit against Newton, owner of San Joaquin Appraisals Inc., on June 16 alleging he misled the company on his application for errors and omissions coverage. The lawsuit seeks permission to rescind the policy, which it said was granted under false pretenses."

"Jerome N. Lerch, attorney for Lloyd's of London, did not return calls Tuesday seeking comment."

"There's more than an insurance policy at stake. If Lloyd's loses, it could be on the hook for millions of dollars because a defunct subprime lender is suing Newton and others over several appraisals done for Crisp, Cole & Associates, a now closed real estate company the FBI is investigating for mortgage fraud."