Appraisal Scoop

Assuring Accurate Appraisals, Part II: What's A Consumer To Do?

According to Broderick Perkin's first article article Assuring Accurate Appraisals Part I:

"During the height of the housing boom, appraisers were pressured to up the value of homes. Now, during the housing downturn, appraisers are being pressured to lower the value of homes."

In the follow-up article, Assuring Accurate Appraisals, Part II: What's A Consumer To Do? , Perkins says:

"Appraisers are typically hired by the lender to protect its stake in a home buying transaction. That means the appraiser is beholden to his or her employee -- the lender -- not necessarily the buyer nor the seller.

However, both the seller and the buyer can play a role in the appraisal process through a process of due diligence known as looking over the lender's shoulder."

 

Click Here for the full Realty Times article by Broderick Perkins

Next Week: What's a consumer to do? How consumers can play a leading role in the appraisal process.

Feds Propose Nationwide Mortgage Licensing System and Registry Database (S.A.F.E. Act)

Federal Agencies Propose Rule to Implement S.A.F.E. Act Mortgage Loan Originator Registration Requirement

WASHINGTON — The Federal financial institution regulatory agencies (the Agencies) are together issuing for public comment proposed rules requiring mortgage loan originators who are employees of Agency-regulated institutions to meet the registration requirements of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F.E. Act).

The S.A.F.E. Act requires the Agencies to jointly develop and maintain a system for registering residential mortgage loan originators who are employees of Agency-regulated institutions, including national and State banks, savings associations, credit unions, and Farm Credit System institutions, and certain of their subsidiaries.

These mortgage loan originators must be registered with the Nationwide Mortgage Licensing System and Registry (Registry), a database established by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators to support the licensing of mortgage loan originators by the States.

As part of this registration process, mortgage loan originators must furnish to the Registry background information and fingerprints for a background check. The S.A.F.E. Act generally prohibits employees of an Agency-regulated institution from originating residential mortgage loans without first registering with the Registry.

The proposal, which is being issued jointly by the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of Thrift Supervision, Farm Credit Administration, and National Credit Union Administration, establishes the registration requirements for mortgage loan originators employed by Agency-regulated institutions as well as requirements for these institutions, including the adoption of policies and procedures to ensure compliance with the S.A.F.E Act and final rule.

As required by the law, the proposal also requires these mortgage loan originators to obtain a unique identifier through the Registry that will remain with that originator, regardless of changes in employment. When the system is fully operational, consumers will be able to use the unique identifiers to access employment and other background information of registered mortgage loan originators.

Pursuant to the S.A.F.E. Act, the proposal further requires these mortgage loan originators to provide their unique identifiers to consumers in certain circumstances and Agency-regulated institutions to make them available to consumers.

Because modification of the Registry to accept Federal registrations involves complex technical issues, the proposed rule provides for a delay in implementation of the registration requirements until 180 days after the Registry becomes operational and available for initial Federal registrations.

The Federal Register notice and proposed rule are attached. The proposal will soon be published in the Federal Register and the comment period will end 30 days thereafter.

Source Document:  http://www.occ.treas.gov/ftp/release/2009-58a.pdf  

OCC News Release: http://www.occ.treas.gov/ftp/release/2009-58.htm

Fannie Mae Announcement 09-14 Requires Submission of Electronic Appraisal Reports in MISMO XML Standard

In Announcement 09-14, New Data Delivery Requirements, Fannie Mae announced changes to the loan delivery file and the Uniform Residential Loan Application (Form 1003) to accommodate new data elements required by the Federal Housing Finance Agency (FHFA).

Download Fannie Mae Announcement 09-14-Electronic Appraisal Reports

These changes are intended to result in enhanced identification and accountability of key parties in the mortgage transaction and are another step in Fannie Mae’s ongoing efforts to improve loan quality.

In the coming months, Fannie Mae will announce a series of other policies intended to improve loan quality, including the implementation of a robust collateral valuation analysis process, enhanced credit policy guidance, improvements to Fannie Mae’s quality control processes, and additional guidance on lender quality control activities.

In support of the loan quality initiative, this Announcement includes information about the following:

• Submission of Electronic Appraisal Reports
• Enhancements to the Loan Delivery File Format
• Mortgage Fraud Reporting

 

Sarah Vetault of Tucson, AZ - www.ComplineGroup.com asked on the WinTOTAL Users Group:

"I just got this announcement from Fannie Mae requiring submission of electronic appraisal reports in MISMO XML format by 2010.  I wonder what this means from our end.  Is the good old industry standard emailed PDF going bye-bye, forcing us to use slice/dice/rip-the-data portals for mortgage work?  Or will the lenders rip the data themselves out of our pdf files for submission to FNMA?  We are definitely living in interesting times. "

What are YOUR thoughts?

Arizona Court Rules Appraiser Owes Duty to Buyer/Borrower

In an April 30 decision, the Arizona Court of Appeals has ruled, for the first time in an Arizona published opinion, that an appraiser hired by a lender owes a duty to the buyer/borrower in that transaction. In its decision, the Court focused on the reality that the buyer would likely never hire a separate appraiser. For that and several other reasons, the appraiser owes a legal duty of care to the buyer/borrower.

"Finally, adopting Blagg’s contention that an appraiser retained by a lender owes no duty to the buyer/borrower would mean that a prospective homebuyer who seeks to rely on a prepurchase appraisal must contract separately with an appraiser for that purpose.

In the purchase in this case, as is not uncommon, the buyer was obligated to reimburse the cost of the appraisal ordered by the lender. Even if we were to assume such an arrangement were not the general rule, we see no reason to impose on the parties to a transaction the burden of paying twice for the same information simply so that the buyer may join the lender within the scope of the appraiser’s duty of care.

Public policy and common sense compel the conclusion that when a lender to which a prospective homebuyer has applied for a loan contracts for an appraisal of the home, the appraiser the lender hires owes a duty of due care not only to the lender but also to the homebuyer."

The decision was rendered in a Sage v. Blagg Appraisal Company, in which the buyer/borrower sued the appraiser for overvaluing the home because he used the incorrect square footage, among other things. The trial court had dismissed the action concluding, under two prior Court of Appeals decisions, that an appraiser hired by someone other than the buyer/borrower did not owe any duty to the buyer/borrower. In its unanimous decision, the Court of Appeals disagreed and allowed this case to proceed.

The case opens the door for buyers to sue appraisers even when the appraiser was hired by the lender.

Daphne Reaume of Berk & Moskowitz, P.C. argued the appeal for the buyer/borrower. For a PDF of the court’s decision, visit www.berkmoskowitz.com/documents/CV080331.pdf .

Runt Rants - Highly Honed Powers of Observation and Analysis Make Us Different

I don’t really know where it started. Maybe born into a family of mental giants, where the only option for the runt is to observe and listen.

Maybe it’s a small town environment, lots of experience with outdoor life learning to observe, listen, drawn conclusions.

Maybe it was the years in correspondent banking traveling to those same small towns in six states, chatting with the grocer, the barber, the gas station attendant, picking up clues, signs along the way…so that when I walked into the bank president’s office I knew more about the commerce of the town than he thought I should, and because of that we could do business, help each other.

I do know that when I came late to the appraisal profession I took all the AI courses that were available in a five year span, all they offered really.

When I began those courses I was already trained to observe, to listen, to accumulate random facts and compose a picture…a hypothesis.

The AI courses built on that base and made me better at it. All appraisers taking the good courses in appraisal theory, learned those same skill and applied what they learned in the field to develop and hone those same skills.

It’s part of what sets appraisers apart, what makes them a professional, part of the skill set that brings value to business transactions. It’s part of what we are expected to provide, why we are paid.

I’ll bet you haven’t thought about that in weeks…maybe even months!

But it happens every day, even if you don’t consciously think about it. A typical sample of that in operation occurred with me the last couple of days.

The nation is in turmoil, many markets have been in recession for a couple of years. Houston hasn’t had that problem…not until recently. Houston is an oil town. It’s much less so than in years before, but still an oil town. West Texas Light at $150 last summer created a boom in the oil patch and in the oil service business. That same West Texas Light is now in the $40-50 range, and the oil services businesses are beginning to hurt.

Houston housing markets have been in balance for the last ten years…good solid value growth in the 3-5 percent range each year. But the clouds are building and it is not just what is being reported in the newspaper…that statistic that one in three Houston houses sold in January were distress sales. That’s certainly not good, but heck! It was 24 percent distress in January 2008.

I saw clouds building as I drove to an appointment recently. Established small strip centers one after the other, all with one or two suites vacant. Three closed bank branches…now vacant.

Yet big dirt is being moved…a 50 acre commercial site to the right in vacant land that I thought would stay vacant for another couple of years. To the left a 75-100,000 square foot shopping center with a large anchor…the anchor not yet announced. That’s another one I thought would be delayed another couple of years…but there it is…tilt wall already in place!

A highway overpass gave me bird’s eye views of two large businesses on either side. To the right was an equipment rental business with a yard full of equipment. To the left was an auction house with its yard also full of equipment. Good for the auction company…bad for the companies that could no longer afford that equipment. Bad for the equipment rental business…when the lot is full the equipment is not earning revenue.

Both those yard statuses mean the unemployment rate is going to tip up in a month or two…the yards are leading indicators.

Click here to continue reading . . .

First Impressions of the 1004MC: Part 5 - "Closing Thoughts"

Having completed several "1004MC Workshops", read numerous forum posts and talked to many appraisers, one thing is clear, confusion reigns! Most do not see the merits of the 1004MC. They see the problems, including opposing opinions, various interpretations, and few immediate solutions given the limitations of their MLS data services.

At question is not the concept, but rather the execution. While many believe this to be a step in the right direction of mandating a standard for measuring trends, the format is a "time-consuming problem" versus a "problem solving solution". The unintended consequences over-shadow any potential benefit.

The 1004MC is not about medians, totals, percentages, and ratios, no more than it is about the neighborhood. The form is about "the collateral" and "the trends related to the collateral". While market conditions and neighborhood trends are important, the trends of properties similar to the subject are critical.

Lenders are not making a loan to the market area or the neighborhood; they are making a loan on the subject property, the collateral. As goes the trend for properties similar to the subject, as goes the value of the collateral securing their loan.

Highs and lows

The 1004MC gets an "A" for effort and the focus on the subject verses the neighborhood, "C" for layout and "F" for format and function. I understand the need to "standardize trend analysis", however, the format is such that the numbers may mislead more than "make transparent".

It does get a high mark for two factors, first for attempting to replace opinion with statistical fact, limiting subjectivity and secondly, it requires the analysis to focus on "competitive to the subject from the buyer's perspective", removing the influence of lesser or better properties in the neighborhood that do not compete with the subject.

Click here to continue reading . . .

Appraisal Institute Calls on Bank Regulators to Revisit Appraisal Regulations - Designations, BPOs, AVMs, and more!

The Appraisal Institute issued a public comment letter on the proposed Interagency Appraisal and Evaluation Guidelines January 20, calling on the federal bank regulatory agencies to revisit the underlying appraisal regulations, while advancing the importance of competency to the appraisal process and expressing concern regarding ongoing misuse of broker opinions of price.

The comment letter provides many technical suggestions to the proposed guidelines, as well. The comment letter can be found on the AI Web site. Click here!

Questions can be sent to Brian Rodgers, Director of Federal Affairs, at 202-298-5597, brodgers@appraisalinstitute.org .

Related Post - IL Responds to Proposed Interagency Appraisal and Evaluation Guidelines - Docket OCC-2008-0021

Pre-Listing Report Form Selection - Think Outside the "Check" Box

Most everything changes. If you don’t believe that look in the mirror. Appraisers were very concerned when the new Fannie Mae appraisal forms initially hit the street and now after three years most appraisers utilize them routinely without much consideration. There are times these preprinted forms are not appropriate and should be avoided.

Intended User - The Appraisal Foundation and the Association of Appraisal Regulatory Officials (AARO) have indicated that in order to set forth the appraisal in a manner that will not be misleading; the appraiser must provide a clarification with regard to the intended users. This needed clarification is a result of Certification #23 which indicates a host of others that may rely on the appraisal report.

Although Fannie Mae indicates you can not add, change, delete or modify their certification or limiting conditions, they don’t mention clarifying. In Fannie Mae’s Revised Appraisal and Property Report Forms – FAQs dated 11/1/05 they indicate that they would accept the following statement when the appraiser believes the client is the only intended user.

“The Intended User of this appraisal report is the Lender/Client. The Intended Use is to evaluate the property that is the subject of this appraisal for a mortgage finance transaction, subject to the stated Scope of Work, purpose of the appraisal, reporting requirements of this appraisal report form, and Definition of Market Value. No additional Intended Users are identified by the appraiser.”

Intended Use - The preprinted forms also indicate the intended use is for mortgage finance transactions, so without any change to this form, utilizing it for any other reason would create a misleading report. How many of you appraise real property for owners thinking of selling their property, pending divorces, estates, etc? THERE IS NOT A MORTGAGE FINANCE TRANSACTION as you are stating by signing the certification and limiting conditions. Use a different form, a narrative report format, a brown paper bag, just not the Fannie Mae preprinted 1004 form!

Most software companies offer a substitute form such as ACI’s General Purpose Appraisal Report commonly known as the GPAR.

 Keep an open mind for a moment. Think outside the “check” box. If you have been hired by a homeowner thinking of marketing their home, do they really need a picture of their own home? Do they need a floor plan they walk every day, a copy of a map, or a copy of their deed? They probably have the original deed. How about providing them what they need - a credible, ethical, unbiased professional opinion.

Think for a minute about when you go to the doctor with an aliment. What happens? Perhaps there is a discussion of the problem, an examination, maybe an ex-ray? Then it’s off to the lab for some blood work. Then you go home and wait by the telephone. When the doctor calls with the results do you say, “Wait! I want a 43 page written report!” Of course not, you accept their professional diagnosis or opinion via the phone.

Remember the appraisal and the appraisal reports are two different things. The Appraisal Development is covered under Standard 1 while the Appraisal Report is under Standard 2. There are four report options consisting of three written and one oral. Whether you prepared a Self-Contained, Summary or Restricted Use they can be narrative or form reports.

A Restricted Use report option is most often overlooked by appraisers but very often is the perfect option for many clients. Consider providing options for different clients who have different problems that need to be solved instead of forcing a URAR down their throat.

Regardless of which option you choose, beware of using the Fannie Mae preprinted forms as a catch all. They were not intended for that reason.

 AUTHOR: 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 30 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 .

State Law Regarding the Use of BPO's

The Appraisal Institute has released a document listing the applicable laws regarding Broker Price Opinions. The list covers every state and breaks the states into three general categories: Unlimited Authority, Limited Authority and Broad Authority.

Here is a link to the list: Download BPO_State_Laws

First Impressions - The 1004MC - Part Four - "House Cleaning"

I have been developing a workshop on the 1004MC and as I work through the process, every day is one of discovery. Despite having read 08-30 and the FAQ's, along with the existing appraisal guidelines, I am not certain that I have all of the answers, but I do have more than a few questions and observations.

On the plus side, reading and re-reading has provided perspective and possibilities as to what Fannie Mae wants, how we can provide it, efficiently and effectively. Still, I am no expert, and like others, I am second-guessing based on what I know thus far. With that understood, here are a few more of my observations.

First, the 1004MC is not (and I repeat not) a new appraisal form. The 1004MC, like its number-sake is an underwriting form that appraisers are required use. If appraisers designed the 1004MC, it would look different, as would the URAR    Download MCA_Appraisal_Report.pdf

Haves and Have Nots

The 1004MC requires the appraiser to provide "all of the information to the extent it is available or provide explanation if the data is not available". With the advent of multiple listing systems, computers and technology, how will you sidestep providing the data? If someone in your market area is "filling in the form", you will need to do the same.

"Use sales and listings of properties that compete with the subject, determined by the criteria the buyer would use". Your assignment, appraise a home in a new tract. What (from the buyers perspective) is competitive to the subject, only new homes? People "buy new" for a reason, often because they want to be the first ever in the home, at other times because it is the best deal. Are re-sales in the same area "competitive", from the buyer's perspective?

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