Appraisal Scoop

Underwriting: Fannie Mae and The Backward Bible

Many appraisers misunderstand the place Fannie Mae has in our work, and that misunderstanding helps create misleading appraisals.

Fannie Mae is a participant in the secondary market, buying mortgages from lenders and turning around and selling them to investors.  This helps provide lenders with the funds to make new loans.  When Fannie acquires and then sells the loan, your appraisal goes along with it.

Now, Fannie Mae deals with only a certain type of collateral.  Fannie does not deal with loans secured by industrial property or commercial property; residential property alone is the world that Fannie participates in.  But, it gets more specific than that: although Fannie Mae does get involved with other types of residential properties, Fannie generally deals with single family residential properties that are “typical,” such as a three-bedroom / two-bath home in a suburban area.

Fannie has other specifics in mind in determining if a mortgage loan is the type they will buy and sell on the secondary market.  We’re all familiar with them: comparables within one mile of the subject; net  and gross adjustments that do not exceed 15% and 25%; the home can’t be on a large acreage parcel, etc.

For example, if the property you are appraising is on 122 acres, it is not Fannie Mae collateral.  If your subject property is so unusual that the best comparables have adjustments in the range of 60% to 80%, then that property may not be Fannie Mae collateral.  If that property does not conform to the type that Fannie works with, it is called “non-conforming” collateral, just as a medical office building would be the type of collateral and type of loan not suitable for purchase by Fannie Mae.

It’s rather like playing Monopoly; some people always go for Broadway and Park Place; others like the trio of Oriental, Vermont, and Connecticut Avenues; some absolutely love the railroads.  Lets say you like to go for the lower end to middle trios, such as between “GO” and “Free Parking.”  Another player offers to sell you Park Place.  You may decide that it’s a nice property, but you don’t really want to spend that much money on one parcel, and there’s a good chance you’ll never get Boardwalk, so you just aren’t interested.  So, too, Fannie Mae has property preferences.

Click below to continue reading . . . .

Zaio Acquires Nations Largest Photography and Virtual Tour Business

Zaio has been a hot topic for appraisers this year.  Whether appraisers love the Zaio concept or hate it, you've got to give Zaio credit for their ability to stay in the game!  Throughout 2007 they've demonstrated their ability to make key alliances, acquisitions, and stick to their game plan.  If we were in a game of "Survivor", I would NOT want to be playing against them!

Here's the latest news from the Zaio web site:

Zaio will pay US $1.2 million for VIC assets of which $750,000 is cash and $450,000 in shares of Zaio Corporation. Zaio has agreed to pay additional consideration over the 24 months after the closing based on performance and level of success in accelerating Zaio’s photography rate. Thomas Beverly, CEO of VIC, will continue to serve the Realtor and MLS boards and will also lead Zaio’s national photography efforts. Closing is expected in the next thirty days.

"This acquisition will allow Zaio to substantially increase its rate of photography, accelerate our original 5-year plan, and to immediately begin serving the needs of Realtors and MLS boards. To date Zaio has photographed 6.5 million homes, and is now taking photos at the rate of 55,000 per day" said Zaio Corporation CEO Thomas Inserra. "Mr. Beverly has overseen the capture of over 30 million photographs for real estate transactions since 1980 and is the nation’s most experienced and successful executive in this industry. We are pleased to have him as part of our executive team."

Previously, Zaio Corporation announced its plans to photograph inspect and appraise virtually every home in the nation’s largest 250 metro areas over the next five years. The photos and appraisals are stored in a secure database much the same way credit agencies store credit reports. This allows lenders, realtors, investors, insurance companies and other customers to access the photos and appraisal reports in just seconds, rather than waiting the customary 5 to 7 days to obtain an official appraisal from a licensed appraiser. This helps consumers, lenders and realtors by allowing them to close their transactions quicker. New or updated photos, tours and appraisals will continue to be provided on an as needed basis since the condition of homes can change over time.

Click here for the complete news release

Declining Markets - Do you WANT me to lie!?

The following article is by Steven R. Smith, MSREA, MAI, SRA, Smith Realty Advisors,  The opinions expressed are the author's and do not necessarily represent those of the Appraisal Scoop blog.

While cleaning out the garage on Sunday, and moving some books, one fell out and opened to a page that had this as the opening:

Truth Of Intercourse

Among sayings that have a currency in spite of being wholly false upon the face of them for the sake of a half-truth upon another subject which is accidentally combined with error, one of the grossest and broadest conveys the monstrous proposition that it is easy to tell the truth and hard to tell a lie. I wish heartily it were.

But the truth is one; it has first to be discovered, then justly and exactly uttered.

Even with instruments specially contrived for such a purpose - with a foot rule, a level, or a theodolite - it is not easy to be exact; it is easier, alas! to be inexact.

[The first to name the Author, wins an Appraiser Hat !  All I have left are Black Hats with Silver lettering.  UPDATE: The winner is Bob Lancaster, RDL Appraisal & Realty, Pasadena, MD - *Truth of Intercourse]

What does the quote have to do with appraising in a declining market?

Yes, it is harder to tell the truth even when the world knows the housing market is declining.

Myself, I like the intercourse of ideas and enjoy markets that are dynamic.  It is hard to tell the truth when the market is going up 50% per year, but not as hard as when it is going down.  Well, it is not that hard, just hard to get loan production clients to believe.

So, as an industry what do we do? Do we lie? Yes we do, there are millions of appraisals that have lies in them, that will come back and haunt us over the next five years.

Take a look at this article, The Fed Stops Spoonfeeding Us: A Great Depression for Housing?  Put into context . . . It behooves each of us to search for the truth in the real estate market and NOT depend on the Feds, NAR, state Realtor organizations,or DataQuick to tell us what is happening.

We, as licensed professionals, need to do the hard work to know the truth and report it objectively, to give it context so our clients can receive it, not reject it.

Or how about this, are sales volumes down in your area, but prices are rising? Why?  How can that be? 

Could it be because cash back rebates and concessions are not being considered by the data reporting organizations and companies?  With this concept in mind, read the Inman News article: Sales down but prices, inventory rise in California.

Truth, not from an advocate for commissioned Realtors, not from the most powerful real estate lobbies.  No!  It is up to the individual appraiser to put their arms around their own markets.  To do the real analysis and report the truth, net of concessions, cash back deals, and fraudulent sales reporting that have become part of the statistics and databases we rely upon.

Related Article: Fannie Mae Announcement 07-11: Overstating Property Values In Declining Markets

"Appraisal is only hard if you try to do it right, or if the market is going down, or both."

AUTHOR: Steven R. Smith, MSREA, MAI, SRA, Smith Realty Advisors, 936 San Jacinto St., Redlands, CA 92373, Real Estate Appraisals, Consulting, Expert Testimony, Forensic Reviews, Fraud Research and Analysis, Litigation Support, Fraud Training  909-798-8855, fax: 909-798-0139

*Truth of Intercourse

Appraiser Survial Tips: Building Additional Lines of Income

AUTHOR: Steven R. Smith, MSREA, MAI, SRA, Smith Realty Advisors, 936 San Jacinto St., Redlands, CA 92373, Real Estate Appraisals, Consulting, Expert Testimony, Forensic Reviews, Fraud Research and Analysis, Litigation Support, Fraud Training  909-798-8855, fax: 909-798-0139

For those residential appraisers who do not have a wide client base, or who have been relying on loan broker work over the last five years; new types of business or lines of income will be needed to survive the next five.

Some appraisers have already returned to what they had been doing, others have found part time or other fee type things to do to make a living. Here's a short list of things I have heard or seen appraisers doing in the last six months:

• Real Estate Photography for Listing Brochures and web pages. 
• Measuring Buildings for Listing Brochures
• Appraising property to get the Listed Price down to Market Value
• Date of Death Appraisals
• Property Inspections
• Notary Loan Signings
• Cost Estimating for Contractors
• Cost Estimating for Insurance
• Property Inspections for Title Companies
• Property Management
• Real Estate Leasing
• Real Estate Sales
• Webinars, writing and delivering
• Seminars, writing and delivering

In my local newspapers and even in the major Los Angeles Times, there essentially have been no appraisal job openings in years. And there is not likely to be in the next several years either.

Regardless of where one came from, they might be able to go back. Or, they might springboard off of what they learned while appraising into a related job.

For appraisers, there will not be enough work to support all who are licensed.  Before things get real bad, maybe a skills assessment could be done and a plan made to either transition or move into another field.

For those with transferable skill-sets and real appraisal education {not cram courses}, as well as MS Office skills; there may be an opportunity to transition into a commercial appraisal office.  Think in terms of the utility value you might have.  Don't worry about writing Narrative reports, think about what you do know.  If you need to take writing courses, do so, or Excel or Word, or basic keyboarding.

Click below to continue reading . . .

Countrywide: "Home price depreciation at levels not seen since the Great Depression"

The SeekingAlpha - Stock Market Opinion & Analysis blog posted the transcript from a conference call with Countrywide Financial executives on the company's 2nd Quarter 2007 earnings. [Countrywide Financial Corporation (CFC)]

Angelo Mozilo - Chairman & CEO suggested, "If you have not done so already, please download the second-quarter supplemental presentation from our website. John McMurray has prepared a detailed slide deck to walk you through the credit trends and Countrywide's credit costs for this quarter."

• Countrywide Reports 2007 Second Quarter Results
• click to hear audio webcast replay
• click to download slide presentation

Here are some notable quotes from the transcript:

Angelo Mozilo - click here On Housing Inventories: 

"But as I do reflect on it, and I do a lot, that nobody saw this coming. S&P and Moody's didn't see it coming, but they simply just downgrade bonds, they don't take hits. Bear Stearns certainly didn't see it coming. Merrill Lynch didn't see it coming. Nobody saw this coming."

"So it was the deterioration in real estate values that was the base cause of all of this. We had none of these problems as real estate values were going up. So it is an oversimplification, admittedly, but clearly the deterioration in real estate values as a result of the affordability issue and an oversupply."

"So I think one turning point is the supply of housing. Because I think once that turns around, the psychology of the country changes. Because now the borrowers, potential buyers simply say, look, I will just wait, because I will be able to buy the house cheaper tomorrow than I can today. That psychology has to change; and the only thing that is going to change it is supply."

Angelo Mozilo - click here On Underwriting:

"I say also the traditional underwriting standards, which John McMurray alluded to, were altered to use more technology and more credit scoring as a judgmental factor in whether a loan could qualify or not, versus the traditional documentation. And you had on top of that, which again John related to, was speculation. So I just want to share those thoughts with you."

Angelo Mozilo - click here On Appraisals:

I think that is an oversimplification. We didn't rely upon home price appreciation. We relied upon an appraisal of current value as a lender. You can't forecast as a lender, which way values are going to be going, up or down. You at least traditionally and historically use appraisals, with certain protocols to establish what the value is; so you can determine what kind of loan-to-value you want to establish based upon the quality of the credit of the borrower.

So we did not make these loans based upon value is going to go up forever, because we know they are not going to go up forever. But you don't know what they are going to do, whether they are going to stabilize, go down; if they do go down, how far? It is just unpredictable.

So in our business, you're limited to what you believe the value to be based upon a professional appraiser valuing a piece of property at that time.

Click below to continue reading  . . .

NINJA Loans - Appraisal Scoop Author Reports

In a recent NBC interview, Appraisal Scoop author Ted Faravelli, Jr. discusses the alarming increase of foreclosures in the San Francisco Bay area.

According to Ted, "Home values were exaggerated to get bigger loans and because banks were making money it was a don't ask don't tell situation"

"The real estate market is singularly the largest concentration of wealth in this country" said Faravelli, Jr.  Now that wealth is being eroded.   

Vicky Nguyen, talks about the extreme reduction in "Ninja" loans.  What's a NINJA loan you ask?  Click here: N.I.N.J.A (No Income, No Job, No Assets).

Click below to watch the entire story . .

Author: Ted Faravelli, Jr., is a real estate case consultant and state-certified appraiser specializing in forensic valuation services, litigation support and expert witness testimony. With more than twenty-three years of experience, he has consulted in over 100 cases and has been designated as an expert witness to the California Superior Courts of Sacramento, Marin, San Francisco, San Mateo, Alameda, Contra Costa, Santa Clara, Orange and Los Angeles Counties.   http://www.Faravelli.net

Real Estate Appraiser says: "Just say Noooooooo!"

The other day on the Inland CA Appraisers Forum, Barb Tores, ASA got fired up after a series of posts on re-addressing appraisals and dealing with manufactured homes.  At the end of the day she offered this sage advice:

Today everything in the lending world is way out of whack - because there's rarely been anyone who says, "NO!"  Our clients need to hear a great, resounding ROAR from us, every single day:   

NOOOOOOO!"

NO! I cannot give you a value in 10 minutes or less and I won't even try!

NO! I will not change my appraisal for your screwy reason, to hide what the collateral really is! 

NO!  I will not do your underwriting job for you! 

NO!  I will not do 6 more appraisals of the same property so you can shop this around, and waste the loan applicant's time and money! 

NO! I will not reduce the value because your reviewer is under-trained and inexperienced!

NO!  I will not engage in a spitting contest with your Reviewer or your underwriter - He/She isn't experienced enough to understand this property, this appraisal!

NO!  I will not tell you what the "predominant value" in the neighborhood is - when I already checked that there is none, and that's a critical characteristic of the area.

NO!  I will not use your comps.  NO!  I will not add more comps. And NO! Not for free! I certified that the comparables in my report are the best; to include your less-than comps would be misleading! NOOOOOO!

NO!  I will not write a letter for free explaining something that is already in my report -  just READ IT!

NO! I will not be motivated by your statement, "Well, Other appraisers do it!"  It'll just tick me off!   NO!!

NO!  I will not sit still when you besmirch my name, telling the loan applicant, "There is something wrong with the appraisal," when there is really something wrong with the collateral.

NO! I will not write a free letter to explain why your records show a dash in the address and mine don't!

NO!  I won't reduce my fee because your client is poor!  Did you reduce YOURS?  Did the listing agent? Selling agent? Escrow officer? Lender? NO!!

NO!  NO!  NO! Learn your own business - don't let me know more about it that YOU do! 

And no, you DON"T know more about my business than I do.

Author: Barb Torres, ASA - Real Property, Accredited Senior Appraiser, American Society of Appraisers, California State Certified General Real Estate Appraiser  - Phone: (760)341-8541

USPAP Q&A - July 2007 - Workfile Retention & Access Arrangements

The Appraisal Standards Board's (ASB) July 2007 USPAP Q&A has just been released: Download July_2007_USPAP_QA.pdf (25.7K)   

This month's Q&A deals with the following questions:

Q1.  USPAP requires an appraiser who is not in custody of his or her workfile to make “appropriate” retention and access arrangements; what does this mean?

Q2.  Two appraisers perform an appraisal assignment together.  Appraiser A retains the workfile and Appraiser B has made access and retrieval arrangements.  Are there conditions under which USPAP allows Appraiser A to deny Appraiser B access to the workfile?

Q3.  I understand that Standards Rule 1-5(a) requires the appraiser to analyze an agreement of sale (if available in the normal course of business).  What constitutes proper "analysis?"

For the answers to these questions: Download July_2007_USPAP_QA.pdf (25.7K)

Humor - Breaking News: All Online Data Lost After Internet Crash

Today I received the following notice from the Appraisal Scoop host:

"TypePad is currently unavailable. We apologize for the inconvenience, and we're working hard to bring the service back online as soon as possible. For updates and more information, visit status.sixapart.com."

That got me thinking . . . What if the Internet CRASHED!   

• Does the government does have a "backup" of the Internet? 
• Would appraisers have to revert back to that "archaic telephone line based network of low quality printers" to transmit appraisal reports?! 
• What would happen to the Web 2.0 blogging community? 
• To the Nigerian economy??!

Breaking News: All Online Data Lost After Internet Crash

Runt Rants - Lender Do Not Use Lists - Appraiser BlackListing Series - Part 5 - Conclusions and Recommendations

The first 4 parts of the Blacklisting series (Click here) defined the issues and provided Real World examples of appraiser blacklisting.

Now, let’s deal with the solutions!

In this final article, Ken Verrett provides steps you and your appraisal organization can use to fight back against, and prevent, appraiser blacklisting!

• Legal action,
• Education, and
• Persuasion

The author is the owner of Acorn Appraisal Associates, a 21 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities in the greater Houston SMSA

We've been running this series for five weeks now. We've described Do Not Use Lists and Black Lists. We've defined both types.

We've voiced our support for Do Not Use Lists, as we've defined them to include notification and recourse. We've voiced our objection to Black Lists, as we've defined them because they do not notify the appraiser of their inclusion, and do not provide recourse for the appraiser to plead his case if he feels the infraction was not fair or proper.

I provided examples in my own company of both types in the first of the series: a Do Not Use List inclusion many years ago because I didn't provide the proper recently adopted USPAP changes. Harsh, but I agree. It was my responsibility, I didn't live up to it, and I accept that decision.

I also provided an example in my own company of a Black List addition that was absolutely unfair. Our appraiser did an exemplary job of customer service, one I was proud of him accomplishing. I even used it in my Internet writings of the proper way to service a customer. Yet this fellow ended up on a Black List. We were never notified. We only learned of it two years later when we called to inquire why this fine gentleman wasn't receiving orders. They never told us. When we called they referred to that incidence two years earlier where the customer called to compliment our appraiser's actions, and which I had cited as a shinning example of good customer service, good decisions in the field. For that fine service, he was Black Listed.

ACTUAL CASES CITED

Over the next two columns I cited case after case of Black Listing...Twenty six in all. See here and here. The stories, if you read them reveal the frustration of good appraisers doing the right thing in their profession, who have been unfairly treated. It's just not fair. It's Un-American! It goes against the foundations of our country, the principal of innocence until proven guilty. It goes against due process. It goes against fair play. It those core beliefs don't appeal to your senses, you can stop reading at this point...you are wasting your time and bandwidth.

However, if you are still with me here, welcome! We share a common bond. A belief in the founding principles of our country, and a desire to value those and see them for what they are...the strength of our country, our society, our nation.

Click below to continue reading . . . .