Appraisal Scoop

RUNT RANTS - Mr. Big and a la mode deserve applause!

AUTHOR: Ken Verrett is the owner of Acorn Appraisal Associates, a 22 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities in the greater Houston SMSA

I was a little surprised and disappointed at the lack of appraiser response to the David Biggers, CEO of a la mode, announcement that a la mode intended to create an order assignment feature on their web site at a very low fee for the service.  The announcement was featured here.  A La Mode Announces new feature

Mr. Biggers announced something BIG.  Something that could save appraisers thousands of dollars a year.  Something that could change the landscape for appraiser marketing if they choose to use it. Yet there were only five comments to that announcement here on Appraisal Scoop!

Maybe appraisers didn’t take the time to read what Mr. Big announced?  Maybe appraisers didn’t think through the implications?  Maybe…they don’t care?

Let's Look At The Situation

Let me see if I can illustrate the proposal in a different way….stick with me here…I’ll be short and succinct for a change.  Consider the following three models.

• Green is what the Fee Appraiser receives from his local clients currently. 
• Yellow is what the Fee Appraiser receives from the typical AMC currently. 
• Blue is what Mr. Biggers proposes to offer as an alternative to the yellow.

What Those Three Senarios Mean

If the Cuomo Agreements were to survive as currently written (a debatable assumption, but still we should consider it as a possibility) local lenders will be forced to find an intermediary to order appraisals for their loan applications. The most likely intermediary is an AMC. That’s the business they are in…to order appraisals for lenders.

If the Cuomo Agreements survive, there will be pressure in the next few months for your local clients to begin moving business away from you directly and instead through an intermediary.  (The drop dead deadline in early fall….that’s to allow for the pipeline…it takes around sixty to ninety days to process a loan in many instances, so an application taken in October will likely go to the lender after Jan 1^st at which time an intermediary will be required.)

Business that you currently get under the green scenario will begin moving to the yellow scenario.  You will be doing the same appraisal, you will be doing your same quality control, you will be proving the same service that you do now…but your fee will be $105 less….30 percent less!

Got that?! The same service, the same quality, the same appraisal, but your fee will have dropped from $350 to $245. Multiply that by the number of local lender assignments you receive monthly.

If that calculation gets your attention, you should re-read Mr. Biggers announcement.

Click here to continue reading . . .

Eight Major Lending Organizations Issue Joint Response in Opposition to the HVCC

The American Bankers Association, American Financial Services Association, Consumer Bankers Association, Consumer Mortgage Coalition, Housing Policy Council, The Financial Services Roundtable, Independent Community Bankers of America, Mortgage Bankers Association, Real Estate Services Providers Council, Inc. (RESPRO®) issued a joint letter of response to the Director of the OFHEO.  Download Joint_Lender_Response_HVCC.pdf 

Dear Director Lockhart:

The undersigned are writing to register our concern with the serious legal and policy questions that are raised by the proposed Home Valuation Code ("Code"), which Fannie Mae and Freddie Mac (the "GSEs") have agreed to adopt, pursuant to a written agreement ("Agreement") with the Office of Federal Housing Enterprise Oversight ("OFHEO") and the New York Attorney General (NYAG). We agree that accurate appraisals are a critically important component of sound mortgage lending and that appraisal fraud is a factor in many cases of mortgage fraud.

We have very serious concerns with both the manner in which the Agreement and the Code have been mandated by OFHEO and the NYAG as well as the substance of the documents. (For simplicity purposes, reference herein to the "Agreement" shall include the Code.) We believe that OFHEO should withdraw its assent to the Agreement, should not permit the GSEs to implement the Agreement, and should take steps to assure that this type of rulemaking by settlement does not occur in the future. The Agreement is in violation of Title XI of FIRREA and permits the NYAG to unlawfully exercise authority that resides exclusively with the Federal Government. The method of imposition of the agreement is in violation of the Administrative Procedure Act and constitutes an unlawful delegation of authority by OFHEO to a third party. For a variety of reasons, the Agreement is not consistent with the best interests of the GSEs, the housing finance markets, and other aspects of public policy.

Source of House Data Skews Loan Losses

The WSJ.com article Source of House Data Skews Loan Losses by Marshall Eckblad on May 8, 2008 says,

"Expected mortgage losses at Wachovia Corp. and Washington Mutual Inc. might not look as steep as those at rival lenders."

The reason: In recent weeks, Wachovia and WaMu have cited housing data from the Office of Federal Housing Enterprise Oversight when detailing their exposure to the U.S. housing market. A different index relied on by other banks, the S&P/Case-Shiller Home Price Indices, is gloomier..

Related Articles on Appraisal Scoop:

• How's The Housing Market Doing? - Housing Price Index -HPI Analysis
• Measuring Supportable Demand for Residential Properties
• Declining Market: Freddie Mac Issues Specific Guidance Regarding Use Of OFHEO House Price Index (HPI)
• Wachovia Mortgage Issues "Market Analysis" Requirements
• Real Estate Demographics: Identifying and capitalizing on market trends

Outside The Boxes (Patrick Egger)

• Part 1: Outside The Boxes: What Does Fannie Mae Want To Know?
• Part 2: Outside The Boxes: Cycles, Trends, and Perspectives
• Part 3: Outside The Boxes: Down Cycling - Trends at the Neighborhood and subject property level
• Part 4: Outside the Boxes: Covering Your Fannie
• Part 6: Outside the Boxes: The Economic Indicator Matrix

RELS Altering Appraisal Reports?

I'm a member of the Alabama Independent Fee Appraisers email forum which is a discussion group for Members of The National Association of Independent Fee Appraisers and others.  It was there that I read a surprising report this morning by Dennis Greene, a USDA Rural Development Appraisal Reviewer.  Download RELS_Valuation.png

Dennis alleges that RELS has begun a practice of altering appraisal reports.

The following is from the AlabamaIFA Forum:

As most of you know I am a review appraiser with USDA Rural Development. In the past few weeks I have noticed a change in some appraisals I am getting to review. These appraisal have old material in them and some blank pages added.

After talking with an appraiser yesterday I found out that RELS Valuation is changing some of your appraisals before they get to me to review. I believe that they are changing most appraisals without your knowledge. They are adding additional comment pages and moving some additional comments. They are adding additional comp pages and additional comp picture pages. Some of the data moved does not match up with what is in the appraisal report.

Worst of all they are adding the old 1004B Limiting Conditions page and putting the appraisers signature on it.

At this point I do not know how or when it can be stopped but I will be working on getting to the right people at RELS Valuation and Wells Fargo to get this stopped.

Your help in this matter will be greatly appreciated.

I would suggest you monitor your appraisals for final content.

Dennis R. Greene

Office: dennis.greene@al.usda.gov 

Is Cuomo’s Appraisal Fix Destined for Court?

Will Andrew Cuomo’s “appraisal code of conduct” — the set of guidelines for mortgage lenders to follow to avoid inflated home appraisals — ever see the light of day? If it does, reports the WSJ’s James Hagerty today, it may well see a whole lot of litigation first.

And what would that litigation look like? Some argue that the code of conduct is tantamount to federal regulation and so is subject to the Administrative Procedures Act. The act requires federal agencies seeking to make new rules to first publish a proposal and solicit public comments on it.

But in an interview, Mr. Cuomo said he was “totally confident in the legal process used.” Both he and Ofheo’s director, James Lockhart, promised to consider suggestions for changes in the code.

Click here for the complete Wall Street Journal story.

FTC Responds to Home Valuation Code of Conduct Proposal

Based on a request by Freddie Mac for public comments on the code, staff of the Commission’s Office of Policy Planning and the Bureau of Economics prepared a response letter, which expresses support for proposals such as those contained in the code to protect the independence of appraisals and the integrity of the lending process, but raises concerns regarding the potential effect of certain provisions in the code on competition and consumers in the appraisal and mortgage lending markets.

The Staff of the Federal Trade Commission’s Office of Policy Planning and Bureau of Economics has filed this comment on the potential effects on competition and consumers of the Code of Conduct. Download FTC_HVCC_Comment.pdf

Given the recent problems in the mortgage lending marketplace, the FTC staff generally supports efforts to improve the lending process for consumers and, in particular, supports proposals such as those contained in the Code of Conduct to protect the independence of appraisals.

The following comments on the proposed Code of Conduct are based on the staff’s consumer protection experience in the mortgage market and its research on consumer mortgage disclosures, as well as its competition experience in the real estate and other industries.

• Section I summarizes FTC law enforcement and other activities addressing unfair or deceptive practices in the mortgage lending market.
• Section II provides a brief discussion of the role of appraisals in the mortgage lending process.
• Section III identifies the relevant provisions in the proposed Code of Conduct on which this comment focuses.
• Section IV explains how these provisions raise potential concerns regarding their ultimate impact on competition and consumers in the mortgage lending market.

• Download FTC_HVCC_Comment.pdf
• FTC News Release
• For a summary section of additional plans - click here.

The Independent Community Bankers of America's (ICBA) Comments on HVCC

The Independent Community Bankers of America (ICBA) welcomes the opportunity to comment on the Home Valuation Code of Conduct.

The Code of Conduct comes from an agreement reached with the New York State Attorney General, Fannie Mae, Freddie Mac and the Office of Federal Housing Enterprise Oversight to strengthen the independence of the appraisal process. The Code of Conduct would impact mortgages that Fannie Mae and Freddie Mac buy or guarantee.  Download ICBA_HVCC_Response.pdf

ICBA sees significant flaws in the Code of Conduct that make it unworkable and overly burdensome for community banks for reasons described below. The Code of Conduct conflicts with appraisal independence guidelines and requirements already addressed in laws and regulations governing insured depositories, without observable benefits to institutional safety and soundness. This letter, which reflects the views of ICBA members on specific elements of the Code of Conduct, supplements a letter sent to James B. Lockhart III, Director of the Office of Federal Housing Enterprise Oversight, dated April 30, 2008 and signed jointly by ICBA and other financial trade associations.

Credit Crunch - Are Lending Policies Killing the Markets?

AUTHOR: Micheal W. Armentrout, VP AM Appraisals, Inc. Mike has been involved in full time real estate valuation since early 1992 and has experience in numerous Central Ohio markets.

The days of common sense lending have been long gone for many years and in retrospect were replaced by an aggressive feeding frenzy that subsequently drove home ownership to record levels. Now the lending industry finds itself knee deep in a fear-based climate at the opposite end of the spectrum.

With most of the large financial institutions following Fannie Mae and Freddie Mac’s lead, quality borrowers are more frequently finding themselves the victim of the mortgage fallout rather than the beneficiary. After being told that unqualified borrowers and over-inflated appraisals were some of the primary contributors to the financial crisis, it seems as though their prescribed remedy is to scrutinize well qualified borrowers while first time and low down payment borrowers skate through the same process.

My practice has seen a dramatic increase in underwriting conditions on appraisals where the borrower had a high credit score and more than adequate equity. One particular case involved a high credit score borrower applying for a refinance on a property with nearly 50% equity. Yes, the appraisal was solid and yielded a conclusion that was in the mid range for the market and cited current listing activity. Only after three addendums and a plethora of supporting market data, was the loan reportedly granted.

I am not a lender and do not profess to know every aspect of that field, but this simply makes little sense. What would be logical and justified is a tightening of loan to value ratios or perhaps revised quality control measures even if it resulted in less loans being completed.

Recent policies have been adopted that change LTV ratios if an area is reported to be in a declining market or there is an oversupply of properties but tightening down on “good risk” borrowers seems to be a waste of resources that should be focused in areas which caused the mortgage meltdown in the first place.

Click here to continue reading . . .

   

Free Webinar Wednesday May 7th - Motion F5 Mobile Field Tool - Motion Toughens Up with Semi-Rugged Slate Tablet PC for Appraisers

Appraisal Scoop author John Hill, from Allegiance Technology, and Motion Computing are sponsoring a webinar tomorrow for people that want to learn about the Motion F5 Field Tablet PC.

The Motion F5 Mobile Field Tool is the first semi-rugged slate PC designed specifically for the mobile appraiser that combines durability, mobility and integrated functionality with the benefits and convenience of tablet input. See our Motion F5 Brochure.

The nice part is that if you are thinking about one of these tablets, there is an opportunity for webinar attendees to purchase one for $1,000 off the list price.

Sign Up HERE! - F5 Webinar hosted by Allegiance Technology

The F5 is IP54 rated to meet the demands of the job from dusty construction sites to the occasional drop from a vehicle or exposure to a rainstorm. In fact, the F5 is designed to protect from the top three causes of notebook damage, which continue to be drops, liquid spills and objects being dropped on to notebooks.

Additional F5 capabilities include:

• Thin and light with high performance capabilities (approximately 3 lbs.)
• Wi-Fi, Bluetooth®, and optional integrated mobile broadband
• Shock, drop, vibration and temperature resistance
• Vehicular docking capabilities
• Intuitive buttons and triggers
• Integrated barcode scanner (optional)
• Integrated RFID reader offering quick and simple inventory tracking and management
• 2.0 megapixel camera
• Integrated fingerprint reader to simplify password management while increasing data security
• Natural handwriting interface for convenient data capture while standing or walking
• Speak Anywhere® audio technology for convenient access to voice notes and advanced communication

Declining Market Issues: Analyzing Future Values for Clients

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.

In most of the formerly hot market areas, housing prices have been declining for well over a year. Many appraisers have struggled with how best to provide their clients with an in-depth market analysis, as well as which reference sources should be consulted to provide that analysis.

In the spring of 2006, my office began to measure market declines by Zip Codes or Market Segments and started illustrating the declining trends with graphs in our reports.  By the winter of 2006, in some local markets, my office measured double digit price declines.

Now, in the spring of 2008, some areas have declined over 50% in value from the peak.  Now we have begun to measure the bottom of the market and to project future value trends, such as when values may begin to stabilize.

The following is an example of how we estimated future values for the city of Corona, which is on the western edge of the Inland Empire, our primary region.  Corona borders the city of Orange, where home prices are higher, and the cities of Riverside and Lake Elsinore, where the prices are lower.

From http://www.realtor.com/ - Corona is a city in Riverside County, California, United States. As of the 2000 census, the city had a total population of 124,966; a 2004 special census put the fast-growing city's population at 144,274. The city of Norco lies to the northeast, Chino Hills and Yorba Linda to the west, and the Cleveland National Forest to the southwest; unincorporated areas of Riverside County line all of its . . .

As shown on the map, there is a wide range in pricing in the City with some neighborhoods in the $300,000 range and some over $1,000,000. Not all that different from many cities in terms of the breadth of the range. Higher prices than some, lower than others.

How can appraisers use this type of information to analyze and estimate where the bottom of the market might be?