Appraisal Scoop

Mortgage snags ahead as appraiser ranks dwindle

The ranks of the appraisal profession are shrinking fast. For home lenders, that spells higher costs, longer turnaround times and poorer appraisal quality in future years.

While there's less appraisal work to go around these days than there was a few years ago at the height of the housing market boom, lenders fear that when the market does rebound, there won't be enough qualified appraisers available to do the job for them.

A dwindling appraiser population would lead to an "absence of local expertise," said Kurt Noyce, the chief executive of the Providence, R.I., lender Embrace Home Loans.

  Source: American Banker

Michigan Association of REALTORS® Buys Appraisal Management Company

Since the first hints of problems with appraisals surfaced over two years ago, the Michigan Association of REALTORS® has been working at all levels to address the issues of rising costs to the consumer, geographic competence and third party modifications to the scope of work reducing valuation independence. Earlier this year, these problems resulted in some creative thinking about how best to provide clients with superior levels of appraisal services in full compliance with appraisal independence regulations. This culminated recently with the acquisition of Midwest Appraisal Management Group, Inc., an existing AMC located within Michigan and operating profitably within seven states.

The acquisition of Midwest AMG makes it a wholly owned “for profit” subsidiary of the MAR using only REALTOR® appraiser members. This means in addition to industry “best practices,” those doing appraisals will be held to the higher standards dictated by REALTOR membership. It is through this melding of standards that Midwest AMG and the Michigan Association of REALTORS® intend to create the “Gold Standard” for appraisal services.

 

Utilizing its extensive network of appraiser members, Midwest AMG maintains an environment producing the best possible appraisal experience. Perhaps most importantly, the selection of appraisers and the distribution of assignments are tailored to adhere to geographic competence by seeking those with neighborhood experience and professional expertise.

"Only by applying these requirements and others can the dream of home ownership be protected and the soundness of mortgage securities be promoted."

 

The team at Midwest AMG is under the direction of both Martin J. Wagar IFA-S, a State certified Real Estate appraiser with extensive appraisal experience and background in FNMA and FHA underwriting procedures and Robert E. Taylor, Jr., ABR, CRB, CRS, GRI & RAM and immediate Past President of the Michigan Association of REALTORS®.

Click here for Michigan Association of REALTORS site.

Homeowner’s Lawsuit Against Major Banks Progresses Slowly, Alleges Predatory Lending and Unfair and Deceptive Trade Practices by Wells Fargo and Others

Pelayo Duran Faces “David and Goliath” Battle In Potentially Precedent-Setting Case In Florida Court

Miami, FL (PRWEB) December 7, 2010  - Coral Gables, Fla. homeowner Pelayo Duran claims in his lawsuit that what he wanted was the attractive loan he saw advertised in the Miami Herald to refinance a home for his growing family. Instead, he ended up in the middle of an endless and costly legal fight with the nation’s largest banks accusing them of illegal predatory lending and unfair and deceptive trade practices.

According to the lawsuit, Duran saw an ad in the Miami Herald published by Wells Fargo Home Mortgage. The ad was offering an Adjustable Rate Mortgage (ARM) at a rate of 5.75%, with 10 years interest only payments, a fixed interest rate for 10 years, and a 5.1 annual percentage rate. Duran’s plan was to buy down the loan rate at closing 1 to 2 point and pay off the home in about 10 to 15 years.

The lawsuit states Duran contacted Wells Fargo because he had a longtime business relationship with the bank and the terms in the ad were the most favorable. Attorneys claims when Duran called Cindy Sierra who he thought was a bank representative, she first told him that the advertised rates were not available. She then told him that she would get him an even a better deal. Duran believes that he, just like millions of other Americans, was baited into applying for an attractive loan that never existed, only to be switched to a high-risk subprime loan.

According to the lawsuit, Sierra told Duran to leave the income section on the application blank until such time as she could conduct a “pencil search,” a prohibited but common practice used by mortgage brokers and lenders in order to maximize the loan amount in which a mortgage broker would shop for an appraiser to support the highest value that the lender could hit in originating the loan.

Initially, Sierra informed Duran that his home was worth $1.5 Million. The appraiser, Lee Rosenthal who worked for and was hired by Rels Valuation, (also Wells Fargo company), ultimately determined and represented to Duran that his home, which was purchased for $984,000 four months earlier, was now worth $1.2 million.

“Unbeknownst to me, she created my loan by adjusting the value of my home to my debt-to-income ratio,” said Duran. “They never considered my ability to repay the loan. All they cared about was the appraised value and my good credit score. What I also discovered was that a Wells Fargo representative was actually originating a loan for Greenpoint Mortgage Funding and that immediately upon the closing of my loan, Greenpoint would turn around and sell my loan right back to Wells Fargo as trust administrator for a pool of loan. In addition, Fred Schlang, SRA, an appraisal expert, later alleges that the bank’s appraisal was inappropriately inflated."

 According to the lawsuit, after haggling over the terms for several weeks, Duran and his wife were disheartened at the closing when the final Greenpoint loan agreement reflected a financed amount of $920,000 with an APR of 5.622% fixed during a five year period, with rate adjustments up to twice per year, a pre-payment penalty, and a rate cap of 10.5%, (not the 5% he had been previously offered in writing) and they would not be able to buy down the rate 1 to 2 percentage points at closing, as he had been previously promised.

Continue reading the FULL article

Fannie Mae Uniform Mortgage Data Program Updates and Lender Letter on Appraisal Data

 

Fannie Mae has issued the following Lender Letter: LL-2010-15, Uniform Appraisal Dataset and Uniform Collateral Data Portal Fannie Mae and Freddie Mac today announced updates to the implementation dates and requirements for loan delivery and appraisal data under the Uniform Mortgage Data Program (UMDP). Fannie Mae also issued Lender Letter LL-2010-15, Uniform Appraisal Dataset and Uniform Collateral Data Portal, to provide formal notice of our appraisal data requirements under the UMDP and advance notice of related policy updates in connection with appraisal data standardization. The UMDP is a joint effort by Fannie Mae and Freddie Mac (the GSEs) at the direction of Federal Housing Finance Agency (FHFA) to standardize and drive data quality that benefits the entire mortgage industry. Fannie Mae and Freddie Mac understand the magnitude of the change required to achieve this important goal and its impact on a number of industry players. To facilitate its successful adoption, the GSEs have collected extensive feedback from a wide array of customers, lenders, appraisers, and other industry participants. Based on this input, and to position all industry stakeholders for success in implementing the UMDP, today the GSEs announced revisions to the effective dates and requirements. The GSEs are also providing new and updated resources to assist lenders and their appraisers in preparing for implementation. These updates provide additional time for the industry to meet the full UMDP requirements. Furthermore, the GSEs will be able to support early adoption of appraisal data standardization, which will benefit all industry stakeholders. Details and Resources For details on these updates, including revised and new Uniform Loan Delivery Dataset (ULDD) and Uniform Appraisal Dataset (UAD) resources, refer to the UMDP Update (December 16, 2010) and other information on the UMDP page on eFannieMae.com.

Video: Appraisers Hurting Housing Market? - Fox Business News

Prudential Douglas Elliman Real Estate Vice Chairman Dolly Lenz discusses why appraisers' low-ball offers are hampering the growth of the housing market with David Asman on Fox - America's Nightly Scoreboard.

Watch this video and let us (and them) know what you think of this story!!?  

Dolly says . . "Nobody wants things low and slow." referring to appraisers' impact on the real estate transaction.

When asked what could be done to fix the problems she says:

"I think for one, they should have to provide comparable sales.  So an appraiser saying this property is worth $300,000  . . .you have to provide numbers why.  Not when "requested".  Should "have to provide"."

Where in the world has Dolly been for the past 40-50 years?!  Does she REALLY think that appraisers aren't providing support for their values?

 

Why Housing Won’t Improve Anytime Soon

Why Housing Won’t Improve Anytime Soon

By William L. Pittenger, MAI

Despite record low interest rates, renewed affordability and other seemingly positive factors, the housing market still faces unprecedented headwinds that will prolong its recovery. An expression frequently used to explain the problem is the “fundamentals are not there.” But what are the fundamentals implied by that rather non-descript and over used phrase? Do they include a couple of readily identifiable and measurable characteristics that are holding the housing market back or are the so-called fundamentals a series or combination of characteristics that make measurement more complex. Our view is the latter. While one or two characteristics may not have a profound effect on the broader housing market, considered together, the fundamentals add up to a serious impact. Here is our view of what those fundamentals are and how they are impacting housing recovery.

Inventories are too highand are likely to remain that way for the foreseeable future. There are two types of inventory which impact or are at least destined to affect housing. They include both the visible inventory of homes which are capable of being identified and the so-called “shadow inventory” which is inventory held by banks and loan servicers which is not yet offered for sale.

The biggest component of visible inventory is existinghomes offered for sale by membersof the National Association of Realtors. At the end of October, that inventory stood 3.86 million homes. That was down fractionally from a month earlier but still a 10.5 month supply at the current sales pace. Add to that about 242,000 new homes offered for sale by builders plus those offered for sale by owners and the visible inventory total grows to about 4.2 million homes. That is roughly where it has been for several months. Note that the inventory of new homes for sale is exceptionally small. Nevertheless, it still represents an 8.6 month supply at the current sales pace. Builders continue to have difficulty competing with exceptionally low priced existing homes.

CoreLogic, a business analytics firm, reported in late November that the shadow inventory of homes increased from 1.9 million to 2.1 million units in August, the most recent month for which data are available. CoreLogic measures shadow inventory as loans where payments are 90 or more days past due; plus those in foreclosure plus those which have been foreclosed upon but are not yet offered for sale. That puts visible and shadow inventory together at about 6.3 million units which is well over a year’s supply and perhaps as much as two years depending upon how shadow inventory moves through the system. Shadow inventory is volatile and the forecasting risk inherent in both measuring it and tracking its movement is huge. For example, the volume of assets moving from foreclosure to bank owned status declined 35% in October. That is a direct result of well publicized foreclosure processing problems. These and previous moratoria have lengthened the timeline and have introduced even more uncertainty into the process.

In our view, the shadow inventory may be the biggest single threat to housing recovery. If banks quickly return large numbers of houses to an already over-supplied and fragile market, prices will almost certainly decline further resulting in even more foreclosures and the cycle repeats itself.

House prices remain unstable. While the free fall has ended (barring additional unforeseen eco-nomicshock) prices are still fluctuating within a narrow range. Nationally, the median existing home price in October was $171,100 little changed from both a month and a year earlier ($171,500 and $172,000 respectively).

The S&P/Case-Shiller Index for the third quarter of 2010 was released on November 30th. Composite indicesfor both 10 and 20 cities are published quarterly. The 20 city index showed prices down 1.5% from the third quarter of 2009 and down 2.0% from last quarter. An important conclusion from the index is that U.S. house prices have generally returned to 2003 levels.

Foreclosures continue largely unabated and the pipeline continues to grow.  The Federal Reserve’s forecast of foreclosures remains grimfor the next few years. They expect about 2.25 million foreclosures both this year and next plus another 2.0 million in 2012. Foreclosures soared from about 1.0 million in 2006, the year home prices peaked, to about 2.8 million in 2009 when prices likely hit a cycle trough. Foreclosure inventories are now over seven times higher than long term historical averages and are continuingto rise. Moreover, as foreclosure activity increases, more six and 12 month delinquent loans are moving into foreclosure and the extremely delinquent category of more than 12 months continues to both grow and age. Payments have not been made in more than a year on one-third of all loans 90 or more days delinquent. Moreover, of loans that are more than two years delinquent, 18% have still not entered foreclosure. The reasons for such delays are not totally clear.

The continuing pace of new foreclosure filings is also alarming. According to Realtytrac data, about 17% of filings in October were new filings as opposed to subsequent filings such as auction notices, etc. New filings surge to over one-third in Florida statewide and over 50% by the hardest hit Florida counties.

Foreclosure Crisis extends the timelineand introduces even more uncertainty into the housing market at a time when uncer-tainty is least needed. The crisis involves signing documents electronically (robo-signing) or without proper oversight or diligence, improper or no verification of who actually owns the property and who has the right to foreclose and much more. There is more than mere anecdotal evidence of fraudulent paperwork and improper activities but it remains to be seen how big the problem really is. Some view it as little more than a paperwork problem confined to a small number of banks, servicers and law firms. Others see it as a far more systemic problem that could derail or at least slow housing recovery and perhaps even upend recovery of the broader economy. Some also view it as a political grand-standing opportunity

The Congressional Oversight Panel that monitors the government’s bailout program issued a warning not to underestimate the reach of the foreclosure crisis. The panel also echoed the predominant view that the true extent of the problem remains to be seen.

There is widespread concern that Congress could enact more legislation that may seem consumer-friendly on the surface but could have a profoundly negative effect on the mortgage industry and therefore consumers as a whole. For example, some lawmakers are attempting to resurrect so-called “cram down” legislation that would give bankruptcy judges the power to reduce mortgage amounts. Others are pushing for some big banks to spin off their mortgage servicing functions alleging conflict of interest. Still others advocate even more aggressive mortgage regulation at the federal level in addition to what is already being created under the Dodd-Frank and SAFE Acts. Whatever the depth or the out-come of the problem, the result is clearly a blow to a fragile housing market.

Strategic Foreclosures continue to mount as a growing number of homeowners discover they are so far underwater on their home loans that they believe they will never recover. Strategic defaulters, as they’ve come to be known, may have the capacity to repay but choose not to. Some studies suggest that strategic defaults may account for as many as 25% to 35% of all defaults with no end in sight. They are driven by a very large percentage of underwater home loans.

Employment is a fundamental which is currently negative for housing and recovery of the broader economy. The Bureau of Labor Statistics (BLS) announced last Friday that the economy created a mere 50,000 private sector jobs and lost 11,000 local government jobs for a net gain of 39,000 jobs and an unemployment rate that now hoversjust under 10% at 9.8%. The cycle peak was 10.1% in April. Currently the ranks of the unemployednumber 15.1 million, a number equal to the recession peak. More disturbing is that fully 6.3 million people have been unemployed long-term which is defined by the BLS as 27 weeks or more. Additionally, most of the Great Recession job losses have been permanent rather than cyclical and are therefore not likely to be replaced.

The hardest hit sector has been construction. Manufacturing employment growth has been flat for decades and construction became, in a sense, the new manufacturing. It was employment for a very large number of both skilled and unskilled workers in their prime working years of 18-43. Now the construction sector has collapsed and nearly one million jobs have been lost. The outlook for a rebound is not good. Construction jobs were, in large part, driven by the housing bubble. As much of the housing growth was artificial and resulted in widespread overbuilding, much of the construction employment too was bubble driven and jobs won’t be replaced.

The U.S. had a lost decade for jobs in the 2000s. Following the relatively minor recession in 2001, it took over four years to regain lost jobs. During that time, wages stagnated and The Great Recession struck. Wage growth remains flat and the period following The Great Recession is shaping up to be a jobless recovery as well.

Job growth is not keeping pace with a growing labor force or a rising population. Indeed, there were only 400,000 Americans employed at the end of 2009 than were employed a decade early in 1999. Nevertheless, population grew by 30 million during the decade. The U.S. economy actually lost jobs on a percentage basis during the 2000s after having gained jobs every decade since the Great Depression of the 1930s.

Roughly eight million jobs were lost during the recent reces-sion. That left a very deep hole for the economy to climb out of and jobs are not being created anywhere near fast enough to even begin the long climb. The nation’s unemployment rate has averaged 5.7% since 1948 — some 62 years. Given the structural employment changes that have occurred in the last three years, it is likely that the “new nor-mal” will be higher in the range of 6.5% - 7.5% after recovery.

Unemployment, the fear of unemployment, the structural changes in employment, slow growth prospects and the likelihood of continuing stagnant wage growth combine to create a huge obstacle for potential home purchasers. These fundamentals combined will not support growth of housing either in terms of volume of home purchases and price increases r several years.

Underwriting standards are frequently cited as a reason for impaired housing growth.  The reality is that underwritingstandards have returned to those prevalent in an earlier time when there were no exotic mortgage instruments, cash down payments were required and a clear and convincing assessment of a borrowers ability and willingness to repay the loan were underwriting norms. Today, more borrowers are credit impaired than ever before and household wealth has declined dramatically from the heady days of the middle of last decade when people saw themselves as rock stars or oligarchs able to afford their every wish — at least on paper.

These are a few of the fundamentals we often allude to.  When combined, they paint a short and mid term housing picture that looks bleak.

GUEST AUTHOR:  William Pittenger, Bill Pittenger - Real Estate Economics (www.Billpittenger.com ) E-Mail:  [email protected]   Tel.: 321 750-2768

A Reality Check for the Appraisal Industry - Embrace Collaboration

GUEST AUTHOR: Ron Stickelman, Jr., MRICS, SRA -  President of Stickelman, Schneider & Associates, Founder of the Ohio Coalition of Appraisal Professionals (OCAP)

 "It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change." Charles Darwin

A few weeks ago I visited an old appraiser friend at his office in a nearby city. Like me, he owns and operates a moderately successful regional operation. This office, once the spawning ground for some the best appraisers in the state is now virtually empty. The only occupants are a small team of processors and my friend who sits behind a massive computer monitor, talking into a headset while the stock prices run silently on a TV in the background. Wondering through this office in search of a cup of coffee I came across the “appraiser workroom.” Battered metal filing cabinets lined the walls, between shelves lined with ancient MLS books, long-expired flood maps, defunct binding machines and standing proud in the middle, a vast tall solid wooden table. The table was scarred, chipped, etched, colored and marked by time; a symbol of collaborated individualism that was and may never be again.

The Hybrid Appraisal Firm

The appraisal “firm” I visited that day no longer “employs” appraisers. The company is owned and operated by a state certified and nationally designated appraiser. The company “contracts” with all the appraisers that perform appraisal assignments for the company. Several of these “contract” appraisers have been with the firm for over 20 years and some less than six months. All are state licensed or certified, some designated but all work independently and non-exclusively for my friend. He employs no trainees or non-certified appraisers. The company is an example of the new “hybrid” appraisal firm, both AMC and Appraisal Firm. The evolution of the Hybrid Appraisal Firm is a direct result of, not only economic forces, but the potentially destructive individualism that pervades our industry.

Outsourcing

The business model of “outsourcing” labor is common to many industries: it provides a buffer to economic cycles permitting a readily liquid work force; reduces the costs of labor and goods; contains the costs of real estate; allows growth and shrinkage to occur with minimum interruption and minimizes the expense of management. Independent contractors are free to diversify their work with multiple clients; operate on flexible schedules; individually own and operate a company and expand and contract as work flow demands. But this is a short-term fix to a long term problem.

In reality, most independent appraisers will never grow their business because of insurmountable economic barriers. For many, appraisal is a lifestyle and not a profession; an opportunity to work “around” the demands of life. Work schedules expand and contract based upon the demands of their clients, not as a result of business planning or development. Few independent appraisers employ office support, other appraisers or appraiser trainees. They operate from a home base, take minimum continuing education and have little or no contact with their peers.

Customary and Reasonable Fees

As appraisers, it seems that we cannot open an e mail without being barraged by yet another “fee survey” on what is a customary and reasonable fee for appraisal services. Since the first mention of this concept in the Dodd-Frank Act, appraisers have clutched to this phenomena as the great savior for the industry. But, appraisers are mistaken if they believe that Dodd-Frank will be the proverbial goose that lays the golden egg.

The recent Interim Rules are very clear that “the marketplace should be the primary determiner of the value of appraisal services and hence the customary and reasonable rate of compensation for fee appraisers.” The rule specifically excludes a fee appraiser (or organization) paying another fee appraiser (a state-licensed or state-certified appraiser). But, what constitutes a fee appraiser or organization under the rules and more importantly within the business model that hybrid appraisal firms operate?

The Interim Rules define fee appraisers (organizations) as entities that “employ” state-licensed or state-certified appraisers to perform appraisals. The definition of an appraisal management company includes the terminology, “recruit, select, and retain fee appraisers” and “contract with fee appraisers to perform appraisal services.” Furthermore, there is no minimum size requirement for an AMC under the rule. Consequently, the same mandate for customary and reasonable fees applies to an AMC that contracts with a panel made up of a single appraiser or one with a thousand appraisers. By definition, the fee appraiser that “contracts” with a hybrid appraisal firm should be paid a customary and reasonable fee.

In reality the definitions of Appraisal Firms and AMCs has very little to do with the reality of customary and reasonable fees set in the marketplace. For example, and this is controversial, I believe the “true billable appraisal fee” for a URAR residential appraisal report in most markets is between $200 and $250.

My friend’s company will receive a $350 fee for an appraisal and pay the appraiser a 65% split ($227.50) that represents the true cost for appraisal services. The company gets paid for and bears the expense of managing the service (managing, reviewing, processing, delivering etc); the appraiser gets paid for performing the appraisal service and bearing cost of performing the service (data sources, E & O, software, licensing, education etc.).

My company (that employs over 50 staff appraisers) may receive a fee of $350 for an appraisal assignment, we in turn could pay an employee a 50% split ($175). Again, part of the fee is for management but we bear the cost to employ the appraiser (health care, workmen’s compensation, retirement etc) and perform the appraisal (data sources, E & O, software, licensing, education etc).

An appraiser who performs appraisal services for an AMC may receive a $200 to $250 fee for appraisal services they bear the cost for those services and not management. In reality, and on the presumption that it takes approximately 5 hours to complete a URAR, the billable rate for residential service is approximately $40 an hour. That compares to $75 per hour for a plumber or contractor and $150 an hour for an accountant.

Change

I believe this disconnect is a result of the default structuring of our appraisal industry and how we do business. It is unrealistic to expect the federal government to legislate fees that will compensate appraisers for their competency, ethics, experience and education. Fundamental change must occur in how we operate, organize and master our business. Appraisers will survive if they shrug off the cloak of individualism and are willing to embrace collaboration.

This can be achieved in two ways:

1. Through a dynamic shift in business practice that challenges the hybrid appraisal firm, contracting of labor and splitting of fees.
2. Through willing and active cooperation in appraisal organizations, groups, and coalitions.

The business model for the appraisal industry has always revolved around a “lump fee” and how it is carved up or “split”. Few other industries or professions operate in this capacity. Appraisal firms and talented professional appraisers must re-examine the dynamics of employment structure, costs, profit and time-management. Eliminating the concept of fee-splits will liberate the appraisal professional and allow them to consider compensation in terms of scope of work and billable hours.

Traditional appraiser-client relationships have changed and the appraisal profession must adapt to a restructured monopolist and anonymous client base. .Appraisal firms hold the key to maintaining and preserving an appraisal profession faced with the reality of extinction through attrition and alternative, cheaper methods of valuation. Appraisal firms provide mentoring and training to new appraisers; guidance, benefits and services to existing appraisers and a career-path that allows appraisers to grow in their profession.

Appraisers remain unconvinced and ambivalent about the necessity of belonging to a professional organization or coalition. Until they change, appraisers will never realize their true professional potential. Traditional appraisal organizations such as the Appraisal Institute provide excellent education and guidance. Designated appraisers (rather than just state-licensed or state-certified) command the highest fees and professional respect. Grass-root organizations have successfully lobbied state legislators for the passage of appraiser-friendly legislation. Appraiser Coalitions sponsor education, seminars, and chapter meetings. Appraiser blogs, forums and message boards are available 24 hours a day for guidance and discussion. As Appraisers we must be active participants in our own profession.

 It is time for our profession to evolve from individualism towards unity, strength and cooperation. Only dead fish go with the flow.

AUTHOR: Ron Stickelman Jr., MRICS, SRA President Stickelman, Schneider & Associates, LLC 1130 Channingway Drive Fairborn, OH 45324  Phone: 937-879-6900 (office)  eMail: [email protected]  Website:  http://www.stickelman.com