Home Valuation Code of Conduct?

Since it has been so long since the last post, I should have been able to come up with something more more applicable to the current state of the appraisal profession, but this is in interesting piece. The Research Department of the Federal Reserve Bank of Philadelphia published this nifty little study of the impact on the Home Valuation Code of Conduct (HVCC) on Appraisal and Mortgage Outcomes.

According to the study, despite all the claims by Fannie and Freddie, touting the benefits, research of the effects since implementation is nearly non-existent. The authors claim this study is the first empirical examination of the impact of the first major appraisal rule, the now sunset, Home Valuation Code of Conduct. It measure the share of "low" appraisals (as compared to the purchase price) from the first quarter of 2006 through the third quarter of 2012. There is also a chart on page 23 of the study showing the distribution of high and low appraisals pre- and post-HVCC. The study defines Significantly High Appraisals as those 5% of more above the contract price, and Significantly Low Appraisals as one which is at least 5% below the contract price.

One aspect of appraisals NOT examined pre- and post-HVCC, is appraisal quality.

The Study is at THIS LINK on the Philadelphia Fed site, and just below. Here is one of the graphs.

The Impact of the Home Valuation Code of Conduct on Appraisals and Mortgage Outcomes

eAppraiseIT Settlement - Is it Over?

Over the past few days the wire services, appraisal blogs and real estate news sites have shared the headline:  

"WaMu apprasial company settles with New York"

Bullet points from the story include:

* eAppraiseIT accused of inflating home appraisals
* Agrees to pay $7.8 million to end lawsuit
* eAppraiseIT now part of CoreLogic Inc
* NY AG Schneiderman took case to trial
* Schneiderman to bring new mortgage-related action soon

According to the story:

The case, filed in New York state court in 2007, is one of the few related to the housing meltdown that the government has brought to trial. The trial was in recess when the settlement was reached.

Schneiderman is co-chair of the federal mortgage fraud task force formed in January to probe actions that led to the financial crisis. He has said he plans to take legal action against other targets soon.

Homes that were appraised above their value, allowing mortgage companies to issue bigger mortgages, are among the causes cited by experts for the housing bubble and subsequent financial crisis.

EAppraiseIT, a major appraisal management company during the housing boom, was accused of colluding with Washington Mutual, which had been of the largest U.S. mortgage lenders until the housing market collapsed.

Appraiser Active covered the story after the suit was filed by then New York Attorney General, Andrew Cuomo. As a result of the suit, we appraisers have endured the Home Valuation Code of Conduct, and are now struggling under the effects of appraiser independence provisions in the Dodd - Frank legislation.

Does the New York settlement with eAppraiseIT signal the end of the story? Not by a long shot. There are at least two high profile cases involving eAppraiseIT in the system.

FDIC v. CoreLogic 

In another sign that the Federal Government is turning its focus towards prosecuting the securitization players who may have contributed to the Mortgage Crisis, the FDIC filed separate lawsuits against LSI Appraisal (available here) and CoreLogic (available here) earlier this month.  In the suits, both filed in the Central District of California, the FDIC, as Receiver for Washington Mutual Bank (“WAMU”), accuses vendors with whom WAMU contracted to provide appraisal services with gross negligence, breach of reps and warranties, and other breaches of contract for providing defective and/or inflated appraisals.  The FDIC seeks at least $154 million from LSI (and its parent companies, including Lender Processing Services and Fidelity, based on alter ego liability) and at least $129 million from CoreLogic (and its parent companies, including First American Financial, based on alter ego liability).

Spears v. First American eAppraiseIT, LLC

The United States District Court for the Northern District of California granted class certification in a mortgage loan appraisal suit alleging defendants conspired to inflate appraisals to increase the sale of loans in the secondary market. 

The Court found that plaintiffs presented sufficient evidence to establish common questions of fact and law, holding that common questions and answers need not uniformly apply to all class members. The Court also found that the analysis of individual appraisal fees would not create individualized issues, but instead would provide additional support for plaintiffs’ claims that an inflated appraisal scheme existed. Finally, the Court also held that the Real Estate Settlement Procedures Act’s treble damages, attorney’s fees and government enforcement mechanisms did not make class action an inferior method of litigation.

The CASE FILE is available at this LINK. More information about the suit, and a means for parties to join the class at this LINK.

Maybe there are more in the pipeline. Let me know if you are aware of additional suits filed in other jurisdictions. It will be interesting to see how these all shake out.

Pick a Number - Take #2

On Valentine's Day, KCBS out of San Francisco, aired a story about homeowners with low appraisals, and how they are "fighting back". It's not a new story, nor is it a new argument. Appraiser Active has posted on the topic several times since the HVCC took hold back in 2009. HERE, HERE, and HERE. Folks in the brokerage community have documented plenty of sad tales and a number of stories have been written in newspapers and magazines.




Some of the claims appear to have merit; others are outrageous. The video at the link above  is included because we take issue with a couple of statements made by the "experts".

“An appraisal is just an opinion,” said Tara-Nicholle Nelson, consumer educator at Trulia.com.

Sorry, Ms. Nelson, but I must disagree. An appraisal may be stated as "an opinion" but the opinion is stated in the appraisal report after research and analysis of relevant evidence, application of reason and logic, and development of the necessary approaches to value. An appraisal must be developed and reported in accordance with applicable standards, such as the Uniform Standards of Professional Appraisal Practice (USPAP), and standards and guidelines required by client groups, government agencies, and individual clients.

Ms. Nelson also claims that “Appraisers are under regulation and under pressure to be much more conservative because they took so much pressure for inflating values at the top of the market,”

Appraiser Active has heard plenty of claims from appraisers about pressure from clients and some AMCs to be conservative, but must have missed the regulation that requires "conservative" opinions of value.

A real estate broker in the video makes the claim that 1 out of 7 deals is killed because of the appraisal. That may be her experience, but she goes on to whine about the buyer's reaction "when an appraisal doesn't come in at value".

Here's a clue for you, my dear: The negotiated sales price is not necessarily the value of the property. It may be an indication, and should certainly be considered in the development of the appraisal, but it's only one small bit of the mountain of data that will be collected, verified and analysed.


Take a look at their story, HERE, and make sure to read the comments.

Just had to get that off my chest.

Freddie Mac - Appraiser Independence Requirements Announced

On the same day Fannie Mae announced their Appraiser Independence Requirements, Freddie Mac issued a Single Family Seller/Servicer Guide Update letting the world know of their Appraiser Independence Requirements.

In their release, Freddie states :

Effective October 15, 2010 we are adopting appraiser independence requirements that maintain the spirit and intent of the Home Valuation Code of Conduct (HVCC). Freddie Mac has worked with the Federal Housing Finance Agency and Fannie Mae to develop appraisal independence requirements to replace the HVCC, which is expected to sunset this month.

Here's the Freddie Mac Appraiser Independence Requirements:

Freddie Mac Appraiser Independence Requirements 10-15-2010

Fannie Mae - Appraiser Independence Requirements Announced

As expected, Fannie Mae has issued an Announcement, SEL-2010-14, with their new Appraiser Independence Requirments.

After H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law, many folks cheered the sunset of the Home Valuation Code of Conduct (HVCC). Appraiser Active took a more cynical view. It looks like we were right on the money. Here's what Fannie has to say in their release:

The Appraiser Independence Requirements replace the Home Valuation Code of Conduct (HVCC). These updated requirements maintain the spirit and intent of the HVCC and continue to provide important protections for mortgage investors, home buyers, and the housing market.

The HVCC is being replaced by the Appraiser Independence Requirements; however, all conventional, single-family mortgage loans with application dates on or after May 1, 2009, must additionally comply with the HVCC until the earlier of the release of the Interim Final Rules by the Federal Reserve as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or November 1, 2010.

For those with an interest, the Fannie Mae Appraiser Independence Requirements:

Fannie Mae Appraiser Independence Requirements 10-15-2010

Fannie Mae Announcement! - More of the Same

In a breathtaking SELLING POLICY UPDATE, Fannie Mae announces:

"Selling Notice: New Appraiser Independence Requirements Being Developed"

Fannie Mae has issued the following Notice (the entire text of the Notice is included in this e-mail):

Fannie Mae is working with the Federal Housing Finance Agency (FHFA) to develop and adopt appraiser independence requirements that will replace the Home Valuation Code of Conduct (HVCC). Until the revised requirements are released, the existing HVCC provisions in the Fannie Mae Selling Guide continue to apply. Updated requirements are expected to be substantially similar to the current provisions.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, HVCC will sunset when interim final regulations are released to implement the appraisal independence-related provisions of the Act, which is expected to occur on or about October 21, 2010.

Fannie Mae is committed to supporting strong appraiser independence requirements. The revised requirements will maintain the spirit and intent of HVCC, and continue to provide important protections for mortgage investors, home buyers, and the housing market.

The revised appraiser independence requirements will be based on Fannie Mae's experience under the HVCC and will continue to support the integrity of the appraisal process. As part of the process to develop the revised requirements, Fannie Mae has received input from key industry participants.

Fannie Mae expects to announce the revised appraiser independence requirements in an upcoming Selling Guide announcement.

No surprise in this release. About a month ago, in a post providing my view of H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act, this prediction was made:

Modifications to the TILA include the appraisal independence standards, portability of appraisals, customary and reasonable appraisal fees and sunset of the HVCC. Although it may appear as though appraisers will benefit from this section of the new law, it’s a bit early to get our hopes up. In all likelihood, the new rules for selection and retention of appraisers will look much like the HVCC.

Let's see if my low expectations for the balance of the "reforms" are on target.

More on Fannie Mae Update to Appraisal Policies

Just a little over a week ago, Appraiser Active POSTED about Fannie Mae updating their Selling Guide and Appraisal Policies. We linked to the June 30, 2010 Fannie Mae Announcement and offered a few comments about items of interest.

Three items on that list are worth more discussion:

• Lender changes to the appraised value and guidance on addressing appraisal deficiencies
• Appraiser selection criteria
• Market Conditions Addendum to the Appraisal Report (Form 1004MC)

In this week's The Nation's Housing column, Ken Harney lets consumers know about some of the shenanigans going on behind the scenes while borrowers are gnawing their fingernails, waiting for their mortgage loan to be underwritten and approved.

Picture this: You've signed a contract to sell your house. Your buyers say they have nailed down the right mortgage. All is well. But then the appraisal comes in low -- $25,000 to $50,000 under what was agreed upon in the contract.

The lender insists on cutting the mortgage amount to reflect the lower appraised value. You refuse to negotiate anywhere near the price indicated by the appraisal, and suddenly -- poof! The whole deal is off. You, the buyers and the agents involved are all left sputtering over the appraisal that scuttled the transaction.
This scenario is not unusual in many markets across the country, say home builders, brokers and appraisers.

Here's one little-publicized reason why: Lenders unilaterally may be lowering the numbers on the appraisals submitted to them, in order to avoid accusations that the loans they sell to giant investors Fannie Mae or Freddie Mac are based on inflated appraisals -- even slightly inflated.

Fannie Mae, in their Announcement, links to language in the Selling Guide to make it clear that such actions by the lender or underwriter are NOT PERMITTED.

Changes to the Appraised Value

The lender is responsible for ensuring that appraisal reports are complete and that any changes to the report are made by the appraiser who originally completed the report. If the lender has concerns with any aspect of the appraisal that result in questions about the reliability of the opinion of market value, the lender must attempt to resolve its concerns with the appraiser who originally prepared the report. If the lender is unable to resolve its concerns with the appraiser, the lender must obtain a replacement report prior to making a final underwriting decision on the loan. Any request for a change in the opinion of market value must be based on material and substantive issues and must not be made solely on the basis that the opinion of market value as indicated in the appraisal report does not support the proposed loan amount. For information concerning the process lenders must follow to address a change of the opinion of market value, see Guidance on Addressing Appraisal Deficiencies, below.

Lenders must pay particular attention and institute extra due diligence for those loans in which the appraised value is believed to be excessive or where the value of the property has experienced significant appreciation in a short time period since the prior sale. Fannie Mae believes that one of the best ways lenders can reduce the risk associated with excessive values and/or rapid appreciation is by receiving accurate appraisals from knowledgeable, experienced appraisers.

That guidance certainly differs from reports we've heard from the field and relayed to Ken:

In other situations, we have seen out of state reviewers and "Chief Appraisers" for certain lenders contact appraisers with their concerns about value, suggest alternative comparable sales and "more credible" value estimates. These comments are based on first hand, personal experience.

Typically, Gregoire says, the lender orders a low-cost electronic valuation -- based on publicly available statistical data, with no onsite inspections -- to review the accuracy of what was submitted by the appraiser. If there's a discrepancy between what the computer says and what the appraiser reports, the lender's underwriters sometimes simply cut the number -- even if this means knocking the real estate transaction off track. Or they demand an immediate explanation from the appraiser.

The fact that Fannie decided to specifically address this in the Selling Guide seems to indicate the practice of arbitrarily changing the opinion of value must be fairly widespread.

Ken also addresses the Fannie guidance on Appraiser Selection Criteria:

Fannie also makes it clear that the use of an Appraisal Management Company is not required to comply with the HVCC.

Fannie's new guidelines also attempt to clarify other issues that have arisen during the past year, including the widespread use of inexperienced appraisers who are unfamiliar with local market conditions. Real estate agents, builders and mortgage brokers have complained to Congress that rules adopted by Fannie and Freddie last year encouraged lenders to use "appraisal management" companies to value properties.


Those companies, in turn, often pay appraisers deeply discounted fees -- half off traditional prevailing rates in some cases -- and require them to complete their assignments far faster than normal turnaround times. Critics have said that low-budget appraisers working for management companies frequently travel long distances to do their valuations, have minimal access to local data, and make excessive use of foreclosures and short sales as comparables


Fannie's letter attempts to clarify its "appraiser selection" standards. Top on the list: Appraisers should be experienced, "have the requisite knowledge" about local market conditions and have access to all local data sources. Fannie also emphasized that the demonstrated experience of an appraiser should always trump fees or turnaround times -- a clear swipe at management companies that bid out their work on the latter two criteria.

Specific guidance is in the Selling Guide, page 476

• neither the Home Valuation Code of Conduct (HVCC) nor Fannie Mae requires the use of a third-party vendor;
• lenders are ultimately responsible for representations and warranties related to the value, condition, and marketability of the subject property; and
• lenders must hold the AMC responsible for complying with Fannie Mae’s requirements.

The clarification about the lender's use of AMCs is welcome. More than likely, many lenders believed the use of an appraisal broker absolved them of any responsibility for the appraisal report, or assuring the qualifications of the appraiser. It's nice to see Fannie actually mention "qualified" in reference to appraisers working for AMCs.

There is still a BIG question about the use of Review Appraisers. This section of the Selling Guide requires an inspection of the subject property by the appraiser signing the report. The section of the Selling Guide that addresses lender/underwriter changes to value opinions outlines the procedures the lender must follow if they do not have faith in the original appraisal. One of those is an Appraisal Review.

Although Fannie has not spelled it out, in reading all the sections together, I believe the Review Appraiser would have to meet the same, "USPAP Plus", Competency Standard the new language makes clear.

That leaves the Fannie Mae 1004MC. There's plenty to discuss about the "new" guidance. My concern is that it will result in a misleading report, or misleading information about the condition of the current market. It's worth a post of its own.

Stay tuned.

UPDATE - Thanks to Jonathan Miller (MATRIX) for the mention and link!

Fannie Mae Updates Selling Guide and Appraisal Policies

Fannie Mae has issued an Announcement, dated June 30, 2010, titled Selling Guide Updates and Additional Guidance on Appraisal-Related Policies. The Announcement includes:

• Appraisal-related policies that update the Selling Guide
• Miscellaneous appraisal-related guidance (no impact on the Selling Guide)
• Miscellaneous Selling Guide updates
• Updates to Special Feature Codes
• Updates to Mortgage Insurance Codes

The last 3 will not be of much interest to appraisers, but the first two include information of interest and importance. As a result of these changes, the online Fannie Mae Selling Guide has been updated, and now carries a June 30, 2010 date. Use this LINK or the Fannie Mae Selling Guide Link in the Links Section.

You will be interested in:

• Inclusion of interior photographs in the appraisal report
• Lender changes to the appraised value and guidance on addressing appraisal deficiencies
• Appraiser selection criteria
• Sources of comparable market data
• Selection of comparable sales
• Communication under the HVCC
• Seller concessions
• Treatment of personal property
• Market Conditions Addendum to the Appraisal Report (Form 1004MC)

IT'S OFFICIAL! - IVPI is Vaporware

According to a story posted on RealEstateRama, in a letter from FHFA Acting Director Edward J. DeMarco to New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac, now in conservatorship, will not be funding the Independent Valuation Protection Institute (IVPI).

Back in December, Appraiser Active said:

If you were inclined to give Freddie Mac (and Fannie Mae) the benefit of the doubt, our suggestion is to avoid holding your breath waiting for the IVPI. Why don't these folks come clean and admit wishful thinking will not make it happen?

Instead,we get this:

“As conservator of Fannie Mae and Freddie Mac, our priority is to keep the Enterprises focused on the important role they play in supporting the mortgage market,” said DeMarco. “The need for a complaint process is being addressed in a way that we believe is more practical than with the Institute.”


Fannie Mae and Freddie Mac will deploy a complaint process to address suspected code violations including a mechanism for providing pertinent information to state and federal regulatory and enforcement departments. The process will be put in place within the next few weeks.

Press Release and Letter HERE.

In my opinion, it's LATE, it's LAME, not in compliance with the agreement signed among the New York Attorney General, Fannie Mae and Freddie Mac, fails to address the role of Appraisal Management Companies and DOES NOT provide a means for appraisers to complain about non-compliant tactics and actions by AMCs.

IVPI = VAPORWARE

"Happy" Anniversary HVCC

As this is written, it's just a few minutes past midnight on May 1, 2010. Two news articles have already hit the web to commemorate the anniversary of the Home Valuation Code of Conduct (HVCC).

Ken Harney commemorates this event with "Despite 2009 restrictions, mortgage and appraisal fraud spiked".

For anyone who assumed that the toughened real-estate appraisal rules imposed on the mortgage market last year would mean less monkey business in home valuations, here's a shocker: Fraudulent appraisals soared in 2009, according to a lending-industry study released this week, and they now represent the fastest-growing form of home loan fraud.

My favorite parts?

Freddie Mac spokesman Brad German offered a different view. Because the MARI study made no specific reference to the rule changes by Freddie and Fannie or to the use of appraisal-management companies, "we see no connection between [the code] and appraisal fraud." Fannie Mae officials declined to comment.


Jeff Schurman, executive director of the Title/Appraisal Vendor Management Association, which represents the appraisal management industry, had no immediate comment on the findings, pending a review of the data.

Read the whole thing.

Here in the Sunshine State, Beth Kassab, a business columnist for the Orlando Sentinel, offers "Still a long way to go on appraiser reforms".
Beth also picked up on the recent MARI Report.

One year ago this week a set of sweeping reforms took effect to prevent real estate appraisers from gaming the market with inflated values at the urging of lenders and mortgage brokers.

So by now, buyers and sellers should feel sure that the appraisal system is working and won't contribute to another housing crisis, right?

I feel about as confident in the reforms as I am that I could sell my house the same day I put it on the market.

Don't take my word for it.

"It's a disaster in many respects," said Frank Gregoire, a 30-year veteran of the appraisal business and former chairman of the Florida Real Estate Appraisal Board who has been a vocal critic of the bad behavior by some appraisers.

"Borrowers find themselves paying more for an appraisal, and they have a higher likelihood that appraisal is being done by someone with less experience who will spend less time researching the market and actually preparing the report."

And what about all that fraud that was so prevalent during the bubble? There's no indication that it's let up as a result of the federal reforms.

A report released last week by the Mortgage Asset Research Institute and Lexis/Nexis said that in 2009 Florida had the highest year-to-year increase in appraisal fraud. The complaints centered on appraisers who intentionally fabricated comparable sales, ignored sales prices on similar properties or incorrectly adjusted the comparable sales of houses with slightly different features than the one being appraised.

Here's the Sentinel article.

More about the MARI Report on Rachel Dollar's Mortgage Fraud Blog.

Rating Agencies - Gaming the System?

Real Property Appraisers are subject to a myriad of regulations, must comply with standards and guidelines promulgated by Federal Agencies, Government Sponsored (OWNED) Enterprises, state governments and state agencies. Many appraisers have effectively lost their ability to compete in the market on the basis of their skill, experience and service because of a negotiated settlement agreement (HVCC), initiated because of allegations of illegal and unethical business practices by non-appraisers.

Appraisers have taken it on the chin for the excess that caused the Savings and Loan collapse in the 1980s, and are now the scapegoat for the ineptitude of others involved in the mortgage meltdown of the 2000s. Sure, some of the current problems are due to inept and corrupt appraisers, but it's time to focus the investigative light on much bigger fish.

A few months ago, Appraiser Active wondered about a Code of Conduct for the rating agencies. After all, the rating agencies analyse and offer an opinion of the value and risk for an investment in the hundreds of millions of dollars. Residential appraisers, on the other hand, provide value opinions on very small parts of this pool.

Via Calculated Risk, we found a story about the recent grilling of the chairman and chief executive of Moody's Corp., Ray McDaniel.

Moody's chief Ray McDaniel, under questioning, said that he didn't think his company had continued to rate complex deals backed by U.S. mortgages after it and competitor Standard & Poor's jolted the markets in July 2007 with massive downgrades of earlier deals.

"I apologize, I do not recall that," McDaniel said.

The panel's chairman, Sen. Carl Levin, D-Mich., then presented him with documentation that both Moody's and S&P gave investment-grade ratings to a Citigroup deal in December 2007, worth almost $400 million, backed by shaky subprime loans that by then clearly were toxic.

The point Levin was making — and made repeatedly — is that credit-rating agencies did whatever was needed to get lucrative fees, some as high as $1.4 million, for rating complex deal.
....
While other Wall Street executives have expressed contrition when they appeared before Congress, McDaniel and former S&P President Kathleen Corbet were unapologetic on Friday.

Throughout the day in earlier testimony and in e-mails released by Levin, however, former Moody's and S&P officials told how they were pushed out or quit in frustration because managers badgered them to "massage" complex deals until they could land the business.
....
Investment-grade ratings gave investors the illusion of safe bets, allowing big Wall Street firms such as Goldman Sachs to peddle the securities across the globe. Moody's and its chief competitors were key players in the prelude to a near meltdown of global finance in September 2008.

Called to appear before the panel, Richard Michalek, a former Moody's vice president and senior credit officer, described the ratings process for deals that could bring more than $1 million in fees as a "must say yes" atmosphere.
....
In one e-mail presented by Levin, an S&P employee inquiring about evidence that subprime lender Fremont General was showing problems with poor underwriting was told not to worry about it. Levin seized on this e-mail when grilling Susan Barnes, an S&P managing director, angrily asking her why relevant information and poor performance was discarded.

"Why doesn't the supervisor say, 'Damn right, it's relevant,'?" demanded Levin, eventually coaxing a response from Barnes

.
Read the whole thing

Why, when there is clear evidence of the fee being paid having an effect on the opinion rendered, is there no movement to provide a firewall between the securitizer and the rating agency? Why all the attention on appraisers?

Ineptly Prepared Appraisal? - What to do? - UPDATED 5-2-2010

Back in February, Julia Brazier sent me an email. The subject line read "Another HVCC Disaster". Attached to the email was a pdf copy of an appraisal of single family residence in the Woodlawn area of St. Petersburg, Florida. The property was originally listed at $495,000, was now priced at $399,400, and was under contract at $375,000. The out of town appraiser stated his opinion of value to be $315,000.

Julia asked me to take a look at the report and provide some suggestions for a course of action. After identification of some problems with the appraisal report, Julia shifted into high gear. The sale closed April 8, 2010 at $375,000. Financing was 80% of the purchase price. How did this happen? Susan Taylor Martin explains in the St. Petersburg Times.

A year ago, the nation's housing industry adopted new rules aimed at preventing the kind of appraisal-related fraud that helped drive home prices to ridiculous — and unsustainable — heights.

Now, many Tampa Bay real estate agents say the appraisal rules are a good idea gone bad, delaying and threatening sales as the market struggles to recover.

Take the case of Luke Nuemann, who was planning a move from Tampa to Pinellas County.

In February, Neumann found his dream home: a lovingly restored, 1936 traditional with garage apartment in St. Petersburg's desirable Woodlawn area. He signed a contract for $375,000, and the lender ordered an appraisal.

The results flabbergasted everyone.


A Tampa appraiser unfamiliar with Woodlawn valued the property at $315,000 — $60,000 less than the amount the buyer and seller agreed was a fair price. Even the normally conservative property appraiser's office showed the house to be worth $331,000.

Read the whole story HERE.

There were quite a few problems with the appraisal; more than described in the story. Among the most disturbing were internal inconsistencies. This included a description of the neighborhood price trend as "declining" when the appraiser's own data in the report and addenda revealed it to be "stable". Erroneously stating there was a lack of vacant land sales, and pulling a land value estimate of $115,000 out of thin air was another problem. A quick search of data sources revealed four vacant land sales ranging in price from $120,000 - $237,500.

It remains to be seen if this report will find it's way to the Florida Real Estate Appraisal Board.

UPDATE 4/29/2010

Bill Cobb, over at Real Estate Appraiser Tips, linked to this post. He tells a story of a similar situation in his neck of the woods. Unfortunately, it has not turned out so well.

Cruise on over and READ his tale.

UPDATE 5/2/2010

The Business Section of today's St. Petersburg Times publishes three Letters to the Editor about Susan Martin's story. Here are some highlights.

Lizabeth Cantos, from Tampa, says:

I, too, was shocked at the way appraisers now appraise homes. They seem to be scared to death to place a "true value" on homes.

Last August, I started getting our home appraised. Four appraisers came out, not any of them were close to each other in our home's value. The ranged from a high of $745,000 to a low of $470,000.

Karen C. Willis, a St. Petersburg, Florida State-Certified Appraiser offers these comments:

However, I take offense at the comment that appraisers drove home prices to ridiculous and unsustainable heights. Bad appraisers are not the only reason we are in this housing mess. Realtors who had overpriced the market, unscrupulous lenders and homeowners who used their home equity as a line of credit are also to blame.

There are severe flaws in the Home Valuation Code of Conduct. I received an order from an appraisal management company recently. It was for $135. For the same report one year ago, I would have made $350. Now I have to "share" my fee with the "management company," but not the liability. It doesn't pay for my errors and omissions insurance, continued education, software, car maintenance, office space, computers, etc.

Now a college education is required (to become a state-certified appraiser), and for what, to make $135 an appraisal? Forget it. Who will want to work for that?

New HVCC Appraiser Talkback Survey

David Brauner, from Working RE Magazine, has posted a new survey on his Appraiser Talkback blog. Take a look at the post, New HVCC Appraiser Talkback Survey: One Year On, and spend a few minutes letting him know of your experience with the HVCC.

Here's what David has to say:

Editor’s Note: After a year of turmoil since the Home Valuation Code of Conduct (HVCC) was implemented, we know at least one thing: that you are being heard and that your feedback does make a difference. Don’t give up now. You’ll find the new survey questions about life after HVCC below. It’s up to you to let regulators and lawmakers know what is working and what isn’t. Is the FHA mandate, that appraisers be paid “customary and reasonable fees,” working? Has appraisal quality improved? Should Appraiser Management Companies (AMCs) be regulated? Are you feeling less pressure today to “make a deal work”? Are appraisers hired based on low fees rather than competency?

Click HERE to take the survey.

Results of previous Working RE and NAR Surveys HERE.

FREDDIE MAC UPDATES HVCC PAGE

According to folks at Freddie Mac, their Home Valuation Code of Conduct Questions and Answers Page has been updated. The link to the left leads to the updated page.

I don't have a printed copy of the old Q and A page handy. As a result, it's difficult to determine the additions or deletions. These are among the ones we find to be interesting:

Q 2. Does the Code apply to non-origination valuation activities such as appraisals performed for loss mitigation activities?


A 2. No. The Code only applies to the loan origination process. It does not apply to a lender’s foreclosure/REO process, workouts, or any other type of loss mitigation activity.

Hmmm.

Q 5. Does the Code apply to Freddie Mac purchases of private-label securities backed by mortgage loans that do not meet the requirements of the Code?


A 5. No. The Code only applies to 1- to 4-unit single-family loans sold to Freddie Mac by mortgage originators; it does not extend to Freddie Mac’s investments in mortgage-related securities.

Wondering why Fannie and Freddie are not interested in a Code of Conduct for rating agencies.

Q 6. How will you handle issues and concerns raised by customers as the Code is implemented?


A 6. Freddie Mac will work with our customers to address any issues or concerns regarding implementation of the Code. We will maintain ongoing contact through our various communications channels including newsletter articles and Web content. If customers have immediate questions, they should contact their Freddie Mac account representative, 800 – FREDDIE, or e-mail us using our Home Valuation Code of Conduct Inquiry Form.

Great! A form. Notice that the form is for sellers only. Where do borrowers, appraisers and others bitch?

Q 8. Does the Code apply to other valuation methods (i.e., automated valuation models, broker price opinions, tax assessments, etc.)?


A 8. No. The Code applies only to appraisals.

There are too many reasons to comment on this question and answer. How about you all have at it in the comments.

Q 39. May an appraiser update an appraisal for another lender?



A 39. Yes. The Code does not prevent an appraiser from performing an update of an appraisal for another lender.

Maybe the HVCC does not prevent it, but that does not mean it can be done easily. Consult your 2010 - 2011 Edition of the Uniform Standards of Professional Appraisal Practice.

Q 61. Can an appraiser’s information be omitted from the appraisal report prior to sending it to the borrower?



A 61. No. A complete, unaltered copy of the appraisal report must be provided to the borrower.

No comment.

Q 62. If two appraisals are obtained as part of the underwriting process, does a lender have to provide copies of both appraisal reports to the borrower or only a copy of the appraisal used to determine value?


A 62. Section II of the Code requires that the borrower be provided with a copy of "any" appraisal report; therefore, copies of all appraisal reports obtained must be provided to the borrower.

And how, exactly, is that being enforced?

Q 65. If I am permitted to use an AVM such as Home Value Explorer® to estimate property value, am I required to meet the Code requirements in Section II and provide the borrower with a copy of the AVM result three days before closing.

A 65. No.The Code does not require lenders to provide borrowers a copy of an AVM result.

Why not?

Independent Valuation Protection Institute

Q 82. When will the Independent Valuation Protection Institute be established?

A 82. We are working with the New York State Attorney General, FHFA, and Fannie Mae regarding establishment of the Institute. Because the Institute has not yet been established, the provisions regarding it in the Code are not yet effective.

Question 82 and the answer do not present any change from prior Q and A lists. In my never so humble opinion, that is the most important question. It's telling that the answer is the same. It's also telling that the LINK to the IVPI has been removed from their answer!

How is it that other parts of the HVCC are deemed to be more important than the Independent Valuation Protection Institute? Why is it acceptable to implement only parts of the HVCC?

There is QUESTION #83. How about an answer to that one, FREDDIE?

Real Estate Appraiser Threatens Cuomo!

UPDATE - BAIL REDUCED

Just to be clear, Appraiser Active is not recommending this as a course of action (especially during the Holiday Season)

From the Village Voice:

Latest Death Threat Against New York Official: Jack Geoghan vs. Andrew Cuomo

Just a few days back cops arrested a man who allegedly phoned death threats to Mayor Bloomberg and Ray Kelly. Now 45-year-old Jack Geoghan of Inter County Appraisers of Bayport, New York, is accused of leaving a message at the Attorney General's office promising, "If that fucker Andrew Cuomo is on the Long Island Expressway and his head is blown off with a 30.06, you'll know who did it." Police did not take this as a crimestoppers tip, and hauled Geoghan in. He is charged with terroristic threats and aggravated harassment.

The father also says that as a real-estate appraiser, Geoghan has been annoyed by Cuomo's attempts to regulate that industry, such as the establishment of a Home Valuation Code of Conduct, which requires appraisal fees be split between appraisers and appraisal management companies, which other critics have denounced, albeit less homicidally, as an undue financial hardship on appraisers.

There is much more to be said, but it's probably best to keep my mouth shut.

UPDATE - BAIL REDUCED

Dec. 17--A Bayport man charged with threatening to blow off State Attorney General Andrew Cuomo's head on the Long Island Expressway might have an easier time getting out of jail after a Central Islip judge reduced his bail Thursday.

Prosecutors said Jack Geoghan, 45, said he planned to "unleash the wrath of God" on Cuomo, vowing: "I am going to track him down and shoot him," court records show.

Geoghan's bail, originally set at $500 million at his arraignment Wednesday in First District Court in Central Islip, was reduced to $50,000 cash or $100,000 bond Thursday by State Supreme Court Judge Carol MacKenzie.

MacKenzie acted after Geoghan's attorney, Bryan E. Cameron of Sayville, petitioned for a bail hearing, arguing the original half-billion-dollar bail was "harsh and excessive."

Full Story

IVPI Promises = Vaporware

We're just counting the days. It's been 7 months (215 days) since the implementation of the Home Valuation Code of Conduct (minus the Independent Valuation Protection Institute) and 2 months (62 days) since Freddie Mac updated their Home Valuation Code of Conduct Q & A Page with the Home Valuation Code of Conduct Interim Complaint form and it's announcement the IVPI Website would be up and running in November. Today is December 1, 2009.

Check the LINK provided by Freddie Mac for the IVPI site. You didn't really expect anything, did you?

Well, if Freddie has not created the promised IVPI, what have they been up to?

There has been a claim by Freddie Mac the HVCC has improved appraisal quality. Of course, the claim is supported only by anecdotal evidence that 15% more appraisals have come acceptably close to the automated valuation model it runs as a check.

Freddie has hired a new CFO.

The government-controlled mortgage finance company is giving CFO Ross Kari compensation worth as much as $5.5 million. That includes an almost $2 million cash signing bonus and a generous salary that could top $2.3 million.

Freddie announced on November 6th, it had posted a $5,000,000,000 loss.

Freddie Mac, the second largest provider of U.S. residential mortgage funding, on Friday posted a loss of $5 billion in the third quarter and predicted it would need more government support amid a "prolonged deterioration" in housing.

In more "good" news, Freddie warned their losses related to the bankruptcy of lender Taylor, Bean & Whitaker may increase.

The claim could add to the fallout from the Taylor Bean bankruptcy, which came after the government suspended its relationship with the firm. Freddie Mac has previously said its exposure to Taylor Bean's obligations to repurchase loans was about $500 million as of Sept. 30.

While total exposures to Taylor Bean are unknown, "the amount of additional losses related to such exposures could be significant," the McLean, Virginia-based company said in a filing with the Securities and Exchange Commission.

If you were inclined to give Freddie Mac (and Fannie Mae) the benefit of the doubt, our suggestion is to avoid holding your breath waiting for the IVPI. Why don't these folks come clean and admit wishful thinking will not make it happen?

It's time to Regulate Appraisal Management Companies - FLORIDA!

Quite a bit has transpired since the first "It's Time to Regulate Appraisal Management Companies" post here on Appraiser Active. Additional form are required for mortgage loan appraisals and, most notably, the Home Valuation Code of Conduct (HVCC) has been implemented.

However, some things don't change. Back in January, the Appraiser Active post noted that Appraisal Management Companies typically administer a network of certified and licensed appraisers to fulfill real estate appraisal assignments on behalf of mortgage lending institutions. They often recruit, qualify and verify licensure for their panel of appraisers.

We also mentioned a major problem with Appraisal Management Companies; they are completely outside the regulatory loop controlling real estate appraisers and protecting the public. No state or Federal agency is tasked with the regulation of Appraisal Management Companies. In fact, there is a documented case of a Florida Appraisal Management Company owned and operated by an individual that surrendered his Certified Residential Appraiser credential for permanent revocation to avoid prosecution for several complaints. That story was detailed by the St. Petersburg Times in May, 2009.

Well folks, it's time to gear up for the 2010 effort to REGULATE APPRAISAL MANAGEMENT COMPANIES IN FLORIDA!

Take a look at HB 303, filed in the Florida House of Representatives yesterday by Representative Matt Hudson. Matt is a REALTOR®, and well aware of the problems associated with Appraisal Management Companies.

Regulation of Real Estate Appraisers & Appraisal Management Companies:

Requires appraisal management companies to register with DBPR; provides exemptions; specifies application requirements & procedures; requires application, registration, & renewal fees for appraisal management companies; requires fingerprinting & criminal history records checks of, & provides qualifications for, certain persons who control appraisal management companies; requires nonresident appraisal management companies to consent to commencement of actions in this state; establishes additional acts for which appraisers are subject to disciplinary action; provides for discipline of appraisal management companies by Florida Real Estate Appraisal Board; provides penalties; revises requirements for retention of appraisal records; requires appraisal management companies to follow such requirements; requires DBPR & board to adopt certain rules.

Read the whole thing

Thanks, Matt!

Please let Rep. Hudson know of your appreciation, and how important this bill is for the appraisal profession, the real estate market and consumer protection in Florida.

Tallahassee Office - (850) 488-1028

Naples Office - (239) 417-6270

Pembrooke Pines Office - (954) 704-2990

email - matt.hudson@myfloridahouse.gov

Press Release - Majority Office

Home Valuation Code Has Improved Appraisal Quality?

Home Valuation Code Has Improved Appraisal Quality? Freddie Mac says so.

Though it is early in the process, Freddie Mac said it has seen a tangible improvement in the quality of appraisals of loans it buys since the Home Valuation Code of Conduct took effect.Patricia McClung, Freddie's vice president of offerings management, said at the Mortgage Bankers Association's convention here last week that of the appraisals the government-sponsored enterprise receives, 15% more have come acceptably close to the automated valuation model it runs as a check.

The improved quality of mortgages bought by Freddie and Fannie Mae reduces the repurchase risk for mortgage lenders because of lower defect rates, she said.

Hmmmm. Maybe we should send Patricia some of the appraisal assignment requests from Appraisal Management Companies we've seen that are accompanied by an AVM estimate, complete with Comparable Sales. Have you seen those? No wonder "15% more have come acceptably close".

Marko Berishaj, a vice president at DartAppraisal.com, a Troy, Mich., management company, said the code is not responsible for a rise in appraisal costs. He cited three factors, including supply and demand: more appraisals ordered but fewer available appraisers. In addition, he said, the cost for appraisers to comply with new certification requirements is being passed along. And finally, the requirement for a market conditions report has also added to expenses.

Is there someone out there that would like to set Marko straight?

During a question-and-answer session, one mortgage banker said that in her experience management companies are using out-of-area appraisers to do desk reviews and she has had to educate these people.

Kathy Coon, the chief appraiser at FNC Inc.,** an Oxford, Miss., technology company, replied that if the mortgage banker was using an appraisal management company but had to educate the appraiser it was time to find a different company. But another mortgage banker in the audience countered that, as correspondents, they do not always get to choose which appraisal management company to use. Otherwise, it would be easy to switch, he said.

**(Appraiser Active) They can call themselves whatever they want, but they're still an AMC

Yeah, it's working out just great. Here is another point of view. It's a firsthand accounting of an appraisal saga by a reporter for the Atlanta Journal Constitution.

My $290,000 home’s worth what?

This is a story of how my $290,000 home was appraised for $115,000.

The tale begins in 2004, when my wife and I decided to buy a three-bedroom, two-bath 1920s bungalow in Ormewood Park in southeast Atlanta. It had been lovingly renovated by the previous owners, who’d also added a new master bedroom and dining room.

-----

The appraiser hired by the lender, Wells Fargo, took measurements and shot several photos as he tromped through our toy-strewn house.

He jotted a few things down on a form and left.

We put it out of our minds until mid-June, when the appraisal results arrived in the mail. I couldn’t believe what I read.

How could our house, purchased just five years before for almost $300,000, be worth just $115,000?

Didn’t the appraiser notice the pristine renovation? The original fireplace? What about the high ceilings, the plantation shutters, hardwood floors, granite counters and the spacious master bath?

Another shock: The $115,000 valuation was far below what our home had sold for in 2002, before being renovated and enlarged.

-----

In the meantime, I scoured the report to try to figure out what had happened.

The appraiser used three recent sales in our area —comparables — to generate what he deemed our house’s market value. But two of those sales were foreclosures. One nearby house had sold “as is” for $129,000. The other, located on a traffic-clogged main street a half-mile and a world away from our quiet street, had gone for just $80,000.

I decided to check on the higher-priced home. Its new owner welcomed me inside and showed off its handsome hardwood floors and shiny stainless-steel appliances. But he laughed when I explained why I showed up on his doorstep.

When he’d bought it, he said, the house was in terrible shape. The floors were covered with damp, mildewed carpet. The water heater was broken. Someone had ripped out and stolen the appliances. The kitchen sink didn’t work.

He’d fixed it up nicely, though it lacked the back porch and dining room our home has. But still, our bank’s appraiser had valued our home much lower than his — before he’d made any improvements.

-----

A Wells Fargo spokesman said the company takes appraisals very seriously.

Well, YES, you DO! I wonder what the AVM that went along with that assignment request from the Wells Fargo affiliated AMC indicated the property was worth?

Read the whole thing.

HVCC - Will be Mentioned in Congressional Hearing

Today the House Committee on Financial Services, Subcommittee on Housing and Community Opportunity will start a hearing in the early afternoon. Although the subject of the Subcommittee Hearing is "The Future of the Federal Housing Administration’s Capital Reserves: Assumptions, Predictions and Implications for Homebuyers", at least one of the several witnesses will discuss the Home Valuation Code of Conduct (HVCC).

The prepared testimony John Councilman, Federal Housing Committee Chair, National Association of Mortgage Brokers, includes these comments:

All the emphasis is mine.

The HVCC is a highly controversial shift in appraisal policy that is the result of a joint agreement reached between the GSEs, the Federal Housing Finance Agency (“FHFA”), and New York Attorney General, Andrew Cuomo. The HVCC purports to enhance the independence and accuracy of the appraisal process. However, what the HVCC truly accomplishes is an increase in consumer costs, a decline in appraisal quality, the extension of closing deadlines, and the virtual extinction of independent appraisers.

.....

The impetus behind these new appraisal policies – the HVCC and the new FHA guidelines – is the perception that appraisers were being pressured or improperly influenced by mortgage originators. However, the HVCC is failing to provide any greater protection for appraisers. Appraisers are still subjected to significant pressure and undue influence, but instead of coming from mortgage originators it is now coming from the Appraisal Management Companies (“AMCs”) that were granted a virtual monopoly over the appraisal process by the HVCC.

In fact, a growing number of appraisers are reporting that the pressure and attempts to improperly influence their professional judgment is far worse under the AMC dominated regime prescribed by the HVCC than it ever was when appraisers were permitted to work directly with originators. Specifically, appraisers are reporting that AMCs are requiring them to prepare appraisals in violation of the Uniform Standards of Professional Appraisal Practice (“USPAP”) and generally accepted appraisal guidelines.

Today, unlike when an appraiser had multiple mortgage broker and/or loan officer clients, the HVCC has restricted their work to be on behalf of only one or possibly two AMCs. Under this construct, if an appraiser fails to comply with any AMC "request,” they will no longer receive appraisal assignments from possibly their only client. With many knowledgeable and skilled appraisers unwilling to work under such conditions and consequently leaving the profession, the appraisers that remain willing to work for the AMCs are generally far less qualified and experienced. This has resulted in a rapid decline in appraisal quality since the implementation of the HVCC, which directly contradicts the widely purported view of HVCC proponents that turning over virtually exclusive authority for appraisal ordering to thirdparty AMCs would produce more accurate appraisals.

The prepared testimony of each witness is available on the House Committee on Financial Services website. The hearing will be web cast as well.

It would be nice if the NAR testimony made some of the same points. Unfortunately, it's pretty vanilla and much less forceful.

By the way, H.R. 3044 is stuck at 110 cosponsors. Follow the links and encourage your member of Congress to support the bill.