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Post from March 15, 2010 - Personal Note

LiveValuation Magazine: Neutral Valuation

The September issue of LiveValuation Magazine was released online yesterday. There are several articles, but the most worthwhile is a piece written by Jonathan Miller, author of the Matrix blog.

In his opinion piece, Neutral Valuation, Miller summarizes the ordeals we have all experienced as appraisers, and makes the case for appraiser neutrality. There is much to like in this article, but I have a couple of favorite sections:

Over the past decade the global credit boom ultimately forced most experienced appraisers to choose between feeding their families or changing their business models and even their careers. The refrain “always hit the number” would get you more work. After the credit crunch, the refrain was modified to “occasionally hit the number” and you get more work. The sheer critical mass of the moral flexibility of many in our profession during the go-go credit era nurtured a whole new class of appraiser: the form filler that dominates the profession to this day. They work well with the gum-chewing 19-year-old appraisal processors who call every day on the status of an assignment, having no idea what an appraiser actually does and only cares when the report will be delivered.

and...

Following the credit crunch, the valuation bias is now in the opposite direction. In fact many of the morally flexible appraisers that were biased toward higher valuations for mortgage brokers during the boom, are the same appraisers biased toward lower valuations for appraisal management companies the in post-boom world. These appraisers are rewarded for performing high-volume work at low fees and conservative values. And these values aren’t just low by a few percentage points. We have observed values from a nationally well-known appraisal management company as much as 50 percent below current market value for a property with multiple bidders, largely because the appraisers they use have no local market knowledge.

and....

Since the beginning of my career, I’ve always held out hope that most of my clients actually wanted me to provide “the number” that represented market value. Some clearly did.

I’ve found the concept of neutral valuation to be intoxicating and powerful in my business. As a result of shifting our practice toward clients that actually want to know “the number,” we have remained at our most profitable level in our 25-year history.

Fire your retail banking clients and stop burning calories for clients that don’t want your expertise and will only pay for a form filler. If you don’t they are going to fire you eventually and your practice will die a slow death.

It is better to serve and expand on clients that actually want to know what “the number” really is. You’ll be surprised at how your quality of life improves and how much more business you are able to get.

Great work, Jonathan!

Read the whole thing.

American Banker: Appraisal Management Companies Create More Problems

Here'a an opinion piece from American Banker - Appraisal Management Companies Create More Problems Than They Solve. Sure, a couple of the details about the Home Valuation Code of Conduct (HVCC), and lenders being required to place their appraisal orders with Appraisal Management Companies are not quite right, but it's hard to argue with this comment:

When the final chapter on this housing crisis is written, I hope that I am still around to see those who were responsible for its cause and the feeble attempts to fix it held responsible.

One of the worst fixes is the Home Valuation Code of Conduct. Enacted in 2009, HVCC was spearheaded by then New York Attorney General Andrew Cuomo. His objective was to rein in appraisal abuses by the lenders sending loans to Fannie Mae or Freddie Mac.

The author, Richard Booth, fails to point out the HVCC was negated by Dodd-Frank, but let's face it, the replacement has the same effect on appraisers and consumers.

Today many of these AMCs are directly or partially owned by mortgage wholesalers and large national banks. They hide behind the firewall of an independent company, but if they own that company, either in whole or a piece, who are they kidding?

Imagine needing a medical doctor and having to go through an intermediary who will decide which doctor you may visit, and that doctor is chosen primarily on his fee charged, not expertise.

Consumers are paying more for residential appraisals. The appraisers who are doing the work are receiving a fraction of what they once earned. Unfortunately this structure has chased away many good appraisers who are unwilling to do more work for much less money

and

Since the HVCC was enacted I have seen a steady decline in the quality of residential appraisal reports. I have witnessed appraisers who are traveling from out-of-state and without any basic knowledge of the subject community. Understanding the area in which you have accepted an assignment is a basic rule of appraising.

Appraisers are under pressure from their new bosses at the AMCs. An extremely knowledgeable appraiser confided in me that he is forced to produce more comparables within a specific time period, judge the future value of a home in a declining market and most recently provide aerial photographs for the subject property.

Read the entire article HERE.
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Indemnification Clauses - UPDATE

A few days ago Appraiser Active posted about a from NAR President, Ron Phipps, to federal agency heads encouraging the bar of indemnification clauses used by Appraisal Management Companies (AMCs). Brian Davis, from Appraisal Scoop, was kind enough to spread the word, and many others read the letter on the NAR Appraisal Insight blog.

Now, Peter Christensen, from the Appraiser Law blog, has a very informative new post: "What's Wrong with Most Indemnification Clauses in AMC Contractor Agreements?"

Peter echos several points that were expressed as concerns in the NAR letter. For example:

5. The clauses negatively affect the quality of an AMC's appraiser panel. All things being equal, a rational lender should have less interest in retaining an AMC that uses an unreasonable vendor agreement. I believe that unreasonable contract language results in an overall lowering of the quality of an AMC's appraiser panel because, on average, fewer appraisers who are better trained, economically stable, and careful about reading legal verbiage choose to work for AMCs with the worst agreements.

7.  The bottom line.  Perhaps the bottom line is that a $200-$400 appraisal can't and shouldn’t be relied on to guaranty repayment of a $1 million loan if someone later deems the appraisal “faulty.”  Every appraiser performing valuations will have appraisals that can be deemed "faulty."  Good appraisers should be selected and used because they are trusted as competent, reliable and honest and render opinions of value that are on average accurate and reliable and within a range of acceptable errors.  They should not be employed as financial guarantors of value -- unless AMCs or lenders are willing to pay for the price of shifting that risk.

 Head on over to the Appraiser Law blog to read the full post. Spread the word!

Appraisal Events - Florida Realtors® 2011 Convention

From August 24 - 28, 2011, Florida Realtors host their Annual Convention & Trade Expo in Orlando. The event will be held at the Rosen Shingle Creek, 9939 Universal Boulevard, Orlando, Florida.

In addition to the regular business meetings for committees and the Florida Realtors Board of Directors, a number of education sessions will be offered on a variety of topics. There are two specific offerings available for attendees:

On Friday, August 26, 2011, the Florida Appraisal Council will meet from 1:00 - 2:30 P.M. If you are an appraiser and belong to a local association of Realtors, you are welcome to attend. The new AMC Registration laws and rules will be discussed, along with the Fast Track Application for NAR Appraisal Designations. Educational opportunities to assist in completing 2012 Continuing Education will also be planned. Your thoughts, ideas and suggestions are welcomed.

On Saturday, August 27, 2011, Rick Baumgardner, Chairman of the Appraisal Foundation Appraiser Qualifications Board, will present "What's Happening With Appraiser Qualifications?" This will be a discussion of the 4th Exposure Draft of Proposed Revisions to the Real Property Appraiser Qualification Criteria. Among other things, Rick will discuss trainee and supervisor qualifications, background checks and education.

Take a ride over to Orlando and stop by!

NAR Encourages Bar of AMC Indemnification Clauses - UPDATED

UPDATED - August 15, 2011

In a letter to the heads of the Department of Housing and Urban Development, Federal Financial Institutions Examination Council, Veteran's Administration and the Federal Housing Finance Agency, NAR President, Ron Phipps, encourages the bar of indemnification clauses used by Appraisal Management Companies (AMCs).

Appraiser Active last mentioned indemnification clauses in a post about the LandSafe Appraisal Services Agreement. The folks over at the Appraiser Law Blog have written extensively about the danger to appraisers stemming from agreeing to indemnification.

A pdf of the full NAR letter is posted after the jump, but here's a preview:

Appraisers provide an independent and impartial analysis of the market, and acredible opinion of the value of real property. This analysis is a critical component of the mortgage transaction and, in recent months, has become thesubject of unnecessary pressure. The mounting use of indemnification clauses by AMCs may be interfering with the appraiser’s independence and objectivity. In many cases, appraisers are asked to sign contracts that include language to indemnify and hold harmless the AMC against any suit, threat, or claim on any work product or service provided as part of the contract agreement. In some instances, the appraiser is even required to indemnify the lender and the AMC for amounts equal to their costs in repurchasing a mortgage loan, regardless of any proof of culpability on the part of the appraiser.

Let's see if these government agencies respond to the challenge.

UPDATE - August 15, 2011: The Appraiser Law Blog has a review of the LSI Appraisal Independent Contractor Agreement. Here's an excerpt.

"LSI’s agreement itself is only three pages and does not contain many of the unreasonable provisions found in other AMC contractor agreements. However, like most AMC agreements, it does contain an indemnification provision. While the indemnification clause is not as extreme as found in some other AMC agreements, the provision in LSI’s agreement is still. . ."


"Also, we do have concerns stemming from the FDIC’s civil complaint for negligence and breach contract against LSI Appraisal relating to appraisals performed for WaMu in 2006-2008. The FDIC has specifically alleged in that case that appraisals supplied by LSI from approximately 200 of its panel appraisers were deficient and has suggested that many additional appraisals beyond the ones specifically identified may become part of the lawsuit. We will update our appraisers here on readimember.org if we begin to see LSI attempt to shift liability to individual appraisers in that case."

CLICK to Read More

New GAO Report Released - Residential Appraisals

The GAO has released their latest study of the Real Estate Appraisal Profession and the appraisal regulatory structure. This full title of the report is RESIDENTIAL APPRAISAL - Opportunities to Enhance Oversight of an Evolving Industry. It's just out, and I've not had a chance to read it all, or very closely, but it looks like the Evolving Industry referred to is Appraisal Management.

Here's a LINK to the GAO site for the document. The full document is also posted vai SCRIBD after the jump. Let me know what you think in the comments. Here are a couple of interesting excerpts:

In contrast with appraisals, BPOs do not have standard requirements and are generally not considered a credible valuation method for mortgage originations. According to some mortgage industry participants, a key disadvantage of BPOs is that real estate brokers and agents who perform them are not required to obtain training or professional credentials in property valuation, and the BPO industry lacks uniform standards. At least one industry group has developed standards of practice for BPOs, which are reportedly used by some BPO providers, but adherence to these standards is voluntary. Similarly, the industry has not adopted standardized BPO forms, resulting in differences in the content and quality of BPO reports, according to some mortgage industry participants. Additionally, BPOs provide somewhat different information than appraisals—a sales price or listing price rather than the property’s market value. The enterprises do not permit lenders to use BPOs for mortgage originations, and guidelines from federal banking regulators state that BPOs do not meet the standards for an evaluation and cannot be used as the primary basis for determining property values for mortgages originated by regulated institutions.

In the section with observations about AMCs, you'll find this:

• Selecting appraisers. Appraiser groups said that some AMCs select appraisers based on who will accept the lowest fee and complete the appraisal report the fastest rather than on who is the most qualified, has the appropriate experience, and is familiar with the relevant neighborhood. They said that, with many experienced appraisers departing from the industry, less experienced appraisers, who are often willing to accept lower fees, are left to perform most of the work.
• Reviewing appraisal reports. According to some appraisal industry groups, some AMCs’ appraisal reviews overemphasize how close the appraiser’s value conclusion is to an expected value generated by an AVM, at the expense of other important elements of the appraisal, such as the appropriateness of the comparable sales. One group noted instances in which AMCs told appraisers which comparable sales to use when the appraisers’ original value conclusions were not consistent with AVM-generated values.
• Establishing qualifications for appraisal reviewers. Representatives of an appraisal industry group told us that some AMC reviewers may lack the expertise necessary to identify problems with quality. They noted that in some states appraiser licensing and certification requirements do not address qualifications for appraisal reviewers.

Read and Comment!

CLICK to Read More

U.S. House Committee on Financial Services - Hearing, July 13, 2011 - UPDATED

UPDATED - VIDEO LINK ADDED

Tomorrow, July 13, 2011, the U.S. House Committee on Financial Services, Subcommittee on Insurance, Housing and Community Opportunity, will hold a hearing at 2:00 PM in 2128 Rayburn House Office Building.

The get together, entitled “Mortgage Origination: The Impact of Recent Changes on Homeowners and Businesses” has two panels of "witnesses" representing a wide array of government agencies and interest groups. These include the Federal Reserve, HUD, the Appraisal Subcommittee on the side of the government.

Interest groups to be represented include appraisers, mortgage bankers, mortgage brokers, Realtors, appraisal management companies and Hispanics. As is the custom, most of the witnesses have submitted written testimony in advance of the hearing. Some of it is interesting, some thoughtful. Portions are pandering, and some will infuriate. Most likely, you don't have time to read it all, but here are a couple of interesting excerpts:

Sara W. Stephens, MAI, CRE, representing the Appraisal Institute, includes these thoughts about Reasonable and Customary Fees:

Unfortunately, the Federal Reserve Board issued a rule that fails to implement the plain language and public policy intent of defining reasonable and customary fees as those not involving appraisal management companies – a retail fee, if you will. In our view, the reason Congress included this provision in the Dodd-Frank Act is to help ensure that appraisers receive adequate compensation for the education, experience, and time necessary to prepare credible appraisal reports. While the price of any service will always be a factor, quality and competency and transparency to the consumer should come first. Business models that helped fuel the fundamentally unsound run-up of the past decade placed far too much emphasis on pricing and bundling of services and focused scant attention on appraisal quality. Congress got it right; unfortunately, the Federal Reserve got it wrong.

National Association of Realtors representative, Steve Brown, has this to say about appraisals:

REALTORS® support and encourage credible, independent appraisals and valuations of real property, which are critical to the health of the overall real estate industry. A trustworthy valuation of real property 1) ensures the real property value is sufficient to collateralize the mortgage, 2) protects the homebuyer, 3) allows secondary markets to have confidence in the mortgage products and mortgage backed securities, and 4) builds public trust in the real estate profession. Professionally developed valuations provide an independent, objective analysis of real property. Valuations that are not credible or not independent harm communities and result in unintended consequences. The purchase of a home is the largest investment most people make. A valuation that does not properly reflect the owner’s equity and may require the owner to pay increased fees or inject unneeded additional liquidity into a collateralized loan to meet higher lending requirements. Valuations of real property that are too high give a false sense of security to homeowners seeking access to the equity in their homes and to lenders making a determination as to the security of their loan. Valuations that are too low may create a downward cycle of economic deterioration for neighborhoods and communities and cause increased cash requirements on lenders.

 and, Don Kelly, speaking for both the Real Estate Valuation Advocacy Association (REVAA), on behalf of REVAA and the Coalition to Facilitate Appraisal Integrity Reform provides some views of the landscape from the perspective of AMCs: 

Fair is a coalition of five of the nation's largest AMCs, which operate networks of individual appraisers and appraisal firms for the completion of appraisal reports (These five AMCs include: 1. LSI, a division of Lender Processing Services, Inc; 2. ServiceLink Valuation Solutions, LLC, a Fidelity Natioinal Financial, Inc. company; 3. Valuation Information Technology, LLC d/b/a Rels Valuation; 4. CoreLogic, Inc.; and 5. PCV/Murcor. Rels Valuation is an affiliate of CoreLogic, Inc. and Wells Fargo Bank).

There are significant benefits for both an appraiser and a lender when they work with an AMC......

That's as much as I can take on that one. You'll have to follow the LINK to read the rest of Don's comments.

If there ever was a time to contact your member of Congress, this is it.

UPDATE - VIDEO LINK ADDED

It's a long hearing, almost 3 hours. To save time, check Marc Savitt at 1:35, Sarah Stephens at 1:40 and her discussion of appraisal fees at 1:42. Don Kelly talks at 1:46 and tries to justify the AMC support of unreasonable fees at 2:46.

AMC Independence Clipped in Florida - July, 2011

Despite the efforts of the Florida Legislature and Appraisal Management Companies, the regulation of Appraisal Management Companies became effective July 1, 2011. The Florida Real Estate Appraisal Board posted the following on their site:

Regulation of Appraisal Management Companies – Effective July 1, 2011

On July 21, 2010 President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act requires State regulatory agencies to regulate Appraisal Management Companies (AMC). Florida’s regulatory program for AMCs was created in 2010 when House Bill 303 was signed into law. It became Chapter 2010-84 and amends Section 475, Part II, Florida Statutes..

The Department of Business and Professional Regulation has added information about the registration and regulation of Appraisal Management Companies to their FAQ site.

FS 475.6235 states in part, A person may not engage in appraisal management services for compensation in this state advertise or represent herself or himself as an appraisal management company, or use the titles appraisal management company, appraiser cooperative,appraiser portal, or mortgage technology company, or any abbreviation or words to that effect, unless the person is registered with the department as an appraisal management company under this section. However, an employee of an appraisal management company is not required to obtain a separate registration.

Additional guidance answers the question: Should I close my business while waiting for my license to be issued?

As of July 1, 2011, it is essential for an appraisal management company to immediately file an application to register with the Department; however, you can continue to operate while the Department and/or the board is considering your application for approval. Once approved, you will receive your license in the mail. An application that is denied must comply with the terms of the Final Order issued by the board.

The Department of Business and Professional Regulation, Division of Real Estate, and the Florida Real Estate Appraisal Board continue to develop the program to meet the needs of our customers. Please refer to the FAQs for AMCs and check back for more information weekly.

As of today online registration is not available. A printable application is available HERE.

There's bound to be some growing pains, but the regulation of AMCs is great for Florida consumers and real estate appraisers. Thanks to the Director of the Division of Real Estate, Juana Watkins, and her staff for putting in the extra hours to make sure the information and applications were available on the effective date of the law. Great Job!

Annual Indy 500 Post

NOTE: This is a reposting from last year. My workload precluded a trip to this years 500, but Fran and I are celebrating our 1st Anniversary. We'll be watching the race at home. Video of the ceremony in Turn 3 at this LINK.

 


If there is one thing that captures my attention more than real estate valuation, it's racing. If it involves anything with four wheels and an internal combustion engine, I'm interested. Formula 1, American LeMans, NASCAR, NHRA, Grand-Am, Sports Car, Land Speed Record, you've got my attention.

It started when I was in 2nd grade when my Dad would pile the family into the Country Squire Station Wagon for a short drive up the road to the local 1/4 mile track, Sunshine Speedway. They ran jalopies, modifieds and stocks. It was LOUD. The cars were FAST. The action was AWESOME! We would be picking rubber off our arms and out of our hair all the way home.

I followed NASCAR religiously from the time I was 7 years old. My early favorite drivers included Fireball Roberts, Curtis Turner, Fred Lorenzen, David Pearson and Cale Yarborough. In 1963, I got hooked on the Indy 500. That was the first year Jimmy Clark ran the race in a rear engined, Ford Powered Lotus. I devoured the newspaper for stories about anything related to the race, particularly that rear engined Lotus.

Of course, Jimmy did not win in 1963, but he did finish the race. He took the pole in 1964, but didn't win until 1965. Although no driver has commanded my attention as much as Clark, the race continues to be a rite of spring for me and my family. So, isn't it amazing that my two oldest children ended up living and working in Indianapolis! I fulfilled a long time dream and attended my first 500 back in 2005; watched it from the infield! We were able to make it back to the rain shortened 2007 race, but missed 2008.

For this years' Indianapolis 500, we will be among several hundred thousand race fans, enjoying all the antics and activites of the infield. Look for us in Turn 3. Something special will happen just before the race.