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Credit, Finance, Mortgage, Rates

Doubling Down On Appraisers as ‘Lone Wolves’ – Valuation Review

March 23, 2017 | 7:29 am | Articles |

Note: I have been a subscriber of Valuation Review and it’s predecessor for years. It provides a wide perspective on the appraisal industry and I’ve always got something out of it. Over the past few years, I’ve noticed that the voices in the magazine seemed to be skewing more and more towards national level AMC executives. I suspect the PR departments of these firms make their top executives readily accessible washing out the voices of individual appraisers. So I sent the editor a note offering another perspective with links to my content. He was immediately interested in getting another voice so he interviewed me.

From the Wednesday, March 22, 2017, Valuation Review Article:  CEO suggests appraisal industry comprised of ‘lone wolves’.

CEO suggests appraisal industry comprised of ‘lone wolves’

Reasonable compensation, lender and AMC issues are constantly on the mind of the appraiser. When things aren’t falling into place, the process of assigning blame kicks into high gear with appraisers continuing to look for guidance.

“That’s the problem in that there really isn’t any leadership for appraisers to follow. The false narrative of an appraisal shortage continues to be pushed by AMCs, unfairly tarnishing the image of individual appraisers,” Miller Samuel Inc. President and CEO Jonathan Miller told Valuation Review. “When an industry takes a 50 percent pay cut overnight, good people leave or struggle to hang on and weaker players are attracted-which equals problems. But is it the fault of the remaining individual appraisers?

“AMCs are at a seminal moment,” Miller added. “In what other industry does the company managing the talent get about the same compensation as the talent them? An agent representing a Hollywood actor isn’t going to get $1 million if their client is receiving that same amount for a movie role. It is a broken model.”

Like many in the appraisal profession, Miller strongly believes that there is not a shortage of appraisers. In fact, he more than challenges one reason for such a shortage is that too many burdensome regulations are being placed upon appraisers.

“There is a shortage of appraisers willing to work for 50 cents on the dollar,” Miller said. “The AMC model has hit a wall. AMCs have run out of new people willing to work for 50 cents on the dollar. Sadly, consumers think appraisers are getting the appraisal fee stated in their mortgage documents. They aren’t and typically the appraiser receives as little as 50 percent of it.

“The Appraisal Institute says there is a shortage of appraisers and seem to be championing the AMC concept but appraisers don’t understand why,” Miller added. “I’m not against AMCs; rather, I’m against the execution of business by the AMCs. They treat appraisers as a commodity rather than a professional service.”

For the rest of the story, visit here.

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Banks Make Regulations Onerous By Over-Interpreting Them

March 8, 2017 | 11:52 am | Investigative |

Some people are their own worst enemy. And that old saying also applies to financial institutions.

With all the talk about revisiting, gutting or eliminating Dodd-Frank, a significant part of the problem with mortgage appraisal related lending actually exists within the bank risk management themselves. Their over-interpretation of what the regulations require gives outsiders the impression that appraiser related regulations or standards are more onerous than they actually are.

Fannie Mae Allows Trainee Inspections Without Their Supervisory Appraiser
One of the biggest issues today is the lack of mentoring by experienced appraisers because it is not financially feasible under current lending practice. Both banks and AMCs – who act as a bank’s agent – generally do not allow trainees to inspect a property without a licensed or certified appraiser alongside. So in an era where AMCs control as much as 90% of mortgage appraisal work, the lenders are requiring AMCs to require something the GSEs (the party buy their mortgage paper) do not require. This risk aversion is residual from housing bubble collapse. Mortgage lenders today, subjected to low rates and a very narrow rate spread, remain irrationally averse to risk.

However, their underwriting risk management is effectively destroying the future quality of appraisals that will be done on their collateral because the new wave of appraisers is essentially only book-smart without real world context (mentoring). Experienced appraisers can not afford to invest the time to inspect the property with the trainee (in addition to their own inspections) for the multi-year experience period before the appraiser is certified after already taking a 30% to 50% overnight pay cut from AMCs.

From the Fannie Mae Seller’s Guide Update – 2017-01 page 2.

Reporting “Material Failures” to State Boards
In reference to appraisal oversight, let’s consider how banks determine whether an appraiser is reported to their state licensing board.

Dodd-Frank says the following in 12 CFR 226.42(g)(1). Whereby a lender has to report an appraiser for…[bold, my emphasis]

(g) Mandatory reporting—(1) Reporting required. Any covered person that reasonably believes an appraiser has not complied with the Uniform Standards of Professional Appraisal Practice or ethical or professional requirements for appraisers under applicable state or federal statutes or regulations shall refer the matter to the appropriate state agency if the failure to comply is material. For purposes of this paragraph (g)(1), a failure to comply is material if it is likely to significantly affect the value assigned to the consumer’s principal dwelling.

When the CFPB was asked what they meant by a “material failure” – the following table shows the difference between material and non-material.  So how much is a material failure? A value off by 2%, 10% or 30%?

And by the way, the third option for reporting a material failure seems absurd although I suppose it has to be said – Who is dumb enough to admit that they accepted the assignment because they knew they would “make the deal” happen. The obvious lack of a definitive paper trail in such a situation makes this very hard to prove.

I’ve always had a problem with setting rigid rules in considering the concept of appraisal oversight. With valuation expertise, how does a state agency apply hard rules to value opinions, comp selection and adjustments, etc.? There needs to be a great deal of latitude for regulators and an “I’ll know it when I see it” approach should be allowed.

Separating gross negligence from negligence

Here is the rule.

“Performing an appraisal in a grossly negligent manner, in violation of a rule under USPAP.”

While subjective, it represents a very severe extreme to which an appraisal would be reported to a state board. The rule goes on to say…

“Accepting an appraisal assignment on the condition that the appraiser will report a value equal to or greater than the purchase price for the consumer’s principal dwelling, is in violation of a rule under USPAP.”

But big national mortgage companies today like Wells Fargo and others are reporting appraisals to state boards where the value is not supported. ie weak comps, unreasonable adjustments, etc. Reports with those issues may, in fact, be negligent but do not fall under the definition of gross negligence. Let’s not wreck an appraisers career because they missed some better comps. Once these reports are referred to the state, the state must investigate. It opens up the appraiser to more risk of unintended consequences. Think of a scenario where a cop pulls over a driver for a missing taillight and learns that the driver doesn’t have his wallet with him.

Gross negligence requires a much higher test than applying it to an appraiser who is just being stupid.

It is defined as:

Gross negligence is a conscious and voluntary disregard of the need to use reasonable care, which is likely to cause foreseeable grave injury or harm to persons, property, or both. It is conduct that is extreme when compared with ordinary Negligence, which is a mere failure to exercise reasonable care.

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Contrarians React to Quicken Loans Rocket Mortgage Outrage

February 16, 2016 | 2:30 pm | Favorites |

During the Super Bowl advertising blitz, the most controversial advertisement seemed to be (no, not Mountain Dew’s PuppyMonkeyBaby) Quicken Loans RocketMortgage Super Bowl Ad: What We Were Thinking

David Stevens, CEO of the Mortgage Bankers Association was annoyed at the public outrage.

Even the Urban Institute’s Laurie Goodman who is another voice of reason, writes a blog post on Why Rocket Mortgage won’t start another housing crisis.

I am one of those who were angry after seeing the QL commercials that aired before the Super Bowl and my disbelief continued after watching the Super Bowl ad. I lived the insanity and the QL commercial was completely tone deaf and gave me great concern about repeating mistakes in the past. In fact I was so concerned that I made the QL Super Bowl commercial the cornerstone of last week’s Housing Note: Rockets Engineered to Amaze Housing: What was Quicken Loans Thinking?

A week later my view on the ad hasn’t changed and in all due respect to Laurie and David, I think they missed the forest for the trees (there’s a digital v. paper pun somewhere). I’ll explain by going through their own points:

  • Borrowers can give lenders easier access to bank information – this is one of those wiz bang promises we always see with new technology (assuming this product is new technology). But I don’t think anyone is arguing to keep the process arduous.
  • Approvals might be less prone to human error. – Sure, that’s entirely possible although this argument is like saying if there was less air pollution we might all feel better. We would have to assume that borrower data entry is better and it matches up to official documents like tax returns and pay stubs – something that was not a lender concern in the last cycle.
  • Automation may ease tight credit. That’s another one of those wiz bang assumptions that any technology gain – automation is better – remove humans and the process gets easier (again, we don’t understand what the details are of this wiz bang new technology). EZ Pass scanning technology on the highway is far better for toll collecting but it took a few decades to perfect. The mortgage lending process is full of judgments that need to be made and common sense has been removed from the mortgage underwriting process so it can be completed with checkboxes. I contend that automation will NOT ease credit any time soon because automation means a series of lending rules and it will take years to iron out. It may even delay credit normalization as lenders are reluctant to fully trust it. Plus lending continues to remain tight because of bad decisions made in the past and a weak outlook for the future (30 year fixed is below the level just before the December Fed rate hike), not because the process needs to be more efficient. Mortgage origination volume has fallen nearly every year since 2006 so I can’t see lack of automation as holding back the normalization of credit.
  • Digital lending is here to stay. No one is really arguing against digital lending per se. The future across most industries is digital and that transition can be good and bad. The mortgage process is much more digitized than it was a decade ago so disagreeing with the Rocket Mortgage message doesn’t make someone anti-digital.
  • Make a complex process easier for qualified buyers. Of course! If that is what is actually being delivered. It’s a black box and the consumer is getting their information from a commercial that conveys dated message. If David gave a speech in a 1970s era polyester suit with bellbottoms, would his current information leave the audience with a current market impression?

The real reason for the pushback on this rocket thing is not because we are anti-digital, anti-efficiency, anti-credit easing, anti-automation or anti-polyester bellbottoms. The pushback comes from the messenger being the second largest mortgage lender in the U.S. who marketed their product seemingly devoid of any understanding of the housing bubble, which after all, was really a credit bubble.

And it becomes even more clear to me as an appraiser, looking at their complete reliance on appraisal management companies and how awfully unreliable that post-financial crisis industry really is at estimating collateral, that their judgment is flawed in the long run.

The same sort of promises and expectations were made during the run up of Countrywide Mortgage. We are nearly 9 years down the road from the 2007 implosion of American Home Mortgage and those 2 Bear Stearns mortgage hedge funds and yet economically, the world is still in the hangover stage.

I don’t really believe that QL’s Rocket Mortgage product will bring down the world’s economy as we saw with financial engineering in the last cycle. But it is a concern and unbelievable that this was the messaging they chose to go with. As Mark Twain said (paraphrased) “History doesn’t repeat itself but sometimes it rhymes.”

Please watch that commercial again.

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Bloomberg TV’s Surveillance on 12-31-2015

December 31, 2015 | 8:00 pm |

On the last day of 2015 I was invited to guest host for the 6am hour on Bloomberg TV’s Surveillance with Mike McKee, Vonnie Quinn & Erik Schatzker. I was paired with Michael Holland, Chairman at Holland & Co. I’ve never met him before but really enjoyed his insights on the stock market.

The first segment was largely stock market talk which was out of my bailiwick but in the second segment I got to articulate my views on the New York City super luxury market. Today’s Max Frankel New York Times editorial was brought up – “Make Them Pay For Views” – which I thought was a ridiculous premise – despite the legendary author.

bloomberg-segment-12-31-2015-1

And a second segment talking about professional services used for acquiring assets.

bloomberg-segment-12-31-2015-2

After the hour was up, I ran over to Bloomberg Radio’s Surveillance with Mike McKee (at 33 minute mark) [Listen to clip]

Gotta go. The Spartans are playing in the Cotton Bowl now.

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Podcast: My Port Authority of NY & NJ Interview on Regional Housing Market

September 24, 2015 | 12:16 pm | Podcasts |

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A few days ago I was interviewed by Christopher Eshleman at the Port Authority of New York & New Jersey. He works for Alexander Heil who is the chief economist and publishes a lot of great regional economic insights. Although this is a new effort, this was their first podcast conducted outside of the institution so I am deeply appreciative of the opportunity to share my views.

Christopher is a sharp guy and kept the conversation interesting (I even inserted a Jerry Seinfeld joke). It’s about a half an hour.

Check it out.

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[VIDEO] Boomberg Radio/TV ‘Surveillance’ 9-21-15

September 21, 2015 | 11:45 am | Radio |

I was set to speak in studio with Tom Keene and Pimm Fox but had a commuting snafu and had to call in. It was a great opportunity to show a picture of me as a 15 year old. Love these guys. The best. The Bloomberg Television/Radio are clearly pros and handled the last minute change with ease.

We talked about lots of housing markets and the distortion being created by credit conditions.

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[Video] Yahoo! Finance w/Lauren Lyster 7-6-2015

July 6, 2015 | 2:11 pm | | TV, Videos |

Lauren Lyster put together an interesting piece called: $100 million listings?! Pros explain why this real estate market is hot, but not a bubble that explores the disconnect between this development boom and the housing bubble last decade.

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[Video] NYC Home Shuffle: Housing has been taken over by finance

July 6, 2015 | 12:52 pm | TV, Videos |

A few months ago I was approached by film students Clàudia Prat & Eric French to speak to the housing market as part of a larger project called “What is Home?” series.

I’m a big fan of documentaries and this is worth watching.

Their effort was called: NYC Home Shuffle (5:51 minutes):

Part of a global trend, New York City’s homes become a commodity: an investment instead of a right. Yet a global movement responds.
By Clàudia Prat & Eric French
whatishome.nyc // May 2015

NYC Home Shuffle from Studio 20 on Vimeo.

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Bloomberg View Column: Want a House? Good Luck With the Down Payment

June 25, 2015 | 10:56 pm | | Charts |

BVlogo

Read my latest Bloomberg View column Want a House? Good Luck With the Down Payment. This post also went #1 on the Bloomberg Terminal and on the public facing BloombergView.com site for 2 days. Super crazy.

down payment chart

Here’s an excerpt…

Saving for a down payment has long been a big challenge for anyone who wants to buy a home. And it got harder after the financial crisis, as lenders insisted on down payments of 20 percent or more for conventional mortgages, which make up the bulk of the market…

[read more]


My Bloomberg View Column Directory

My Bloomberg View RSS feed.

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[Video] Fox Business ‘Risk & Reward’ w/Deirdre Bolton 6-25-15

June 25, 2015 | 10:39 pm | |

Always enjoy having a conversation with Deirdre Bolton. Her new show was moved to a new studio and given a prime time slot. I’m dropping in again next Thursday at 5:30pm ET.

Tonight we spoke about this WSJ piece: Call It a Comeback for Risky Home Buyers.

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[Video] Bloomberg TV, Bloomberg Surveillance June 17, 2015

June 25, 2015 | 10:20 pm | | TV, Videos |

Always fun to visit with Tom Keene on Bloomberg Surveillance Television – I forgot to post it last week.

Did I tell you I have a lot going on?

It’s a short clip on housing and why we don’t have enough inventory. Bloomberg Intelligence’s Carl Riccadonna spoke along with me – never met him before but he was impressive and best of all, we were in sync.

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[Three Cents Worth #286 NY] How Many NYC Apartments Are Bought With Cold Hard Cash?

May 30, 2015 | 5:53 pm | | Charts |

It’s time to share my Three Cents Worth (3CW) on Curbed NY, at the intersection of neighborhood and real estate in the capital of the world…and I’m here to take measurements.

Check out my 3CW column on @CurbedNY:

The Washington Post published an article last year titled “8 in 10 Manhattan home sales are all-cash,” a statement that was (and still is) hyperbole; the actual figure was 45 percent. The data is worth revisiting, though, and I thought it might be a good time to look at the makeup of Manhattan apartment purchases in regards to cash versus financing. Obviously, there has been some confusion in the past, so I thought it would be helpful to display a year’s worth of trend data…

3cw5-27-15

[click to expand chart]


My latest Three Cents Worth column: Three Cents Worth: How Many NYC Apartments Are Bought With Cold Hard Cash? [Curbed]

Three Cents Worth Archive Curbed NY

Three Cents Worth Archive Curbed DC

Three Cents Worth Archive Curbed Miami

Three Cents Worth Archive Curbed Hamptons

Three Cents Worth Archive Curbed LA

Three Cents Worth Archive Curbed Ski

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