Matrix Blog

Appraising

In Bad Form

August 25, 2005 | 9:15 am |

For some reason, Fannie Mae was inspired to change ALL the appraisal forms they use, effective November 1, 2005.

This will be a painful conversion process for most appraisers and will generally be met with skepticism for a few reasons:

  • Cost – The new FNMA forms seem to be written to prevent other traditional uses such as appraisals for estate, trust, litigation, divorce and other purposes. The Appraisal Institute, in good faith and possible anticipating a revenue stream, has created AI Reportsâ„¢ Residential Summary Appraisal Report Form. The press release sounds interesting, but Letter Sized formatting for a professional versus legal look? Commercial appraisers generally write letter sized narratives and residential appraisers do not. Think of the thousands of appraisers out there all set up to use legal documents. Once again, the orientation of the AI remains for commercial appraisers. This new form is being developed by all the major software vendors.

Here’s a radical idea. Keep using the old FNMA 1004, 1073, 1075 and other appraisal forms for non-lending use. They are USPAP compliant and appraisers already have the software. I want to see how this shakes out before I consider using the AI form.

  • Liability – The new forms hard code pages and pages of liability pitched back to the appraisers. I call these the silent killers. The text is not that well written creating more confusion to the reader.

  • More data to present – The forms harp on days on market type stats for all of the comps and lots of other detail. In a perfect world, this is great stuff, but the reality is that many markets do not have this level of detail. The added time spent to collect this data warrants a fee increase, yet that likely won’t happen. As a result, we will all get used to inserting Not Available in many of the fields. Again, good intentions by FNMA to catch “flipping” but unrealistic implementation. Bad appraisers will remain bad.

  • More headaches for lenders using OCR software – Some national lenders fought the introduction of these forms, an unprecendented quantity at one time, because all their OCR scanning software and back office systems have to be re-designed to input this information.


Tags: , ,


Just Get – R – Done

August 23, 2005 | 11:54 pm |

The danger of appraisal inflation is not apparent to many consumers.

The consumer begins to believe the inflated value as valid and it is validated each time the property is over-appraised. When its time to cash out, the fall from the clouds can be unforgiving.

But problems arise when the appraisal is higher than the home’s actual value. Such overvaluation can lead homeowners to overborrow. And later, when they resell, they could learn that the till they thought was full of money contains much less — or nothing at all.

At the end of the day, the homeowner just wants the job done. Herein lies the problem.

Its called “detached from reality.” The mortgage is not being done for the homeowner at all. Its being done on the lender’s behalf to assess the collateral. However, the typical lender sees the report only after it has been through the food chain.

See: The beginning of the end, or how this mess got started


Tags: , , , ,


Outsourcing Codeword: AMC

August 22, 2005 | 11:41 pm |

Ever notice how the only people who seem to be espousing outsourcing are those who gain financially? appraisal management companies themselves

As a self-proclaimed technology maven, I wonder if technology is the answer to all our problems within the appraisal process? In many ways, it can dumb it down, causing the process to drift away from its original intention. The AMC process seems to be an automated paper handling compliance machine.

Another AMC took outsourcing abroad to perform appraisal reviews.

How is it humanly possible to perform a review appraisal from another country unless the report is nothing but a compliance document and not a basis of risk analysis?

AMC’s are here to stay. Where is there middle ground between form-filling compliance automation and hand done reviews?



[Webmaster Note: This post has the highest number of “?” in any posts in this blog ;-)]


Tags: , ,


Fannie and Freddie Now Have To Tell

August 20, 2005 | 11:48 pm |

Its hard to imagine its finally happening, but regulations proposed in early 2005 were just finalized that make Fannie and Freddie now responsible to detect and report mortgage fraud to OFHEO [Office of Federal Housing Enterprise Oversight [Note: PDF]].

This is a first step (albeit tiny) in creating some sort of enforcement activity against mortgage fraud considering the trillions of mortgage dollars under their watch. However, I am not sure what ability they will have to undertake this responsibility.

Now its time to turn attention to state enforcement, to ensure they have adequate budgets to fight appraisal fraud.

Tags: , , ,


Appraisers, Brokers And Buyers: Do Your Homework

August 19, 2005 | 8:35 am |

Unusual properties require added homework to all parties. [Note: Subscription] Its a good idea for homeowners (or their brokers) with unique properties to do research on similar properties. With the time pressure placed on appraisers these days, they may not have time to look under every rock…of course, unscrupulous clients may not want them too anyway. 😉

Portfolio lenders are less likely to feel comfortable with atypical properties requiring the presentation of a lot more data.

According to USPAP, appraisers are compelled to disclose their competency on a property type they are not familiar with. Here is an article that discusses competency.

One of the most common violations of the competency rule is when appraisers travel to other areas where they don’t understand the nuances of the local market or local neighborhoods. Appraisers who get out-of-area assignments should refer the jobs to local appraisers, get local appraisers to help them select comps or decline the assignment.

It always amazes me how we get calls from appraisers from another market, who ask for comps. More specifically, they ask for three comps (presumably because thats all that is required on the Fannie Mae forms). Thats the extent of their research. And then, they somehow seem to turn around their assignment in 48 hours. Needless to say, we do not share data with appraisers outside of our market.

Tags: , ,


Apparently, We’re Flush

August 17, 2005 | 1:08 pm |

CNN just ran a story on incomes of appraisers. This survey stikes me as a bit overstated. Specialization is key, especially if the focus is on complex properties.

IMHO, I think the appraisers on the residential side that are generating a lot of income, own very large operations with a lot of trainees and are tied in tight with wholesale lending channels. Its going to be interesting to see how these firms do when or if refi or sales business drops off significantly. On the commercial side, its the firms tied in with conduits. With capital in abundance these days, demand for these appraisers is high.

A study on appraiser incomes [Note: Abstract], done in 1999 at Washington State University, was reported to be the first of its kind.

Tags: , ,


Mortgage Fraud: Changing Names on the Appraisal [part 1 of a series]

August 15, 2005 | 4:25 pm |

Today our appraisal firm received a frantic call from a mortgage broker we occasionally do business with. We have had a number of problems in the past from this firm with being pressured for values so we don’t encourage the relationship. In order to curb the pressure, we require payment in advance for all work from this firm and firms like them.

The call goes like this [names withheld to protect the guilty?]:

Mortgage Broker: The appraiser and supervisory appraiser that signed your report are not approved by the out of state bank we are submitting the report to. The report looks terrific but we need the names changed.

Appraiser: What do you mean? Are other appraisers in our company approved?

Mortgage Broker: Yes, we need you to change the names on the report so we can get this loan done. We send you a lot of business and this is not a big issue.

Appraiser: Sorry, we can’t do that. Do you realize what you are asking?

Mortgage Broker: Yes, and its not a big deal.

Appraiser: No, thats not possible.

Mortgage Broker: Exasperated sigh, [Click]

Tags: , , ,


FBI sees double the Suspicious Activity Reports

August 15, 2005 | 3:49 pm |


The Federal Bureau of Investigation received more than double the number of mortgage-related “suspicious activity reports” from 2003 to 2004.

Common mortgage fraud schemes include:

  • Property Flipping – Property is purchased, falsely appraised at a higher value, and then quickly sold.
  • Inflated Appraisals – An appraiser acts in collusion with a borrower and provides a misleading appraisal report to the lender. The report inaccurately states an inflated property value.

Mortgage fraud indicators include:

  • Inflated Appraisals – Exclusive use of one appraiser
  • Increased Commissions/Bonuses – Bonuses paid (outside or at settlement) for fee-based services and/ or higher than customary fees

Mortgage fraud is growing and moving from cities to more rural areas and appraisals using fraudelent information is an important component.

If you look at what causes fraud, it’s a case of economics,” said Bill Matthews, vice president of Reston, Va.-based Mortgage Asset Research Institute, “If you have a frothy market it causes fraud to go undetected.”

Tags: , , ,


Predatory Lending Results From Overzealous Efforts To Increase Homeownership

August 11, 2005 | 9:40 am |


Predatory lending has run largely unchecked. Here’s one of the best articles I have seen written on the topic….Wolves in Small Print

excerpt…

Buyers aren’t the only ones screaming. Nationally and in Fort Worth, some of those working in the real estate and mortgage business are also coming forward to charge that the real estate lending business is fraught with fraud. Those professionals say that appraisals are being inflated to buoy up higher housing prices, bigger loans, and higher fees for the industry. First-time home buyers without down payments and with poor credit histories are being pushed through the mill, critics say, and come out the other side with loans they have little chance of repaying. That in turn is pushing foreclosure rates to alarmingly high levels.

Tags: , , ,


Selling a house they didn’t own

August 10, 2005 | 9:17 am |

2 sentenced for real estate scheme

In this case, its sounds like the appraiser was duped, but it is a scary thought. It makes for a good argument to get the sales contract on your transactions (besides other obvious reasons, like understanding the terms of the sale). We match up the seller with public record.

I am amazed how many real estate brokers have said to us that we are the first firm to actually ask for a copy of the contract.

Its a USPAP standard as part of the appraisal licensing requirement [i-2e(iv)]

Tags: , , ,


Housing appraisals – bloated appraisals cause borrowers to over leverage

August 9, 2005 | 10:54 pm |

The article in Consumer Reports describes appraisal inflation as a potential…

Watch out for the bloat!

Tags: , ,


Indicted for $400 appraisals

August 9, 2005 | 5:10 pm |

Appraiser gets $350 to $450 per report, his clients get $3M: yet all 3 indicted

Here’s another typical story, this time on Long Island…Appraiser does report, client steals $3.1M

Yet another…Appraiser does report, client steals $800K

Over and over we see appraisers being indicted and their appraisal fees are nominal, yet they are indicated alongside those who stole millions from lending institutions.

Q: What does it say about appraisers who get into trouble selling their soul for a few hundred dollars and their clients reaped millions [albeit all parties are indicted]?

A1: They do it with such frequency, they can’t keep track of ethical and unethical appraisals.

A2: They don’t see anything wrong with what they are doing since they aren’t charging a premium for these reports.

A3: They don’t see the value of the service they are providing to the criminals [sorry, thats a stretch] 😉

Tags: ,

Get Weekly Insights and Research

Housing Notes by Jonathan Miller

Receive Jonathan Miller's 'Housing Notes' and get regular market insights, the market report series for Douglas Elliman Real Estate as well as interviews, columns, blog posts and other content.

Follow Jonathan on Twitter

#Housing analyst, #realestate, #appraiser, podcaster/blogger, non-economist, Miller Samuel CEO, family man, maker of snow and lobster fisherman (order varies)
NYC CT Hamptons DC Miami LA Aspen
millersamuel.com/housing-notes
Joined October 2007