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Posts Tagged ‘Appraisal Pressure’

Infographic: 25 Year Demise of the Bank Appraisal Industry and the Rise of AMCs

May 31, 2015 | 8:05 pm | | Infographics |

appraisalslipperyslopebanner
[click to expand]

I thought I’d build a visual representation of the decline of the appraisal industry – sort a flow chart, but really an excuse to use different colored shapes and sizes. This is a work in progress so please feel free to let me know what I’ve missed, which presumably is an infinite amount of detail.

Open the timeline as pdf.

UPDATE – Fixed a few typos and grammar weirdness in graphic.

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Bloomberg View Column: Do Experts Value Your Home More Than You?

December 26, 2014 | 2:19 pm | | Charts |

BVlogo

Read my latest Bloomberg View column Do Experts Value Your Home More Than You?. Please join the conversation over at Bloomberg View. Here’s an excerpt…

Homeowners are almost naturally inclined to have a higher opinion of their properties than anyone else, including potential buyers, lenders, brokers or appraisers. But that wasn’t always the case during the bubble years, and inflated real-estate appraisals contributed to the excesses.,,

[read more]


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Bloomberg View Column: Real-Estate Appraisals Are Bubbly Again

December 26, 2014 | 2:13 pm | | Charts |

BVlogo

Read my latest Bloomberg View column Real-Estate Appraisals Are Bubbly Again. Please join the conversation over at Bloomberg View. Here’s an excerpt…

A key goal of the financial reforms after the housing bust was to prevent banks and other interested parties from pressuring real-estate appraisers to inflate valuations…

[read more]

This particular column blew up the Bloomberg Terminals, becoming the number 1 most read real estate article and the 15th most read of all articles on Bloomberg Worldwide.

Bloomberg12-4-14#1realestate


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AMC Structure Systematically Pushes Good Appraisers Out of Business

June 13, 2014 | 2:25 pm | |

dangerhighpressure

Good appraisers are unable to compete with the fly-by-night form fillers that proliferate the AMC industry.

We have done some work for the AMC of a global bank who provides mortgages in Manhattan when they are willing to pay the market rate for appraisal services. They send us requests to appraise a variety of co-op apartments in Manhattan. We recently received an appraisal request for a very large co-op apartment in a unique building (property probably worth well over $10M). The AMC offered a generic fee which is roughly 1/3 the local market rate for this type of property.

We sent them a request to be paid the market rate and was then asked to make an “exception request” and explain the reason for the higher fee so they can go back to the borrower to get approval. We are nearly always rejected.

Problem 1: Conflict of Interest Unbelievably the AMC is aligned with the borrower’s interest in cost savings without concern for quality. The AMC is in business to manage the appraisal process and therefore help protect the bank’s exposure to risk. When you get right down to it, the only value-add an AMC provides to a bank is cost containment (and they are not cheaper than banks doing it themselves) so why would an AMC be incentivized to allow the appraiser to collect a fair fee? It makes them look ineffective at cost containment.

Problem 2: Paying Lip Service to Quality The reason an appraiser is requesting a higher fee is the complexity of the assignment. What else would it be? Yet we have to write a specific request to this property which we haven’t inspected yet. In reality, the next appraiser on the conveyor belt will be selected and given a higher rating for being cooperative. This is a sham process – it is merely a way to document the appraisal process in case the regulators show up.

Here’s the standard BS response that this AMC gave to our request – this AMC is located in a rural location in the upper reaches of the northeastern US – they are concerned whether the borrower would feel comfortable paying a higher fee on a 50% cash co-op building on Park Avenue. The sender is a clerical (non-appraiser) individual who is giving the appraiser the following boilerplates response and doesn’t really understand what they are saying:

When you became an approved appraiser, you agreed to follow the processes and procedures required by [XXXXXX] by signing our Engagement Letter. We require all vendors to submit a fee exception form when they feel the work is outside of the norm. We need that information to justify your fee request to our borrowers. We are not looking to force an appraiser to complete work at low fees, we are looking to provide the best possible work at the best possible price for our borrowers. We expect that you are the expert in your market and we are looking for your expertise and explanation to make our borrowers understand why the fee may be warranted. However, we also expect the fee to accurately reflect the work involved and borrowers have the right to refuse to pay that fee and request that another appraiser be assigned. While, it may be frustrating for our appraisers, it is our current system and all of our vendors are required to follow the process.

No, it’s insanity.

Question How much do you think this clerical person understands about our specific submarket and whether they understand how much another appraiser who will work for a lowball fee does understand about our specific market?

Answer Nothing. This is merely canned comment process designed to blunt the impact of an investigation by a regulator in the future.

Here are a few other thoughts on this whole sham process:

Why Appraiser Robots Rule The World of AMCs
– In a market like Manhattan, especially for a substantial property, you could say that there is no such thing as a standard property and fees are based things like time spent on the assignment and the experience needed to handle the complexity….unless you see appraisers as robots and every assignment is the same.
– Beyond saying things like this is a unique property with limited data and would take a longer time to work on to provide a credible result aren’t enough to justify a higher fee to a borrower who wants to keep the fee low. Does the bank (AMCs client) even understand that this is happening?

So what would help an appraiser get a fee approval of any kind from this AMC? Here are a few reasons I might use next time when I have to substantiate a higher than generic appraisal fee:
-There are attack dogs in the building lobby that we have to run from and I am expecting them to tear at my clothes and force me to seek out significant medical attention.
-The flooring of the co-op apartment is believed to be covered with shards of glass and we therefore have to buy steel toed work boots to do the inspection.
-The occupant is known to carry a weapon, having assaulted visitors and did jail time as a result – so we need to buy a Kevlar vest

You get the idea. Good grief.

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[Appraisal Contemplations] Change Made Easier By Crisis

January 14, 2009 | 12:39 am | |

Appraisal Contemplations is a column written by native Californian and a certified real estate appraiser, Aaron O. Thomas. He began appraising in Arizona and eventually ended up in San Diego where he owns and runs San Diego Appraisers. His firm specializes in greater San Diego County area residential properties and his clients include mortgage brokers, CPAs, lawyers, businesses and homeowners. Aaron is very outspoken and passionate about real estate appraising. Colleagues on Appraisers Forum have long known him as “Tucson Appraisals.” Good thing it’s too warm in San Diego to have the wool pulled over his eyes to the unethical business practice of the day: “comp checks.” Like me, he experienced a growing frustration in recent years with the form-filler mentality that many appraisers and users of appraisal services have embraced.
Jonathan Miller



There is a lot to be said about the growing pains and transitions that the housing industry is currently experiencing. Surely there is enough blame to go around. The borrowers exceeded their budgets, mortgage brokers coerced/pressured Appraisers for value to make the deal work (regardless of the moral implications), banks offered faulty sub-prime packages with minimal qualifications or safeguards and Appraisers promised/pushed values like a rocket to the moon. But through it all, there has been one main complaint from the honest Appraisers who saw the light…comp checks.

Comp checks were visible at the heart of all these problems. Even throughout the housing crisis, instead of the focus being placed on risk management, it was always placed on value, i.e. “making the deal work”; whereas common sense should have indicated an attitude of making sure certain assets are protected. Surely, there are a good sum of Appraisers that are bitter and worn down on the comp check issue because it seems like we speak out constantly and nothing happens.

But is that really true? I think not.

When the original HVCC was written it addressed pressure, but not comp checks. We rose to the occasion and made our voices heard and now there is specific verbiage about comp checks included. Not only were our voices heard, but they were taken seriously well after the initial comment period of the original draft. Is this not proof that our voices are indeed powerful? That if we but simply do our small part and write a letter or two each, that we can accomplish great things?

For several years it seemed like Appraisers were split on how to resolve the many flaws in the industry. For the most part, we could not agree on any course of action. However, it does appear that we could agree on sending an endless stream of letters to our leaders and the people in charge of drafting these rules that would ultimately regulate us. The HVCC is not perfect, but one thing is clear, we brought about some of the changes that we so desperately wanted.

I think the power that has been lent to our collective voices has been augmented by that of the housing crisis and it still is. So why not take advantage of this great advantage (augmentation) and push the envelope this next month. We can push our law makers to not only make rules, but make comp checks downright illegal.

Over the past several years there’s been arguments among Appraisers on whether comp checks were in compliance with or against USPAP. There was arguments whether it was right or wrong. Or if it’s a disservice to the client or an actual service to the client. All of those arguments in my opinion should be moot, for I must point out that the bigger picture here is that comp checks were and still are being used for mortgages, thus focusing on hitting values; instead, the focus should remain on honest opinions of value in order to protect the banks assets.

It is bad enough we have this constant threat from borrowers and mortgage brokers looming over our heads if we don’t hit value, so with that in mind; it might just be the perfect time to hit a home run with illegalizing comp checks.


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[Sounding Bored] Mortgage Broker/Appraiser Relationship Still At Odds

January 10, 2009 | 2:24 pm | | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession. The more things change, the more they stay the same, mainly because no one outside our profession seems to understand what we do and their ramifications.

With all the credit upheaval, you would think that the relationship between the appraisal community and the mortgage brokerage community has changed (it will change on May 9th 2009).

Name one law, rule or regulation that has focused on appraisal pressure in place right now…

Nothing has changed. Perhaps the sharp drop in wholesale lending has had the effect of reducing the instances of it, but the pressure is still baked in. Here’s a recent experience:

One of my appraisers shared with me this phone call recap:

I just had a long conversation with a XXXXXX of XXXXX Mortgage. She has a client who owns an apartment at [omitted] who is interested in refinancing. He believes his apartment is worth around $XX million. I spoke to him yesterday and gave him some information about the appraisal process. His mortgage broker, XXXXXX, called today requesting a value range for the apartment. Our office politely indicated we could not give a range explaining that it is considered an appraisal. XXXXXX of XXXXX Mortgage would not accept this answer by XXXXX[our employee name] (after being on the phone with her for seven minutes) and she forwarded the call to me. I repeated our position and XXXXXX of XXXXX Mortgage still would not accept this answer. She needed a number from us before processing the order with her client. I tried to explain to her that this is unethical and that we can’t shoot for a value based on the loan application. She eventually threatened that we would not be receiving a number of other orders from the same building based on our not giving her a value. She also made a similar threat to XXXXX[our employee name]; basically saying we risk losing other work from XXXX Mortgage.

After receiving this information from my appraiser, I left a voicemail to XXXXXX of XXXXX Mortgage requesting a returned call and sent the mortgage broker an email with the following message:

I just received a disturbing recap of a conversation you just had with two of my staff.

Doesn’t it seem unprofessional to withhold work from an appraiser because they will not violate their license by issuing a pre-determined value? This is one of the reasons we are in a credit crunch.

Before I file a complaint with the New York State Banking Department, I would appreciate a call or contact from you for an explanation.

Perhaps you are having a bad day? Or perhaps this was simply a misunderstanding? Hopefully I hear from you no later than Friday.

To the mortgage broker’s credit, I got a call back in about 10 minutes To the effect of – complete misunderstanding. repeatedly extended apologies. Client was asking for a range. She had a horrible cold, maybe that was how she misunderstood. Has zero issues with us. Very, very sorry.

We got an appraisal assignment from them the next day. This firm gives us a few assignments per year. The assignment was cancelled 24 hours later.

I know this sounds like a heck of a way to interact with a “client”, but if we are pressured to break the law and/or be punished financially, whether or not the person is aware of what is going on now, then they can’t be my client.

It makes me wonder when things will actually change for our profession.


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“Near Zero Default” A Recent IndyMac Conversation About Speed

July 18, 2008 | 10:51 am | |

also posted on Matrix

In my continuing obsession with appraisal/lending issues given the bank shakeouts that will occur over the next 12-18 months, here’s an email conversation with IndyMac on an appraisal assignment occurred in late May with my appraisal firm Miller Samuel.

The report was ordered with a specific inspection date needed. Up until then, our turn time was consistently 7-10 days, usually inspecting the property within a day or 2 after the order depending on the contact info accuracy and customer cooperation. Granted, 7-10 days is not stellar, but we are very busy, ours clients know this in advance and our competitors (that I would consider competent) have the same turn times as well.

You can see one of our employees frustrations toward the end because we had gone through great effort to accommodate the bank to inspect the property on the day they needed it done and they did not indicate early on that there was any “rush” plus they basically told us we were not needed, after a warm and fuzzy relationship that preceded this conversation. Very odd.

I guess what annoyed me in seeing this email later on, was the comment about their 0 default rate and yet the lender collapsed 2 1/2 months later. I am sure this person was responding to their own branch’s experience but its weird they brought up such a reference in the dialog, inferring (to me, anyway) that it was a big problem looming at the bank).

Incidentally, 300 banks are projected to fail in the next 3 years.


May 28, 2008 email dialog

IndyMac Please provide status on this report – thanks

Miller Samuel [address omitted] will be inspected tomorrow, May 28th.

IndyMac And how soon thereafter can we expect the completed report? Thanks

Miller Samuel All appraisal turnaround time is currently 7-10 business days starting from the time of inspection.

IndyMac We are going to have to cancel this order- sorry but your turn around time is just too long.

Miller Samuel [name omitted] we have worked an entire schedule around this appt. When do u need the hard copy and we will deliver it.

IndyMac We have appraisers that give us reports back within 2 days of the inspection. This is still not going to work. If you can get us the reports back in that time frame we will have a lot of business for you. I am sorry

Miller Samuel Yikes! That’s called bang it out, hit the number appraising. No that’s not something we participate in. That’s how subprime occurred and why the housing market continues to fall. Conditions for mortgage fraud remain in tact with many lenders because of a lack of concern for quality. 48 hr Speed = Bad appraisals and ultimately bad loans. We can do 5-7 business days. I really hope you guys don’t end up like countrywide and all the rest. But with 2 day turn time its inevitable.

IndyMac I understand your position and would never ask you to do something you are not comfortable doing. This branch does AAA business with typically low ltv’s, high credit, etc. Our default ratio is nearly 0 pct and we pride ourselves on efficiency and effectiveness. I think going forward we should help you gain access earlier in the transaction so you can adequately do your job. If there is something we can do on our end please let us know.

July 11, 2008

IndyMac collapses

July 17, 2008

FBI fraud inquiry after IndyMac collapse

IndyMac Collapse Fuels Fears About WaMu


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[Sounding Bored] Fighting The High Value, Getting Fired Over The Right Value

July 16, 2008 | 12:15 am | | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession.

The following IndyMac story was forwarded to me by a Soapbox reader. It was originally posted by appraiser Vernon Martin on AppraisersForum.com I don’t usually repost but the story detail is amazing – read here or on the appraisersforum.com – either way, it’s worth the read.

Written by Vernon Martin:

I worked at IndyMac as their chief commercial appraiser from October 2001 to the end of March 2002.

I first became acquainted with IndyMac through OTS appraisal examiner Darryl Washington, MAI. Darryl used to examine my appraisal department each year when at Home Savings of America, which was acquired by WAMU in 1998. During the summer of 2001, I had a chance encounter with him at a jazz concert. I asked him what he had been up to, and he told me that he had just completed the first examination of IndyMac Bank, which had just received its savings and loan charter only a year before. He said, “Vern, they could use a guy like you.”

Several weeks later I saw the chief commercial appraiser position for IndyMac Bank posted on Monster.com. I responded with a cover letter that started with “Darryl Washington of the OTS suggested that I contact you.” Apparently, that was the right way to start the letter. IMB’s chief credit officer called me soon, asking “do you know Darryl Washington?’ I said “Yes, he examined my department annually at Home Savings.” His next question was “Do you know how to deal with him?” I assured the chief credit officer that I was used to dealing with the OTS and Darryl and that I could get IMB into compliance with OTS appraisal regulations.

After 3 interviews, IMB wanted me to start right away, because the OTS was returning in November. I started on 10/15/01 and had a month to familiarize myself with their commercial lending practices until the OTS showed up.

At the end of my first week, there was an urgent need to field review an appraisal of a subdivision in the Sacramento area. I went up there on the weekend, but also took along some other recent appraisal reports from the Sacramento area. One of the other appraisal reports concerned me. A residential subdivision had been appraised as “80% complete”, but when I visited it, it had only been rough-graded, probably no more than 15% complete. When I returned to the office on Monday I asked who the construction inspector was for that region. I was told that there were two inspectors for the Sacramento area; one was CEO Mike Perry’s father and the other one was Mike Perry’s father-in-law. The loan officer on the deal was Mike Perry’s younger brother, Roger, who had recently been hired. His previous experience had been as a cop. Thereafter I heard of favoritism towards relatives of Mike Perry and “FOMs”, and the chief credit officer advised me to take special care of Mike Perry’s brother. (“FOM” was IndyMac jargon for “Friend of Mike”.)

I reported my Sacramento findings in a private memo to the chief credit officer, who then distributed it to the senior managers at the construction lending subsidiary known as the Construction Lending Corporation of America (CLCA). The senior credit officer from CLCA, the manager who most resembled Tony Soprano, was the one to call me. He asked “Are you sure you saw what you said you saw?” in a rather chilling manner. He said he had been on site with Roger Perry and had seen things differently. After that call, I asked the chief credit officer why CLCA’s senior credit officer would want me to recant my report. He told me that the senior credit officer received sales commissions for every loan made, which seemed to me like a blatant conflict of interest.

All appraisals were ordered by the loan officers from a list of approved appraisers maintained by LandAmerica. I was not allowed to order appraisals, but I recognized many names on the LandAmerica list as well known, reputable appraisers. What I began to observe, however, was that loan officers were learning which appraisers were more “flexible” than others. My areas of concern were extraordinary assumptions, lack of feasibility analysis, and false information given to appraisers.

As an example, I read an appraisal of a vacant, former Costco warehouse which had been purchased for $2 million several months before, but was appraised for $17 million based on a fabricated rent roll composed of tenants that had never signed a lease or a letter of intent. Only one tenant actually moved in. I told the loan officer that I could not accept the appraisal report, as it was hypothetical. He wanted me to approve it, any way, with the understanding that no funds would be disbursed until the prospective tenants could be verified. I told him that I wasn’t going to approve a hypothetical appraisal. The loan was funded, any way.

My only substantive encounter with CEO Mike Perry was in November 2001. I was summoned late to an impromptu meeting of senior executives in the board room. When I arrived, the meeting was already underway. The tone of the meeting was very different than senior executive meetings at other companies I had worked for. Mr. Perry, a man in his thirties, was spinning ideas and executives who were 10 or 20 years his senior were behaving like “yes men”, competing to agree with his ideas. There were lots of raised hands and enthusiastic participation. He seemed to be enjoying this, in an immature, megalomaniacal way.

Then he turned to me with an idea. He asked me if I, as the chief commercial appraiser, had the regulatory authority to change the discounted cash flow models in each subdivision appraisal, which might have the effect of changing appraised values. I said that I could possibly do it, but why? He smiled and said “Don’t housing prices always go up?” (Was he really too young to remember the early 1990s?)

I told him that it wasn’t a good idea, because we were already hiring competent appraisers who had more local knowledge than I had. Unless I could show that their analysis was flawed, it would be inappropriate for me to change the appraisals. That answer seemed to anger him. At the end of the meeting, the chief credit officer tried to introduce me to him, but he turned his back on me.

I later learned that Mike Perry was hired as CEO of IndyMac at the age of 30 when it was spun off by Countrywide. He had been an accountant at Countrywide and a protégé of Countrywide founders David Loeb and Angelo Mozilo.

When the OTS arrived mid-November, my review duties were handed over to LandAmerica. I was to spend full time responding to findings from OTS examiner Darryl Washington. In the ensuing month it became increasingly obvious that the main reason I was there was to refute OTS findings and serve as window dressing for an institution that scoffed at or was wholly ignorant of federal regulations. Many, if not most, of the senior executives had come over from Countrywide, which was an unregulated mortgage bank.

One of the craziest violations of OTS regulations was underwriting loans based on appraised values well above purchase prices. For example, a prominent Sacramento developer purchased a piece of land for $18 million, a price most reasonably supported by the comps, but it was appraised and underwritten at a value above $30 million, the rationale being that this developer added value to the property just by buying it. This does not satisfy the USPAP and federally accepted definition of market value, however. The appraisal firm was the same one used for the supposedly 80% complete subdivision.

I was present at several confrontational meetings between the OTS and FDIC examiners and CLCA executives. It seemed that IMB was intent on refuting every finding and using me towards that end. I was criticized for not arguing enough with the examiners.

After the examination was over, there was an unsolicited appraisal report waiting for me on my desk. A piece of land next to an airport had recently been purchased for $24,375,000 and was almost immediately appraised for more than $65 million based on the owner’s plans to build an airport parking lot. This was three months after September 11th, 2001 and average parking lot occupancy at this airport had declined from 73% to about the low fifties. The appraisal lacked a sales comparison approach and its feasibility analysis was based on pre-September 11th data. The feasibility analysis was done by the same consultant who caused the city of Los Angeles to lose millions on the parking garage at Hollywood and Highland. The appraisal was done by an unapproved appraiser who had previously caused my previous employer, Home Savings, to set up a $17 million loan loss reserve on a hotel he appraised for $450 million and the loan defaulted within a year. The report was delivered less than a week after it was ordered by the IMB loan officer, leading me to suspect that it had already been completed for someone else, most likely the borrower. I told CLCA executives that I could not accept the report and that I considered it to be biased. I tried to get the appraiser to change the report, but he immediately called the chief lending officer, who must have then instructed him to ignore my request.

Despite my stated objections to the appraisal report, the chief lending officer told the Loan Committee that I had ordered and approved the appraisal, and they funded a $30 million loan. Thereafter, there was sustained pressure on me to approve the report. I responded that I would have to write my own report, since the original appraiser would not make changes. This bought me time. Meanwhile, the airport, who had previously owned 80% of the parking spaces in the area, was suing the developer and erected a fence to keep people from walking from the parking lot to the terminals.

The chief lending officer also pressured me to accept another unsolicited appraisal of a Sacramento-area subdivision. This report was based on an “extraordinary assumption” that a road led to the subject property. When I went up to Sacramento to see the property, there was no road.

In January I went to Sparks, Nevada, to review an appraisal of the last phase of a condominium project. The first phase, with condos on the golf course, was a success, but the last phase was on the opposite side from the golf course and actually sloped below grade. The appraiser made an $8000 downward adjustment for each unit, and I questioned whether $8000 was adjusting enough. That provoked warnings from several executives, including the chief credit officer. The developer was buying the land from David Loeb, IndyMac’s Chairman of the Board (and co-founder of Countrywide), and I was warned that challenging this deal could get me fired. Soon after, the chief credit officer came to my office with a representative from human resources to announce that my initial 90-day probation would be extended for another 90 days, as CLCA executives had complained about my lack of cooperation with them. The HR rep had a look of horror on her face the whole time he delivered this message.

I finally finished my own airport parking lot appraisal report in late March, the same week that the Bush Administration laid off most of the OTS examiners. I don’t know which event precipitated my termination. My appraisal of the airport parking lot estimated the stabilized value at $37 million in year 2003 and the value upon completion as $31 million in 2002. These appraised values were considered insufficient to support the $30 million loan.

IMB gave me two weeks’ notice of my impending termination and offered me $25,000 severance pay if I turned over all documents and signed a non-disclosure agreement. I told them that state law required me to keep records of all of my appraisals and reviews, and that $25,000 was not enough. After a few days of seeing that I was not cooperating, I was summoned to a final meeting with the chief legal officer and “chief people officer”. A written statement indicated that I was being terminated for having a “communication problem”. I asked for examples of my communication problem, but none were presented. (I later recounted, during a deposition, that I was left alone with the chief legal officer for a few minutes of awkward silence. I then asked him, “Doesn’t it bother you that I am being fired for a communication problem without any evidence against me?” He said, “Not at all.” This cracked up my attorney.) After the meeting, I was escorted back to my office by a large security guard to collect my personal belongings, and then I was escorted out of the building, with my toothbrush in my left hand and my toothpaste in my right hand.

During these last days I contacted OTS about the abuses going on at IMB and said I had documentary evidence. They flew in to Burbank to meet me and they debriefed me for a couple of hours. They were upfront about how the flow of information had to be one way, from me to them, and not vice versa. I had to call my friends at IMB to find out how OTS was responding. The OTS paid a special visit to IMB and called for an internal audit to investigate my allegations. The first audit was considered a whitewash, and the OTS called for a re-audit. Interestingly enough, there was even a document produced that supposedly indicated my approval of the appraisal of the “80% complete subdivision”.

The second audit corroborated most of my allegations and the OTS called for certain personnel changes. The president and senior credit officer of CLCA were ousted; the chief lending officer had his loan approval privileges removed. Chairman of the Board David Loeb suddenly and coincidentally retired at the same time. He died 5 months later.

Interestingly enough, at about this same time, I read in the press of IMB receiving a “corporate governance” award from some organization, for having an impartial and effective board of directors. Meanwhile, CLCA executives selected my replacement, someone who they had already wanted since even before I started at IMB.

I had an excellent attorney. Besides suing for wrongful termination, he showed me that I could actually sue for discrimination. Many states, including California, have laws that prevent discrimination against employees who are upholding public policy, which was the very reason that got me fired. Other bank appraisers should take note of this. USPAP and OTS appraisal regulations are public policy.

In interrogatories sent to IndyMac during the litigation, they were once again asked to demonstrate evidence of my “communication problem”. The only evidence provided was a memo from me about a borrower “trying to deceive us” and a memo from a loan officer complaining that I actually called Union Pacific Railroad concerning one of his deals, a subdivision being built close to a railroad right-of-way. I was told by the loan officer that the track was no longer used, but Union Pacific disclosed to me that it was still being used once a day during the evening hours.

Interestingly enough, in the six months of unemployment and underemployment which followed my termination, I rented many videos, one of which was “The Insider”, the real-life story of Dr. Jeffrey Wygand, who blew the whistle on the tobacco industry to Sixty Minutes and was also fired, coincidentally, for having a “communication problem.”

Most of this information is already publicly disclosed in my lawsuit, filed 7/15/02 in Los Angeles Superior Court, Case Number BC277619, for anyone wanting further details. As for the results of that lawsuit, the only thing I can legally say is that “the matter has been resolved to the mutual satisfaction of both parties”.


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[Squeaking By] Somehow It All Comes Back To Appraisals

July 15, 2008 | 10:59 am | | Radio |

“The appraisal industry is the lubricant of the mortgage industry” …Inventor of WD40 (just kidding)

In addition to Soapbox which contains the terrific contributions of my appraisal colleagues, appraising has made its presence known on our other blog Matrix via the current turmoil in the lending/mortgage industry.

[Other Shoe Drops Department] IndyMac Needed Appraisals Done Before Judgement Day

[In The Media] Real Estate Radio USA Appraisals & Bits

[In The Media] 4Realz Roundtable On Appraisals Cuomo/GSE Agreement For 1-1-09

UPDATE

[Subprime Truth In Lending] From A To Regulation Z


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[Sounding Bored] Not All Of Us Are The Square Round Peg

July 15, 2008 | 9:57 am | | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession. Righteous USPAP indignation runs rampant in the appraisal profession and I worry it is leading to our demise as an industry.

Update: “This commentary was NOT submitted by Adam Johnston as originally presented in the post on July 15, 2008. He is not the author of this commentary. I regret the error and any inconvenience it may have caused.” Jonathan Miller

Let’s put things into current affairs, this profession is changing, unfortunately. The federal government is overtaking the profession and we all know they will mess up the profession.

Allowing AMC’s to control the mortgage lending area will be the downfall of the independent appraiser. The AMC’s will feed their staff, which is primarily made up of appraisers that cannot compete in the profession or have no outside experiences to survive outside of mortgage work. I am trying to get out of the mortgage affairs and diversify as most of the mortgage review appraisers probably have never written an appraisal. These reviews are typically out sourced. Who are these reviewers? and who oversees the AMC’s and how they conduct their appraisal affairs?? NO ONE.

All the small appraisal shops and good appraisers are giving up. Just like the small hardware stores or small grocery stores are giving up to the larger, corporate owned Home Depot, Lowes or Cub.

Personally, this profession needs to go back to old way of doing business where all appraisers can complete with the AMC’s. This current mess is not totally an appraisal problem. Who allowed no doc refinances?, Who allowed interest only loans?, Who oversees predicator lending? Who governs the mortgage brokers? The mortgage brokers have ruined the mortgage profession as they have abused most all responsible lending practices, and the big banks buy these sub-prime loans. WAKE UP.

The big banks are controlling the AMC’s as they also have a vested interest in these companies to make additional profits off the consumer. Some of the big banks own and service some of these sub-prime lenders. Pay the appraiser a proper fee for their work and spend the additional costs on reviews of their work. If the appraiser provides poor appraisals, remove or suspend them from the panel.

As a former staff appraiser, I guarantee the staff appraiser gets more benefit than an independent. I have NEVER been asked by the clients I work for to inflate an appraisal to make a loan. There are still some of us doing a responsible job in appraisal work for my clients. Yet I am being lumped into being that all appraisers being controlled by the loan officer to get business. I don’t fit this image, so why do I need to suffer? A lot of this is due to poor state licensing and supervisor appraisers role by signing off on work they review. I’ll bet better than half of the distress home loans fall into this situation. This is where the true problem is.

The passing or consideration of the current HVCC policy will demise the appraisal profession. Is their no consultation with the working professionals in the appraisal business. The professional and responsible appraiser knows the real problem with the mortgage lending profession, yet we are never consulted as to our opinion. The future lending practices are being depicted upon the major lenders in the industry and the federal government.

From 2003 to 2006 shown times of excelled home values and the lending requirements were relaxed. Home and town home prices were rising faster than the appraiser could keep up with, especially in new construction. People were willing to pay for these new homes and builders responded by increasing their prices.

Mortgage brokers capitalized on this and now where are they?? Easy, file bankruptcy and start a new company and let the larger mortgage company they sold the loan to struggle to find a buyer for the sub prime loan.

Just my thoughts.


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[In The Media] CNBC Clip For 3-24-08

March 24, 2008 | 11:18 pm | | Public |

To view clip

I was sent an email clip of a spot on today’s CNBC broadcast covering the existing home sales stats released for California, except I was included in the broadcast. Unless it was due to too much Easter candy, I didn’t remember being on the show today. 😉

Real estate correspondent Jane Wells reached into her video archive and pulled out an interview we did in 2005 where I estimated 75% of all appraisals were inflated. I remember that my concerns fell largely on deaf ears in the industry back then. Its been a frustrating three years. (And to her comment, her hair looks just as great now).

It was a picture in picture clip, where the anchors watched the tv that was playing the interview. Very cool. I actually posted the same clip of the 2005 interview a little over a week ago.

While it’s satisfying to be proven correct (and have actual video evidence), it’s a shame the lights were on and nobody was home (sorry). She was one of the few national correspondents that covered the housing market at that time that understood the “appraiser” problem growing at an alarming rate.

It’s making me feel both a little old and like a broken record because I have been saying the same thing since that interview (and at least a year before) but finally there is some hope for change.

Appraisers need to be able to perform independently to be able to function.

What was striking about the home sale stats she mentioned was that 1/3 of all sales in California were foreclosures in February. Crazy.


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[Commercial Grade] Greed Is Not So Good

March 18, 2008 | 5:50 pm | |

Commercial Grade is a post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with focus on commercial valuation. John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, depending on what day of the week it is, one of the smartest guys I know. Since I ended my Radar Logic gig, John has promised to bring more of his insight to Soapbox [wink] …Jonathan Miller


Greed is not-so-good after all.

If the movie Wall Street were made today, they would give Michael Douglas an HP-12c and make him a real estate investment banker.

I don’t think that I fully realized just how bad things had gotten until I learned that powerhouse Bear Stearns was being bought for $2/share. (For $2/share, even I could have bought itI always wanted to own an investment bank!). While this 90-year old institution, crippled by its losses in mortgages, was being rescued by JP Morgan Chase and the Fed, I was on a conference call with a couple of investment bankers (a Bear Stearns competitor) who were adamantly trying to convince me that my appraisal of a proposed apartment building was too low. There are clearly still some Masters of the Universe out there that apparently don’t read the papers and are still underwriting business as usual.

Appraiser guru Jonathan Miller (my business partner) recently did a series of interviews about appraiser pressure where he opined that as many as 80% of all residential appraisals were inflated during the housing boom. That is an astonishing number and when I challenged him on it, he stuck to his number and explained that not coincidentally as many as 80% of all home mortgages were originated by mortgage brokers. I have no idea how many commercial mortgages were underwritten by investment banks and securitized during the recent boom, but that’s probably a good indication of the number of commercial appraisals that were likely inflated.

Though the attention to date has been on residential mortgage brokers and the pressure that they exert on residential appraisers, inflated appraisals have also been greasing the wheels of the CMBS market. Unlike a commercial bank, where FIRREA requires separation of the appraisal and underwriting, no such distinction exists in the investment banks (unless it happens to be the investment banking arm of a commercial bank). Therefore, the same 24 year old underwriting the CMBS loan, and who stands to realize a six-figure bonus at year end depending on how much money he pushes out the door, is also responsible for ordering the appraisal.

Just like 1987 all over again!

And the rating agencies, supposedly the watchdogs of the process, failed to see the abuses, or since they are also hired directly by the investment banks turned a blind eye.

With all of the recent high-level attention given to real estate lending practices, we seem to be at a turning point in the appraisal profession. However, without fundamentally changing the way commercial CMBS loans are underwritten, this problem will not go away.


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