http://www.realestateappraisertips.info/ – Dave Towne: A Simple Fix for the HVCC

A Simple Fix for the HVCC

Unintended consequences of the HVCC agreement has come close to decimating the appraisal industry, and many in mortgage lending. The fix is simple, and easily implemented by Cuomo, FannieMae and FreddieMac and the other regulators. I can be done in just a few weeks.

The simple fix is to require a personally signed (digital signature permitted) appraisal order form which contains a mandated certification and compliance statement approved by FannieMae, FreddieMac and Cuomo, with the license number of the signer, which states the individual (not the ‘company’) who ordered the appraisal has not influenced the appraiser in any way to compromise the appraiser’s independence in the reporting of the Opinion of Market Value.

The new order form’s certification and compliance statement should be similar to items in the USPAP Ethics Rule, Management Section (Pg. U-8).

This new order form should be required no matter who places the appraisal order, and who ultimately funds the mortgage loan, or insures the loan. It should not be limited to only FannieMae/FreddieMac use, as the HVCC is now. The order form should also clearly state that a ‘reconsideration of value’ is not permitted once the original signed appraisal report is submitted.

By putting individuals who order appraisals on the same legal playing field as appraisers, the direct placement of appraisals by Mortgage Brokers, Loan Officers, Real Estate Agents and others can be re-implemented. Using a signed order form, with an approved certification and compliance statement, means that former industry business relationships can be re-established. Secondary ‘middlemen’ will not be needed.

Appraiser decimation has occurred due to 5% of the HVCC that is not based on existing appraisal independence policies codified in requirements of FHFA, OCC, FannieMae, FreddieMac, HUD/FHA, FRS, NCUA, FDIC, and OTS. Appraiser decimation is reaching epidemic proportions. The 5% has caused a major disruption in what was a reasonably efficient appraisal ordering process prior to May 1, 2009. As a result of this disruption, many competent, highly skilled and experienced appraisers are leaving the industry. These are the people we need to keep gainfully employed to provide accurate appraisals. And many mortgage lending people have been unfairly impacted.

Some will say this can’t work. Well, the HVCC is not working reliably either. It has caused more negative impacts than the problem it was intended to solve. 95% of the HVCC is based on existing regulations and policies. So it can’t be ‘postponed’ as some are suggesting. It can’t be ended in its entirety due to the aforementioned agency guidelines that apply to all segments of the mortgage lending business. But we can’t restore the former ‘status quo’ either when the appraiser was subject to influence. So what’s left is to modify the 5% that is causing the most problem by using a signed order form that says the appraiser is hired to value a property without any interference by members of the ‘production’ side of the business.

This can work if enough appraisers, mortgage brokers, loan officers and others begin to work together to solve a serious problem. You can help by forwarding this suggestion to everyone in the industry, congressional representatives, regulatory agencies and even Mr. Cuomo.

Dave Towne

Certified Residential RE Appraiser

WA State

Related posts:

1. WA State Appraiser Dave Towne Comments On HVCC One Year Anniversary
2. Real Estate Appraisers: Dave Towne – Is The IVPI Independent Valuation Protection Institute Taking Shape?
3. Dave Towne: Restoring Home Appraisal Ordering Commerce

http://www.realestateappraisertips.info/ – Realtor.org Releases Tips To Keep Appraisal Issues From Stopping Your Deals…This Home Appraiser Has Some Tips As Well.

Here’s This Home Appraiser’s Tips To Keep Appraisal Issues From Stopping Your Deals:

1.) Apply “Declining Markets Adjustments” To Price Your Listings Accurately……The Appraiser Will.

Why Are Appraisers Applying “Declining Markets Adjustments” to their sold comps, per National Appraisal and Lender Guidelines, and some Agents don’t even know that “Declining Markets Adjustments” exist? I was reading here recently on Active Rain about Agents that are shocked by “Low Appraisals”, some because of this new term, “Declining Markets Adjustments”. On 8/3/2009, Active Rain sent out this national email: “Under Appraisals! The Next Shoe To Drop?“. In this post, Dean Moss, describes what seems to be a new phenomenon and says, “In the average neighborhood of Chicago, our Team has seen appraisers apply a one-percent depreciation factor per month to their appraisal reports. So, for example, a house appraising for $200,000 on May 1st, would now, theoretically, value at $197,000! ” Why is this a new phenomenon to some Agents? Haven’t some housing markets been declining now for almost 1.5 to 2 years? Did you just expect the appraisers to ignore obvious market trends and not apply “Declining Markets Adjustments”? Why is there a disconnect between Agents and Appraisers on this such obvious issue? I mean, if one looks at the housing market chart below, prepared from MLS data that both the Agent and Appraiser both have access to, one can clearly see the steep dropoff of pricing since 8/2008. Yet, there are still Agents out there that will price their listing as if it were the year 2007 or 2008. And, some of these Agents are the ones crying foul or “Low Appraisal” when it’s obvious that some ignored the declining market when applying that listing price.

FNMA 1004 MC. This Chart above is what appraisers use to complete the new Fannie Mae Form 1004MC, effective 4/1/2009. The “Low Appraisals” Issue didn’t begin with HVCC. It began with the 1004MC. The 1004MC provides numerous “sub-market” trends, those solds and listings that are actually comparable to the subject property, as opposed to general trends, which could be rosier and more broad. The 1004MC provides such trends as months supply of housing on the market, listing to sales price ratio, absorption rate, total comp sales and listings within past 12 months and opens the eyes of the appraiser regarding the prevalence or lack of seller paid concessions. For instance, the S.M.A.R.T. Appraiser software I use breaks seller paid concessions down into Percentage of Sales With Contributions and Percentage of Contribution To Sale. When both seller paid concessions and percentage of contribution to sales reach near 100%, then I know there is extreme seller motivation or duress in that market.

THIS IS WHY I HAVE STATED: An 18-Month Moratorium Of HVCC Isn’t Going To Entirely Solve The Low Appraisals Issue. Both Appraisers AND Agents must be truthful and responsible in defining market trends and pricing accordingly.

2.) If About Half Of US Mortgages Will Be Underwater By 2011, then shouldn’t Agents be more realistic in their listing prices, be more clued in as to the perhaps declining markets they serve? The Lending Market Is.

Reuters Just Released: “About Half Of US Mortgages Underwater By 2011″, see here. The article states: “NEW YORK (Reuters) – The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday.” “Home price declines will have their biggest impact on prime “conforming” loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac, the bank said in a report. Prime conforming loans make up two-thirds of mortgages, and are typically less risky because of stringent requirements.”

3.) Don’t Price The Listing Based On The Seller’s Price Or What The Seller Wants Just To Get The Listing…..Price The Listing Based On Solid Recently Sold Comps And Pending Listings Adjusted To Local Listing-To-Sales-Price-Ratios. And, have those comps in your listing workfile.

I can’t tell you how many times, PRE HVCC when appraisers were able to call Agents after the appraisal inspection, when I would be appraising a purchase where I needed to find out the comps used to market the home that high. Instead of reaching into their workfile, the Agents would get on the computer and send me an MLS CMA of 10 active listings (not pendings) and 6 sold comps, which had sold over 6 months ago and some were 500sf smaller in living area size, but matched the listing prices price per sq. ft. (not by any stretch of the imagination an apples-to-apples comparison). By them sending me a current MLS CMA from that day (the date is on the printout), I knew some of them had not done their homework and how much weight to give to their method of pricing…..not much. Appraisers know when the Agent priced just to get the listing as opposed to pricing based on market support.

4.) Don’t Just Run A Simple MLS CMA And Think You’ve Done Your Sellers or Buyers A Great Service. Deduct 100% Of Seller Paid Concessions From Each Sold Comp You Use……because the appraiser will to bring the sales price to “Cash Equivalency”.

If you use a comp that sold for $299,900 having 2,500sf living area with $9,000 in seller paid concessions, then deduct that $9,000 for a net sales price for that comp of $290,900 and base your listing price on that $290,900, not the $299,900 reported in MLS. The appraiser will deduct that $9,000 as well to bring the transaction to “cash equivalency”. The true sold price per sq. ft. is $116.36/sf, not $119.60/sf.

If you’re using Pending Listings as comparable indicators, then apply the local Listing To Sales Price Ratio to that Pending Listing Price……..because the appraiser will as well…..we’re required to. Say you’re using 1 pending listing in the same subdivision, listed at $305,445 and in that market, there is a solid 95% Listing-To-Sales-Price-Ratio. What do you do? Responsibly, you would apply the 95% to the current listing price of $305,445 to arrive at support of $290,173.

Get that number or support and then if you know that market is going to ask for some closing cost, adjust upward some. But beware that appraisers are deducting seller paid concessions to arrive at cash equivalency. MLS systems across the U.S. don’t deduct for seller paid concessions, so when Agents run their MLS CMAs in markets where seller paid concessions are prevalent, then the CMA results are usually over-inflated.

5.) To Avoid Low Appraisal Issues, Actually Physically Measure The Home You’re Being Paid 6% +/- To Represent. Then, own and use a sketching software that calculates the accurate living area and provide your seller with that sketch.

There have been deals this year that had to re-negotiated all because the Agent just didn’t bother to measure the home they were representing….or the agent just chose to copy the previous mls sheet. One deal appraised $20,000 less than P.A. all because the Agent failed to measure the home. This was a $500K+ deal where the Agent was making a $30,000 fee at 6%. Do you think the Sellers were not upset with the Agent by losing out on that $20,000 and having to pay the Agent $30,000 for mis-representation? Probably So. The buyer was ecstatic. If appraisers are paid between $225 to $300 now AFTER HVCC (appraisal fees are about 30% lower now because of HVCC and advent of using AMCs – appraisal management companies) and are required to submit a sketch of the home, then why aren’t Agents required to do the same as part of the profession BEFORE REPRESENTATION OF THE HOME AND A PURCHASE AGREEMENT IS WRITTEN when they are paid 6% +/- of the sales price. If the average home sells for say, $225,000, that’s a 13,500 fee. If you asked the average seller if they thought that they should receive an accurate sketch of their home as part of the $13,500 fee, they would overwhelming say yes. If you asked the seller if it was OK for the appraiser to perform an appraisal of their home but just not bother with measuring the home, what do you think the average seller’s answer would be? See the disconnect here.

JUST FOR THE RECORD HERE!

MANY PROFESSIONALS IN OPERATION. I believe that in any home sale transaction, there are several “Real Estate Professionals” at work – the Listing Agent, Selling Agent, Lender, Home Inspector, Appraiser and Title Company. I believe that if after my appraisal inspection of the home, I’m coming in below the sales price, I should be able to communicate with the Listing Agent to find out exactly what was used to market the home, what comps I’m missing or may have overlooked. My understanding is that HVCC now prevents this communication with the Listing Agent, AFTER the initial home appraisal inspection. However, when setting up the initial appraisal inspection with Listing Agent, I have my staff ask for the comps used to market the property and document this in the workfile. If the Agents don’t want to provide these comps and then later complain that I didn’t give them professional courtesy, I pull out the workfile and remind them of when I asked for the comps upfront. The Hint Here: When The Appraiser Calls For The Initial Inspection Of Your Listing, Provide Them With Any Extraordinary Features Of The Home And Your Comps From Your Workfile.

HVCC. This Appraiser wasn’t for the passage of HVCC, which has resulted in appraisal ordering through AMCs, resulting in “Low Appraisals” in some cases, 30% +/- Lower Appraisal Fees For Home Appraisers And The Use Of Out-Of-Town Or In-Experienced Appraisers That Don’t Know YOUR Local Housing Market. This Appraiser didn’t need the touted “Appraiser Independence” that HVCC was supposed to be bestow on appraisers as I didn’t bow to the pressure. I fired the mortgage brokers that pressured and worked for the lenders that did not. YES, I clearly understand that HVCC has it’s problems. Yes, mortgage underwriting that requires comps that sold within 3 months and within 1 mile of subject isn’t always realistic or logical. But, from my tips above, one can see that HVCC isn’t entirely to blame for the “Low Appraisals” issue as this issue begins with the initial listing price and whether that price is realistic based on a 1.5 to 2 year history of some declining markets, supportable and RESPONSIBLE. Responsible could apply to those statements on the MLS Sheets like, “Measurements Not Warranted By Realtor or Broker”. If the Agent or Broker aren’t responsible for the initial presentation of the listing’s facts, at say $150/sf, then who is? The appraiser that later on after the P.A. has been written discovers that home is actually 200sf smaller in size and then the P.A. has to be re-negotiated? Agent-Due-Diligence has a part to play here.

Related posts:

1. Lender Requests Appraisal Update With An Expectation Of 10% Increase In Value Since 2007 Appraisal…..Huh?….in 2009?
2. Real Estate Appraiser Tips: New Home Appraisal Regulations Stricter than HVCC
3. Home Appraisers: Are Real Estate Agents Now Being Treated As Suspects Of Housing Collapse?

http://www.realestateappraisertips.info/  -  Frank Gregoire On An Appraisers View of HVCC, Sub-prime, The market and more

Dennis Norman with Real Estate Investors Daily Blog has published an interesting interview with Frank Gregoire.  Frank Gregoire has been licensed in real estate since 1976 and involved in real estate appraisal since 1977.  He has experience as an instructor of Real Estate License Law, Real Estate Brokerage and Real Estate Appraisal for St. Petersburg College as well as several private Real Estate Schools. 

The link is at: http://realestateinvestordaily.com/?p=790 

A short snippet from the interview includes:

“An appraiser is engaged to ferret out such transactions.  If the appraiser is acting professionally, and doing their job properly, these fraudulent sales stand out like a sore thumb and should not be included as comparable sales.  Unfortunately, it takes only a few appraiser involved in a number of appraisal assignments to allow the schemes to be successful.  The wreckage resulting from their negligence is apparent all over the country, particularly here in the Sunshine State.”

Be sure to check out Dennis and Frank’s Blogs, link are above. 

Related posts:

1. Real Estate Investors Daily: HVCC, AMCs and the Appraisal Industry; a view from the inside
2. Dave Towne: Appraisers Dodd-Frank Bill Has A Bright Fee Light
3. Bankrate.com: Summary Of Real Estate Appraisal Rules Changes In Dodd-Frank Act 2010

http://www.realestateappraisertips.info/ – Lender Requests Appraisal Update With An Expectation Of 10% Increase In Value Since 2007 Appraisal…..Huh?….in 2009?

Here was my reply to this lender:
Please find attached 3 SMART Appraiser MLS graphs showing both Median Sales Price and Median Listing Price Declines for the subject’s “Sub -Market”. These are the solds and listings actually comparable to the subject home since 6/1/2006 and there are only 24 of them. So, this is not a big, broad general opinion of subject’s MLS Areas.

Since 12/2007, SMART shows a -11.4% Decline in Median Sales Prices of competing solds

Since 04/2008, SMART shows a -15.8% Decline in Median Sales Prices of competing solds

Since 04/2008, SMART shows a -13.8% Decline in Median Listing Prices of competing Listings

So, this market is Declining, sales generally take over 6 months to sell and you’re at a 95% Listing To Sales Price Ratio – All of these not being positive indicators for your refinance.

So, it would have been totally unrealistic in this market to have expected an increase in value of any sort. Within this housing market, home values have either been stable or declining (not majorly), not generally increasing since the last appraisal in 2007. Based on the SMART Median Sales Price Chart from 4/08 to Present, the appraiser would apply “declining markets adjustments” to the comps used and deduct -2% to -15% from their sold price, depending on how recent the sold comps took place. The more recent the sold comp, the less adjustment. The older a sold comp’s date of sale, say in 2008, the more adjustment applied. This new requirement would possibly blow any chance of this home appraising for what it did in 2007, $###,###. Plus, the Listing-To-Sales Price Ratio currently is only running at 95% of listing price. This means that buyers are only willing to pay 95% of the average listing price, meaning sellers are more motivated to sell. The new requirement is to use 2-3 listings in appraisals and I would have to deduct -5% from each listing price.

As you can see, Fannie and Freddie Mac have totally re-engineered the appraisal process, requiring much deeper market analysis and much more stringent market supported adjustments. This is where the “media-driven” terms “Low Appraisals” are originating. And, how did the media catch this “Low Appraisals” ball and run with it as they are doing? Are they being paid to do so? And, mortgage underwriting has changed drastically – they want sold comps within 90 days and no more than a 1 mile distance from subject……and this can be totally unrealistic on their part. There have been far fewer sales taking place in all markets in this price range.

No, the XXXXX XXXXXX Meadow Ave 6/2009 sale won’t help. This home is 752sf smaller in living area size than subject’s X,XXXsf. If this sale were used as a comp, it would mean a gross living area line adjustment of over 10% to 20% and underwriting tolerance total for the gross/net differences in sold comps is 10% to 15%. If this comp were used as a sale, any underwriter or appraiser would not weigh it heavily because of the huge difference in living area size and the resulting gross/net adjustments that would exceed underwriting guidelines.

I do appreciate the opportunity to have appraised this home in 2007, Sincerely! However, with the new appraisal guidelines, the lack of sold comps supporting a higher value, the lack of current listings supporting a higher value and the attached SMART charts showing significant market declines, the market itself can’t help your client achieve a higher appraisal than in 2007.

Thank you,

Bill Cobb, Appraiser

Related posts:

1. How SMART Appraiser Software Aids In Forensic Real Estate Appraisal Assignments
2. Realtor.org Releases Tips To Keep Appraisal Issues From Stopping Your Deals…This Appraiser Has Some Tips As Well
3. Altos Research: November Housing Market Update: NAR, Case-Shiller & What We’re Seeing

http://www.realestateappraisertips.info/ – Appraisal Institute Responds To NAR’s Chief Economist, Lawrence Yun’s Irresponsible Appraiser Bashing Comments From Last Week

There’s a new post on AG Mag’s  www.agentgenius.com entitled, “Appraisal Institute to Yun – Not the Fault of the Appraisal but a Fault of the Market Today”.   This is a very good response from AI’s President, Bill Garber, who said:

“We take offense with the notion that the appraisal is only good if it happens to come in at the sales price. That mentality helped cause the mortgage meltdown to begin with. The fact that the appraisal does not match the sales price is not the fault of the appraisal but a fault of the market today.”

“In a typical real estate transaction [such as a buyer seeking a loan], our clients are the lenders. Appraisers provide lenders with information that protects them from making questionable loans and investments and helps them minimize risk. However, that should not suggest a bias toward lower valuation. Appraisers reflect the market, and sometimes, the markets don’t act like we want them to or hope they will. …competent and professional appraisers understand this and develop credible estimates of value that ultimately ensure that lenders loan the proper amount, buyers don’t pay too much and sellers get a fair price.”

Here’s the link to the article for your reading: http://agentgenius.com/g-rants-insanity-more/real-estate/appraisal-institute-to-yun-not-the-fault-of-the-appraisal-but-a-fault-of-the-market-today/

Related posts:

1. Appraisers: Dave Towne On Fannie Mae Changes To Selling Guide Wins Appraisal Institute Praises
2. If There Are More Appraiser Members Of NAR Than Of Appraisal Institute or All Appraisal Organizations, Then What Does This Mean?
3. Appraisal Institute Withdraws Sponsorship from TAF: What Was TAF Thinking?

http://www.realestateappraisertips.info/ – HR 3044 18 Month Moratorium On HVCC WILL NOT Cure The “Low Appraisal” Disease Issue

I’m reading this morning from the Mortgage New Daily Email about “HR 3044: To Impose 18-month Moratorium on HVCC“. The reasons given for the moratorium are these below as directly quoted:

“In the period of time since its implementation, the HVCC has increased costs to consumers and decreased the quality of appraisals and has provided a level of uncertainty in an ailing housing market. Tens of thousands of consumers have already been robbed of their opportunity to enjoy historically low rates by Attorney General Andrew Cuomo’s rule.”

However, according to the media generated buzz, the outcry in the past 3 weeks hasn’t been so much been about HVCC but the media issue of “Low Appraisals”. Just look at these recent headlines:

Bloomberg: Home-Price Recovery May Be Undermined by Appraisals

Christian Science Monitor: Are low appraisals slowing US home sales?

CNN Money: Appraisers wrecking builder sales?

The Tennessean: Low appraisals nip real estate deals

Steamboat Pilot, CO: Appraisal rules wreck real estate deals

and my favorite of all:

Joe Weisenthal: The NAR’s Appalling Fight Against Honest Appraisals

Yes, it’s true that if the Appraisal Management Companies (AMC) are sending appraisers from 2 hours away to perform an appraisal on a home just because they must use appraisers from a rotating roster, an appraiser that doesn’t know the market in the subject’s neighborhood, then that’s a problem and could result in a “low appraisal”.

However, I like Ben Goheen’s response to the irresponsible comments NAR’s Chief Economist, Lawrence Yun, made this past week blaming appraisers for the lack of a housing recovery, and I quote:

“Mr. Yun is now insisting that appraisers ignore market conditions so houses can sell – isn’t that convenient?

Since every market is local, nobody can rightfully make generalizations about how foreclosures should or shouldn’t be used as comparables in an appraisal. They may be inconvenient, but they are real and often can’t just be ignored. As a Realtor you just have to be aware how they effect your market when writing an offer.”

An 18 Month Moratorium WILL NOT make the Fannie Mae 1004MC Addendum disappear – the 1004 MC is the chief determiner of housing “sub-market” direction and quantification. An 18 Month Moratorium WILL NOT keep appraisers from interpreting housing markets properly. An 18 Month Moratorium WILL NOT all of a sudden give appraisers a set of rose-colored glasses to view their local housing markets. An 18 Month Moratorium WILL NOT keep appraisers from applying “declining markets adjustments” when they are obviously evident and provable by a simple MLS chart. An 18 Month Moratorium WILL NOT keep appraisers from applying the mandated “listing-to-sales-price-ratio” to the 3 current listings they are now required to use in their reports. No, an 18 Month Moratorium WILL NOT keep appraisers from obiding by USPAP, lender guidelines, general appraiser liability issues and/or erase common sense. When an appraiser studies a housing “sub-market” and sees a chart like this below, the appraiser has to do what they have to do – apply declining markets adjustments if warranted.

Bill Cobb is a Louisiana State Certified Residential Appraiser operating as Accurate Valuations Group in the Greater Baton Rouge Market. Bill has 17 years experience as a residential appraiser and carries on the family appraisal career tradition as a third generation appraiser. To learn more about AVG, visit: http://www.batonrougerealestateappraisers.net/

Related posts:

1. Realtor.org Releases Tips To Keep Appraisal Issues From Stopping Your Deals…This Appraiser Has Some Tips As Well
2. Lender Requests Appraisal Update With An Expectation Of 10% Increase In Value Since 2007 Appraisal…..Huh?….in 2009?
3. How SMART Appraiser Software Aids In Forensic Real Estate Appraisal Assignments