Thanks FHFA, for the clarification?

Pre UAD

The subject is a one-story, brick veneer residence, found to be average quality for a site-built home built in 1973. The condition was rated as average, with no deferred maintenance noted and no need for any immediate repairs.

UAD Compliant

C3; No updates in the prior 5 years; no need for repairs noted.
See you around the water cooler!
UncleZev

Will the Madness Ever Stop???

Having spent the day commiserating with my fellow appraisers, I have to admit the policies and procedures of most reviewers, underwriters and lenders  have finally crossed the line from insane to inexplicable.  It was bad enough, 23 years ago when an appraiser was asked to document two independent sources of data or to provide interior photographs to show each room. Then not to long ago some appraisal management companies started to believe that when FHA asked for two photos to show an oblique view, they actually meant the appraiser had to take four photos one showing the front, one side (A), the back and one side (B).

But now appraisers are asked to provide exterior photos, interior photos, multiple views of rooms (for instance if all appliances are not shown in the view of a kitchen, take a second photo to show the dishwasher). But one appraiser called me today, because he provided the second photo of a kitchen to proactively show the dishwasher only to have the lender bounce the report because the sketch and report failed to discuss the second kitchen.

I am sorry, when does alternative view of kitchen constitute a dwelling with two kitchens. I am completely for appraisers presenting a document that is clear, well supported, and correct. I am all for having the appraiser present a detailed summary of the search criteria that was used, and perhaps even a one line listing of the alternatives that were available at the time of the report. But what was the point of the appraiser providing all of this data? Was it so that some nit-wit reviewer (like me) can then beat the appraiser about the head and neck with the extraneous data that was reported?

What happened to a time, when the clients were careful to only use real estate appraisers who had established their reputations for excellence and accuracy? Yes, I understand to find this time you are forced to go back several decades, beyond when my career started. But it used to be enough to do business with people of character, then when they said yes – it meant yes. Should they say no, it was because they were unable to find market support. This system of trust, of course is unrealistic, because there are entirely too many ways to cheat the system and hundreds of billions of dollars can corrupt the hearts of men. So this brings me full circle. We now have a system of review that forces the appraiser on the immediate defensive and without the ability to provide a detailed body of evidence the appraiser is left hanging.

Independent, impartial, and objective, wasn’t that suppose to be the mantra? Today’s legislation has forced appraisers to take all of their business and place it into the hands a few management companies. In turn, if you upset one client, the management company may take you of off their list which then means you could be excluded from the other 35 companies (or more many more) that the management company represents. The character of an appraiser is being tested more now than ever, and I believe that review appraisers need to begin to be the voice of reason within their respective companies. So what’s the problem? The problem is that appraisal management companies are not formed as buffer between the client and the appraiser. They are not formed to protect the interest of the public. They are formed because there is a very large profit to be made. The company that can successfully produce real estate appraisals that please the client will continue to get the work, and when you are representing a nationwide data base of every available appraiser it is not a problem to sift panel until you find those individuals who are willing to give you the product you seek.

Okay, time out!!!! Am I suggesting that in our attempt to make things better, we simply traded one set of task masters for another set? Well, frankly that is exactly what I am suggesting. Do not misunderstand this post, there are reputable appraisal management companies, and reputable lenders who are simply trying to make a profit and keep their employees busy and, well, employed.  There are just as many reputable real estate appraisers who are doing their jobs well and holding up the standards that is to say Uniform Standards of Professional Appraisal Practice (USPAP) with pride. The concern that I have is that we have once again set up a system where a few can dictate the livelihoods of many. This very system places pressure on those who are mandated by law to be Independent, Impartial and Objective.

Okay, so this is the system we have. How do we proceed? For some of us, it is simply time to move over and let younger, stronger, smarter leaders prevail. For others, it is time to engage and to talk and write to anyone who will listen about how systems of production and appraisal need to change so that the client has the ability to receive prompt professional appraisals and the appraiser has the flexibility to produce a well supported opinion of value without the client being able to dictate the predetermined results.

For now – suffice it to say this. Review appraisers, (whether they work for the lender, investor, auditing firm, criminal investigations (like the FBI, or IRS), or they work for an appraisal management company), need to remember that they are bound by the same laws as independent fee appraisers with regard to independent, impartiality and objectivity. At the end of the day, we are the ones who are charged:

1) to have common sense

2) to promote and protect the interest of the general public

3) to use those methods of appraisal that have been tested and proved to be reliable indicators of market reaction

4) to  accurately and objectively analyze the market data to determine value

5) and present our findings in a clear, easy to understand manner.

and as the reviewers, we should make sure the appraisal was presented in a way that reflects all of the above.

The task is daunting, yes, but if we are truly honest with ourselves this entire process is the same process that was supposed to be in place, and for a very large part was in place to start with. So why did it fail? Because key components, checks and balances if you will, were removed from the process and more importantly the character and capacity of the loan was radically changed. As appraisers we are trained to evaluate the collateral, the collateral valuation should be the same whether or not a borrower has a dollar or several million of them. The very idea of “making business decisions” should never have included the review appraiser. By design the underwriters and reviewers were kept apart in doing someone could go to the underwriting manager and say “the collateral is sound, please make an exception on this file” and at the same time go to the review manager and say “the borrower is strong, please make an exception on this file”. Pushing both sides of the deal and creating pools of non-performing loans.

Ok that was then, this is now. How do we keep from making these same mistakes? Simple, pull the power from the all-star sales managers. Keep the operations, underwriting and appraisal managers all on the same page so that everyone understands and knows the level of risk that is being proposed and make sure the loan is priced at a level that accurately reflects its risk.

What has not be discussed, is the investors who purchase this bad paper. There has been some kick back, but I anticipate the ramifications are yet to be felt.

Rather than a post, this is more of a ramble – or a rant. Either way, I feel better.

See you around the water cooler.

 

UncleZev

So What’s Your Problem?

One of the biggest challenges that appraisers face today is meeting client requirements. Each and every lender is developing their additional requirements that are placed atop the Fannie/Freddie/HUD guidelines which are fairly exacting to start with. Then you add to the mix UAD and most of us go home at the end of the day looking for a good stiff drink.

My suggestion is that each of us take the time to become experts for our clients, to know their guidelines better than they know them. In this way, our value to our client increases as we help them navigate the murky waters of “underwitting” and review. Oh, I know I should not pick on under-witters, some of my best friends are under-witters. In fact some of my friends would tell you I too was once an under-witter, or perhaps I still am – but I digress.

Knowing the client expectations is part and parcel of defining the appraisal problem. It will save you hours of frustration during the review process. It may also save you $1,000’s in court costs. Bear in mind that we are now in an age of kill or be killed and many financial institutes have already died. Capital Investors are now getting very cranky as they determine that the representations and warranties that they purchased to back the derivatives were invalid. The problem is that any portion of a representation can be invalid if a component of the loan package is found to be in error or simply out of compliance. Attorneys have gotten smarter and have started to investigate appraisal reports not only for compliance with Fannie/Freddie/HUD/USPAP/FIRREA but now for compliance with lender guidelines as well. Not only the guidelines of our original clients, but also for the lenders who may have inherited the loan, or purchased the loan before re-packaging and reselling. If the appraisal is found to be out of compliance in any one step, the loan package can be challenged and with enough challenges, the derivative can be sent back to the issuing GSE.

Watch out ladies and gentleman, it is going to get a little crazier around here.

See you around the water cooler!