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Appraisal Associations Lobby for Change

There is an article in the New York Times about the four major appraisal organizations calling on Congress in a letter to reform the appraisal regulatory structure. The letter was written in light of the recent AP article that exposed inaduquecies in the current appraisal system.

Key quote:

Led by the Chicago-based Appraisal Institute, the groups said Wednesday they want the Congress to approve more money so that state appraisal boards can boost enforcement efforts. They also called on lawmakers to increase the oversight authority of the federal agency charged with monitoring the appraisal industry.

”We have been deeply troubled by the lack of responsiveness by some federal and state appraiser regulators in carrying out (the law),” said Bill Garber, the director of governmental and external relations at the Appraisal Institute, the nation’s largest association for real estate appraisers.

It will be interesting to see if this recent AP expose actually prompts Congress to act. Whether you agree with the appraisal organizations proposed changes or not, I don’t think it takes a brain surgeon to recognize that something needs to be done. The current system just isn’t working.

-Justin Morton

Comments
  1. Douglas Quenzer

    As a certified residential appraiser the real problem lies in how appraisals are ordered. Lenders that have an commission interest in the valuation should not order an appraisal. That is a conflict of interest, and leads to abuse. I don’t know how many times I have been told, “I’ll never order an appraisal from you agina” because I came in lower than the “estimated value.” But AMC’s are NOT the answer. They make it nearly impossible to make a living because they skim off the top, the set unrealistic production goals, and many of us are getting less per apprasial NOW than we did 10 years ago. No good appraiser can afford to stay in business in this kind of environment. Personally I believe the buyers of a property should order the appraisal, and pay for it. They have the most stake in the value. Second the lender where the loan is being placed should order it. They have more of a stake in a realistic value. The mortgage broker, real estate agent, etc. should be out of the loop.

  2. Michael Adnot

    I read the AP article carefully twice, and after a six month investigation that spanned the country, the AP was able to document at most a few hundred complaints against appraisers that went unresolved or were never investigated, over a period of multiple years. Given the tens of thousands of appraisers in the US and the millions of appraisals performed every year, that seems like pretty weak proof that appraisers are the main culprits in the subprime mess. Meanwhile the lenders, and the pressure they exert on appraisers, gets a casual mention in passing. I agree that there are unethical appraisers that should be weeded out, and my state, Florida, has what seems like a pretty robust regulatory enforcement process. But appraisals, even the relatively few inflated ones, are not the cause of the current mortgage debacle. The major problem is low- or no downpayment loans made to people who could not afford them, with little or no verification of the borrower’s employment, income, or ability to make the payments. The collapse of a mortgage industry that makes such loans should not have been a surprise to anyone. Let’s lay the primary blame where it belongs. As an appraiser with 22 years practice, I refuse to be painted as a scapegoat.

  3. Justin Morton

    Doug,
    You make a good point. The difficulty seems to be how do you prohibit the mortgage broker (or those with a direct monetary interest in the transaction) from ordering the appraisal, without in turn, promoting the use of AMC’s. It seems to be a difficult balance to strike, and I’m not sure anyone has the right answer at this point. Though I am open to suggestions.

  4. Justin Morton

    Michael,
    I agree that the ultimate culprit in all of this mess, was home-owners purchasing homes which they couldn’t afford. Lending standards were way too loose.
    That said, there is still a lack of enforcement of appraisers at the local level. And if you can remove the bad appraisers who are engaging in fraud, it will make it that much easier for the honest appraisers to do their job.
    Ultimately, I think it comes down to funding. And the states and the federal government need to make the “appraisal profession” a priority. This means eliminating bad and incompetent appraisers and promoting quality appraisers and quality appraisals.

  5. Jerry B

    Having been “in” real estate in the 70′s and into the 80′s, this “drum beating” by a particular news agency that’s making efforts to lay the blame on appraisers for the current fiancial debacle is really a crock. I agree with a couple gentlemen, (above) which indicate a “too loose” attitude on the part of lenders – they “KNEW” that with the homes going “up” so fast in values, that even if they had to foreclose – the home was going to be worth more than they loaned – thus, they had a weakness – greed. It also shows when these “intermediary” companies tell us they’ve “conducted a survey” and now all appraisal fees are going to be 20 to 25% less than they were 5 years ago.
    What’s really going to be interesting is “how long” those lenders will stay with those “intermediary companies” when appraisers check the “contract” the company wants us to “sign” – and find out their E & O Company won’t cover us/you. The first lawsuit will bring about a major “splash in the face” to the lender & intermediary that realizes the appraiser, “Can’t hold them harmless” – which most of those agreements require. I’m beginning to think we should have a union, much as I’m not particularly thrilled with the thought – but at least we would have some clout.

  6. Tim Goessman

    As Florida Certified Appraiser with 20 years experience to include secondary lending staff experience I can tell you this has been a long time comming. Blame can go all the way around. We thought that Title XI, FIRREA might avert another meltdown but the banking industry was not about to take on additional overhead for self regulation. Thats how we got “approved lists”. Those were based on review assignments that they let the brokers order out themselves, yeah lots of quality there. Then the advent of automated desktop underwriting allowing mortgage originators a dozen or so submissions on the same file till they “tweaked” out an approval. Banking then found less of a need for real “live” underwriters and went to “underwriter techs” with a appraisal checklist produced by banking managment. Cut that overhead and increase the bottom line. Add in the last dodge of regulation that occurred in the “boom” years, automated valuation, backed up by a commissioned brokers price opinion and a loan is originated with the least amount of overhead. Banking made it even easier when the “exotic” loan programs started. Remember, if these loan programs were not offered the independent mortgage brokers could not have sold them. But all this is past and the current way of regulation has driven banking to the next “appearance” of quality control…the AMC’s. Cost them nothing, costs appraisers half their fees and certain gambling of their license. It is very dificult to produce a credible appraisal report in a 72 hour turn time with the same overhead of data sources and technology costs. AMC’s are unregulated and appraisal “independence” is a joke. Instead of “hit this nnumber” you get more like “our guidelines state that the opinion of value MUST be X% from the top comparable”. Same pressure stated different. Also pressure comes in other ways. In the mid and late 90′s banking was more conservative and the pressure was to produce a “conservative” value opinion. Banking needs and wants change with the business mission statement from corporate. As far as the individual appraisal boards go, sure they are underfunded and have a backlog. So homeowner complaints and quality assurance complaints are treated the same way. Increase the fines, send out a signal to all appraisers. The appraisal Boards will tell you they are not the value police. But these boards will never address the failings of an appraiser who is able to make those “tricky” deals work, banks collect origination fees and everybody gets a commission. These appraisal reports never see the light of day, everybody is happy and no complaint is generated.
    This probably will not be fixed. AMC’s are probably here to stay as they are good for the bottom line of the banking industry. Market perception, I am afraid, is that all appraisal reports can be done in 72 hours (or less) and fees should be no more than $150-$200. Thank AMC’s for that. Plus the added bonus that these reports are tied to only one lender. The consumer who looks for a better rate or deal will have to pay for a few appraisals. Professional educated appraisers with many years experience and judgement now looking at the industry as a $10-$12 an hour “job” rather than a career. My personal take is that the future will be all AMC’s and reporting will be on an format than can be downloaded right to a automated value model. In the future, after all the professional appraisers are driven out, big banking will plead that there are not enough appraisers to handle their volume and the regulators will let them use their statistical software and tools that have been developed over the years based on hundreds of thousands of appraisal reports currently in the database that we gave them. So blame, as far as I am concerned, goes to those who profited the most. Not homeowners in over their heads, not mortgage brokers who sold the programs that banks made available to them, not appraisers who committed “outrageous optimism” in their value opinions for the same usuall fee, but the banking industry as a whole and their Wall St managment. Just follow the money.

  7. Paul Bartoletti

    There are a lot of mitigating factors for the melt down. Appraisals are just one facet. As a real estate agent I have seen appraisals done on both slopes of the market. They have all seemed to miss the mark to some degree. I have been told by so many appraisers that they only consider a limited number of factors – current sales, living space sq ft adjustment, lot sf adjustment, pools, fireplace, garages, and site differences. They do not look at the features in the home and do not add or take away for feature value. I believe that the monetary value set by appraisers currently for the features listed above should be used in the form of a standard worksheet thereby doing away with the need for an appraiser altogether. Just plug in the comps that match, annotate the differences and the work sheet calculates the end figure. Appraisers are often not familiar with the comps they are using, having not looked at them or even contacted the listing agent about the condition of the property. The often used argument that features factor little in the value is the same argument I site for the move to a standardized worksheet.

  8. James Foust

    It appears to me that if we are going to be given a fair chance to do what should be done without pressure from anyone. Instead of the appraisal being the last report to generate in establishing valuation, what would happen if the appraisal report was the very FIRST item to be completed. There would be no pre-determined value by anyone. We would actually be able to do our job in establishing the most probable value at the time. I feel it would simplify many areas in the industry of real estate. Instead of being at the end of the food chain, we would be the starters and then the mortgage companies would have to work with our values, not the ones they need to make a deal.

  9. All good points. I am a Real Estate Agent as well as Certifed Residential Appraiser.
    “Scapegoat” was the key word used by Michael Adnot. The blame needs to be placed somewhere and why not place it on the one that gets paid the least amount from the deal, the ones that have the least clout and the ones who can actually lose a license. The ones who benefit the most are taking the least amount of heat. And we all know why that is. The banking industry does not want any more regulations and they get what they want. So, as we are on the bottom of the food chain as stated by James Foust, we are also the ones to be chastised, watched, blamed, regulated to death, until we all walk away with our tails between our legs and the banking industry will continue on and continue to get bailed out by our tax dollars.
    Most appraisers are decent people. We work hard to get and maintain our licenses and dont want to risk losing it for a mere few hundred dollars. I think the answer lies in making mortgage brokers license their staff. In the recent housing boom, I had more mortgage officers order appraisals for mortgages who did not understand the least of what they were doing, or the ramifications of their actions, or the fact that what they were asking for was illegal. These mortgage companies pulled anyone off the street to sell mortgages, with little or no training. The people that sell mortgages should be licensed and regulated. If they had to risk losing their license in order to make a deal work, they might consider twice before acting in an unlawful manner. You cannot only regulate one part of a machine and expect it to run smoothly. That particular part will have to be replaced constantly to keep running. Sound familiar?

  10. CORRINNE LANE

    All these comments are really thought through. I again say go back to the root of the problem and fix it which would be who did what first? In most cases untrained, unlicensed loan officers are left with too little guidance except make that loan. They apply pressure. If they were all licensed and required to pass the same USPAP we are required to take and pass, there would be less problems. There will always be those who want to “bend” the rules but at least there would be licensing in place to take care of that. I am from Tennessee and the appraisal commission here does a good job. They just have to wait until someone reports errors. Most mortgage companies will not report unless it benefits them. I am a pro and not a con for the 80/20 loans. Had they been uniform, they would have worked. So would the stated income loans. I had one of each. I had the money to pay the loan payment each month. I was qualified by copies of my bank statements not just sign a paper saying I made “x” dollars. That is a big difference. You proved what you were saying with bank statements. Self employed have a hard time getting loans and being an appraiser, I am self employed. I am in favor of doing away with the undocument loans and keeping the stated income and 80/20′s with proof of funds. I am also in favor of AMC’s if you have a good working relationship and get extras for the fee they charge you. Do a good job and get paid. Do a bad job and you will not work They monitor that really well, or at least the ones I have worked for do. I am not rich but I make a decent living and do not have to beat the pavement looking for work. The money I save in that is far more than what I am charged per appraisal. I agree that those who give you 24 hours to complete an appraisal after the inspection should be punished. I stopped doing appraisals for Chesapeake Management a division of CITI for that reason. I think they go under a different name now but still have the same expectations of the appraiser. I just said no and so can any other appraiser who values their license.Our state will take away your license and levy high fines if you do not follow the rules. Too many lenders have gotten caught up in hiring a certain type of appraiser who is a member of a certain appraisal group over one who is not that they forget about appraisal quality. If we had state organizations much like the board of realtors I feel we would have more supervision on multiple levels. There are no easy solutions or quick fix answers that will last but appraisers have to stick together and stay informed and educated to survive in these uncertain days ahead.

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