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Is it time to push back?

With the recent carnage on Wall Street, one has to ask, is it time to push back? For the past decade or more we have watched as the mortgage industry has become more streamlined. We have come up with no doc loans, no appraisal loans, and 125 percent loan to equity mortgages. At some point in time we have just plain gotten away from basics. In adition, we have come up with numerous cheaper, less detailed and in many cases less reliable appriasal products.

At yesterday’s Appraisal Standards Board public meeting in Chicago, one of the audience members inquired about an APO, which is apparently a product that some appraisers are advocating so that the compete with brokers and their BPO’s or Broker Price opinions. Many in the aduience thought that we already has such a product and that it was called an appraisal.

The biggest part of the Wall Street meltdown is as a result of poor mortgage lending practices, including a variety of appriasal products that were something less than an URAR appraisal.

In addition, many second mortgage loan decisions were made based on BPO’s. So let me see if I can get this straight, you are going to make a mortgage in the second position (with the greatest risk) and you are going to rely on a valuation prepared by someone with far less training and exprience than a qualified appraiser because you want to save some money!? So how’s that working so far!

All kidding aside, now is a good time for the profession, including individuals and trade organizations to start pushing back. Instead of saying we want to a product to compete with BPO’s how about suggesting that the client not use that product anymore.

I started in this business 30 years ago. IN every residential sale you had to have an appraisal and a credit report. The lender wanted to make sure the the borrower had the ability to pay for the mortage and that the collateral would provide the protection needed in case something went wrong. Seemed like a good idea at the time!

IT IS TIME TO GET BACK TO BASICS!.

Joe Traynor

Comments
  1. So let me see if I can get this straight, you are going to make a mortgage in the second position (with the greatest risk) and you are going to rely on a valuation prepared by someone with far less training and exprience than a qualified appraiser because you want to save some money!? So how’s that working so far!
    Ha! Well said, Joe.
    It does seem that if the lending industry had just paid a little more money for a quality appraisal, they could have saved themselves a lot of money in the long run.
    Of course the problem was that the person ordering the appraisal wasn’t the person holding the loan in the end. But I suspect that is beginning to change.

  2. Jerome Nagy

    I would hope that for any residential loan (first, second, refi, etc.) that an appraisal would be required. If I were a lender I would want an appraisal for anybody using their home as collateral.
    Good post, Joe. I think with the credit markets tightening and all these institutions failing that we are seeing a return to basics. It’s hard to find a mortgage unless you get FHA or have 10 percent down. Hopefully the rest of the industry is returning to normalcy as well.

  3. I have seen many BPOs. Mostly from realtors and some lenders trying to get me to change my opinion. From what I have seen, realtors do not have many guiding principals when creating them. They don’t know what adjustments should be made, how to derive those adjustments, and they use whatever comps available in the market to make the value the highest it could possibly be, as if their commission depended on the home selling for that price. Also, their BPOs are based on unverified, sometimes unreliable information that they assemble as they sit in an office somewhere. AVM models accept a 10-25% variation as acceptable. So, the ONLY answer for accurate property values is to have a real live appraiser VISIT the property and comparables and develop a market value based on the analysis of the market.

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