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House Leaders Question Mortgage Appraisal Plan

House leaders are questioning Obama’s mortgage refinance plan, which relies heavily on BPO’s and AVM’s. From the New York Post:

Another aspect of Geithner’s plan that is being questioned by lawmakers involves the house-appraisal mechanism the White House proposed using to modify existing troubled loans.

In the run-up to creating the subprime nightmare, the unregulated assessment process used the Broker Price Opinions (BPO), which uses comparable sales but has built-in biases. Among those, appraisals tend to be high because brokers don’t earn a commission if a mortgage is unfunded because of a low assessment.

Also, the Automated Value Model (AVM), which relies on comparable sales, uses a computer algorithm to come up with a final assessment.

“Appraisal independence is of great importance to all homebuyers and homeowners who own or want to own a home. I have therefore fought to improve appraisal independence for many years and I am continuing to do so. Next week, the Housing Subcommittee will hold a hearing to address mortgage modifications, and I expect that home valuations will be discussed,” said Rep. Paul Kanjorski (D-PA), a ranking member on the Finance Committee.

According to mortgage industry sources, the Obama administration is planning to rely on these two models to rescue homeowners from foreclosure.

According to RealtyTrac, foreclosure filings in the US climbed 30 percent in February.

“Going forward, reforming the appraisal process to prevent inflated pricing will be critical to ensure we don’t repeat the mistakes of the past,” said Rep. Carolyn B. Maloney.

“These two models were instrumental in creating the housing bubble,” says James Amorin, president of the Appraisal Institute.

In my mind, the biggest drawback to BPO’s and AVM’s is the lack of transparency. It seems to me that it’s too easy to just create computer models that will spit out whatever value you want. But then, maybe that’s the point.

Comments
  1. BPOs are a joke

    As an appraiser and realtor I have performed BPO work and all types of appraisals. I can assure you that the “valuation” you receive from a $40 BPO is representative of what you have paid for. You CANNOT supply valuations at a rate of $40 per assignment and spend the time necessary to develop a reliable estimate. What in the hell are we doing using $40 reports to value these properties? You get what you pay for!

  2. Craig Younger

    As a real estate broker, and someone who has performed BPOs, I can tell you that the BPOs are not the problem. BPOs are an easy way for banks and mortgage companies to get a quick, reasonable valuation of what the current market is showing pricing to be. The issue is when the banks push back on these BPO companies and question the BPO valuation as being too low or too high. These BPO companies have guidelines that they follow, however the issue seems to be the banks pushing back and questioning the valuations. Typically, these valuations are brought into question by leveraging the use of a prior appraisal. The key is not caving into the pressure of what they want but giving a fair valuation of the value based upon your opinion, and sticking to your guns. Unfortunately, I have seen a lot of appraisals that exceed or go outside the parameters of a BPO to get the appraisal completed. When this happens the bank is basing their judgement off something that is comparing apples to oranges, not apples to apples. The attitude is almost —since they are an appraiser then they must be right mentality, which from what I’ve seem is not always the correct assumption. Believe me –I am not stating that all real estate agents are best at doing BPOS, and that we should not trust appraisers. It seems if the whole community —bankers, mortgage brokers, appraisers, and real estate agents took more time and care truly trying to get the correct valuations, then we would all be in a better situation now and going forward. As we all know, it only takes a few individuals to ruin it for the rest of us. I do think if we all work together as a group, and try not to point fingers at each other, and do the right thing —we will prevail.

  3. David

    QUESTION OF THE DAY
    Why require an appraisal license if every Tom, Dick, & Harry can do valuation work for banks without their license?
    Obtaining an appraisers license requires a minimum of 2 years experience in most states. In my opinion an appraiser with 2 years experience knows just enough to be dangerous. Yet…anyone can do a BPO for a lender NO EXPERIENCE NECESSARY!
    Earning a real estate license requires about 2 weeks of classes in our state. With 2 weeks of class work, a passed state exam, and NO EXPERIENCE a Realtor can go out and sell a home and earn an income. Neither appraisers or anyone else can sell a home to generate income without a license.
    Is it just me or is there something wrong with this picture?

  4. Dawn

    I have done many BPO’s (and your right we’re WAY underpaid) and I can tell you they are far more Representative of the Market Value than any Appraisal. My Buyers Appraisal on my last Short Sale (which I had to cut my Commission to get it to close for the SELLERS)came in over $40k what we had offered on the property. BPO’s weigh heavily on current SOLDS and if that is what a house is selling for, who can argue that? Someone has to be willing to pay what your asking and Buyers are much more informed on Market Value than they used to be. Also, a Broker has NOTHING to gain by bringing in a higher value because A) when providing BPO services they are asked not to accept orders on properties which they, or their brokerage, may have an interest in and B)even if they did, what good would a Listing, that wasn’t going to sell, be to anyone? Finally, BPO Companies do ask that your are licensed and have at least 2 years experience, most 3 years, they also ask for proof of both, as well as references. Obviously, everyone here has an oppinion, but that doesn’t mean they know what they’re talking about. It wasn’t BPO’s that got us here, that’s for DARN sure.

  5. David

    I would love to see the above paragraph on the NBC news. A BPO which is completed by someone with no experience gives a better indication of value than a full blown appraisal (with an interior inspection) done by someone with at least 2,000 hours of experience.
    I think I’ve heard it all.

  6. John Murden

    Here is a Fannie Mae document that contradicts the current policy for the current mortgage modification program. Fannie Mae states that it is important to do an interior/exterior inspection appraisal to remove mortgage insurance, but in contrast, it is ok to use inaccurate forms of valuation for the taxpayer funded modification program. You would think that someone would care since this is the largest housing and financial crisis since the great depression.
    https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2007/0725.pdf
    Use of Automated Valuation Models (AVMs) to Support the Cancellation of Mortgage Insurance (MI) Coverage
    Servicing Guide Part II, Section 102.05 Borrower-Initiated Cancellation Based on Current Property Value.
    “Fannie Mae has received several inquiries related to the use of an Automated Valuation Model (AVM) to establish the current property value to support cancellation of mortgage insurance (MI) coverage. As stated in the Guide, a borrower is allowed to request cancellation of borrower-purchased MI coverage for any conventional mortgage, regardless of closing date, when that loan reaches a specified loan-to-value ratio. But the Guide requires that the value to be estimated by a current appraisal based on an interior/exterior property inspection. For certain mortgage loans, Fannie Mae allows cancellation of MI coverage based on the current appraised value if the mortgage loan and the borrower meet stated conditions. The use of an appraisal provides a real time analysis of market activity, including a physical inspection of the subject property, to arrive at an accurate valuation. However, an AVM, relies on public record information to determine estimated value without any assessment of the current condition of the property. As such, Fannie Mae will not permit the cancellation of MI coverage based on the estimated value provided by an AVM, since a real estate appraisal completed by a qualified appraiser is the most appropriate standard and most reliable indicator for determining property value.”
    If the government is not going to use professional licensed certified real estate appraisers, why do we have mandatory real estate appraiser licensing laws in most states?

  7. Joe H.

    That is a concise and well expressed post, David. And taking your point a bit further, in addition to her demonstrating a lack of knowledge about the appraisal process, not to mention the requirements for obtaining state certification as an appraiser, Dawn’s post displays a disturbing lack of basic grammar and spelling skills. As a fellow appraiser/Realtor wrote above, it’s painfully obvious that “you get what you pay for.”

  8. Barbara P

    I have been a Real Estate Broker for 25 years and in a lot of different markets. My husband is a Cert. appraiser and Broker. He has been involved heavily in his industry and tried to stop how we got where we are today. THE APPRAISAL PROFESSION NEEDS TO TAKE THEIR INDUSTRY BACK. Everyone from Congress to the Lenders and yes even some in the Brokerage community think they can do it better without any of the education and experience requirements demanded of those in the appraisal industry. They are still making the same fees they had in 1987!! They have to be able to support their report findings in court! Leave the industry alone. Who is governing the Legal Community? Who tells attorneys where they get their clients? their fees? their procedures? How about Doctors? (yeah, I know about the insurance companies) My point is that Congress(who barely know their job description are out their severely changing the face of an industry they know nothing about and that will have dire consequences for the housing industry for a long time to come!

  9. Rose Anne McGarrity

    As a Realtor for over twenty years, both a GRI and CRS, I have also done many BPOs. During the strongest years of the recent real estate boom market, I cannot tell you how many times I was given an appraisal on a property as a reference guide. Too often the appraisal bore no match to reality and often used comps further than a mile away to justify an inflated value when comps more similar to a subject home were closer. It is clear that whether you are a Realtor or an appraiser, it is possible to do shoddy work. The simple fact that appraisers have always been threatened by the use of BPOs does not mean that BPOs are responsible for the subprime mess. I know that I am as astute at setting an appropriate price for a home as many appraisers are. I will be writing my congressional representatives to support the use of bpos.

  10. Rob

    I’m a Realtor, not an appraiser and I can’t believe that Obama is pushing for this. I thought he was smarter than that! BPO’s are a joke because as mentioned above, you get what you pay for, which often is nothing. In our area, they send brokers from out of area and have no idea what they’re doing. The AVMs are an even bigger joke. How can a machine replace a human professional. Not to mention all of my appraiser buddies are starving for work. To fix this mess we need to do away with BPOs & AVMs and take the AMCs down while you’re at it. Let’s get back to work the way it was before it all got screwed up by cutting corners!

  11. Bryan

    As a realtor and also a consultant for large capital investors purchasing bulk residential portfolios, I can tell you clearly that the BPO and AVM process is a bunch of crap.
    When a portoflio enters our office, we go out to evaluate the properties and also send the properties to two appraisal companies we work with for secondary opinions. Most of the time these properties are anywhere from 25-37% off from where the market is priced.
    Appraisals need to be complete BEFORE the homes are listed on REO and short sales with an update from appraisers on a monthly basis.
    This should not be a listing or buyer agents duty as many in our state have only had their license since the market boom (Arizona) and truly have no clue how to asses value of properties.

  12. john

    Appraisers, real estate agents, what’s the difference, in the not to distant future both of these “disciplines” will be history.

  13. Debra

    Get what you pay for? Or don’t… ? in a recent negotiation I had Fannie Mae insisting that their appraisal is correct – sounds familiar ? – of course it’s now 1 yr old, they won’t show it it to me, but did tell me what they knew the property was worth. I tried and can’t validate their claim that similar property sold for 40k more than our offer. I do BPO’s, I strive to be accurate but in the last 9 months, in a 2 mile radius of the subject property NOTHING has sold anywhere near this appraisal price. But don’t worry, this short sale won’t happen now – the house now out of redemption period was just listed 20,000 below my buyer’s offer. Great way to save tax money!

  14. Rob

    Not to mention an appraiser is required to researched the 3 year sales history for the subject & comps. I dont believe a realtor doing a $40 BPO will take the time to do all the research and choose the best comparables for the assignment.

  15. Tom Greto

    RE:”…And considering what is presently the ruling party in Washington, we are ALL in for a rough ride.”
    If you insist on politicizing this column, let’s talk about the ‘rough ride’ we just endured after 8 years of a Republican administration that guided us into a trillion dollar war and stood by while oil prices soared and the economy tanked.

  16. The real issue here is greed. Most whom bought homes in the past 3-7 years were taken pray by: Agents, brokers, lenders and appraisers alike. Everybody wanting to buy homes in the subprime boom, wanted to get rich quick. We need to educate the consumer not to overextend themselves and to embrace a financial plan. And most of all be patient. Us as professionals, especially agents and lenders should have been preaching this philosophy. Instead, they were confronted by a choice, either push your brothers and sisters in the mud or fold to the competition. As a real estate agent and appraiser for the last 21 years, I am ashamed at my industry.
    BPO’s and AVM’s are a symptom of the problem that the real estate industry has created. Now take your medicine.

  17. Lynda

    I am still outraged that NAR wants us to support the very man that ruined Fannie Mae and Freddie Mac.
    Meanwhile, I’d like to see Obama answer questions with out a teleprompter. No other President in history utilized a teleprompter for every interview. This it outrageous for both Dem and Rep’s alike.
    This legislation is killing our industry. Unfortunately, people voted not knowing or looking into how his platform would impact the very industry in which they earn a living.
    Media Hype!!

  18. I am a 20 year Realtor and have done a variety of BPO’s. Under the law in my State, as a Realtor, you can do only a BPO if it is with the intent of listing the property. Many loss mitigation companies require either BPO’sor an opinion of value. Many Realtors doing these (no matter how long they have been in the business!) do not have the skills to do this. Often, they come in too high, same as with regular CMA’s because they think that will get them the listing. I myself have never been too high, actually on drive-by BPO’s I always allow for a less-than-perfect interior, jusst to be questioned by the financial institution ordering the BPO about “my” value. They even told me they had appraisals that came in higher. And guess at whose value the property finally sold! But a BPO, for legal reasons, should also be accompanied by a proper Appraisal, and should only serve for comparative purposes.

  19. Patty

    Let the licensed appraiser do his job evaluating the property. My recent experience with doing short sales with the bank, is when they send a Real Estate agent out to do a BPO the agent inflates the price and doesn’t even see the interior. Some agents are hoping that they will get the listing if the sale doesn’t go through. I’m for getting an unbiased opinion. I can just hear someone on this proposal committee commenting on the unreliability of AVMs and someone else saying we can just back it up with a BPO.
    What a joke!

  20. There is a NEW problem that I have not seen discussed yet, but it is real and as dangerous as anything that has happened in the past. SPECIFICALLY, apprasiers are people that can and will make mistakes and some of them have BIG ego’s. With complete autonomy and no rules for appealing DEFLATED apprasials, homeowners, buyers, and knowledgable brokers have nowhere to go when mistakes are made on apprasials. This costs people money and time as well.

  21. I have had a real estate license for over 25 years, spent 8 years in a Kansas County setting valuations for advalorem tax purposes using an AVM process, and completed many BPO’s. I have seen and dealt with many appraisals. So, let me ask a few questions. If the AVM process is good enough to use to tax our properties with…why not use it for value? A- they do not get inside either the subject or the comps, and you get what you pay for. Typically these Departments are under staffed/overworked. The taxpayer is left to appeal his value…now thats a lot of experience. So what do they do? Usually, they get a friend in the real estate business to give them info, truly paints a picture they want to portray, or hire an appraiser. Any way you look at it, one can get to a “value” if it is known ahead of time. I think BPO’s are done to get a listing. It seems to me the same agents always get them. Wonder why? Who’s in Who’s pocket here? Somebody might learn a real value if a different person got a “job”/listing. I think we should all get a good grip with reality. There are good and bad of all of us. We all know they exist. They make my job extremely difficult at times. I try to be fair, honest, and upfront with all my clients. We all need the other professions in order for us to stay in business. So lets find a way to quit pointing fingers, and start enforcing the ethics and standards each of us has. Rise to the occasion, get rid of the “energy vampires”, lets make this happen right!

  22. GARRY GIAMMARINO

    The writer of the New York Post article makes an important factual error. Most BPO’s are curently ordered to support the contract price of a property already under contract. This BPO can only be done by a qualified Realtor fully unconnected with the listing and selling brokerage. Therefore; there is NO COMMISSION at risk and no reason to inflate the valuation. A BPO for a property that in default also in not inflated in value because the lender doesn’t “care” and it rarely leads to a listing.

  23. William M. Woolford

    The Gv’t is more afraid of DEflation (INflation will come later) so it does make sense to use a valuation method (BPO) that tends to inflate real property.

  24. I voted for Obama for many good reasons but I think in this case Mr. Geitner needs to rethink the idea of not using full appraisals to establish property values. I have done my share of BPO’s as well as observed many other agents in my office doing them, usually for properties in foreclosure. I don’t think anyone who does them would try to claim they are as accurate as a full blown appraisal. They are a down & dirty, quick & inexpensive way of trying to establish a properties value. The reality here is that banks & lending institutions are trying to save a buck & it looks like the government is also trying to do the same thing. This simply shows that saving a buck is more important to those involved than accuracy. Like they say – You can have cheap or accurate…. pick one!

  25. An appraiser hanging in there

    I have been reading comments on this website for a while now and I am sorry but I just have to say something about them.
    I have been a Certified Residential Real Estate Appraiser for 7 years and a Realtor for 15 years. I know the requirements for both careers and 95% of the Realtors in my area should not even have a salespersons license let alone comment on an appraisal. Many of you who are commenting are totally unaware of how wrong your comments and points of view are. If you are a Realtor and have never been an Appraiser you have no place to comment on an appraisal, act as a review appraiser or think that you know how the appraisal process works. A BPO is not the same thing as an appraisal. That is like comparing a square to a circle. Appraisals are not supposed to be performed with the same guidelines as a BPO there’s a whole lot more to the process then just looking up some comps on the MLS and going to take some pictures. BPO’s are a joke and are a waste of time and money.
    By the way an appraisal does not always come in at the contracted sales price, which does not mean the appraisal is not accurate.
    Oh, if you can’t figure out how an appraiser came up with their value because you can’t find it yourself with your comps, that’s because you’re not an appraiser. I see lots of BPO’s and most real estate agents either don’t really know what a comp is or they just don’t care what houses they are sticking into the form. But hey what can you expect for $45 and one to three classes needed to get the license.
    I learned long ago if I don’t know something ask someone who does or educate myself. Those who think they know everything and speak like they do, just look really stupid. There is no shame in saying “I don’t know” or “I don’t know enough about that, to have formed an intelligent opinion”. You actually look smarter; some of you should try it.
    I am not trying to put down everyone’s comments, for example: Rob’s comment and BPO’s are a joke are right on, along with a few others.

  26. Mike Jacobs

    As a realtor who has been doing BPO’S for over ten years that most of my drive by,s tend to be on the low side. Most of my interior BPO’s tend to be a lot closer to the eventual sales price than do most appraisals.I usually have a better knowledge of the markets that I serve than appraisers called in from just about any surrounding area.Most REO companies have strict parameters to work in to keep valuation fair, such as distance, sq ftg, date sold. Finally, I receive listings from REO companies, and have no desire to market over valued properties, therefore I am extremely carefull in placing value based on recent sales and market knowledge.

  27. Doug W.

    The key difference between a BPO and an appraisal is “bias”. A quality appraiser would not take an appraisal assignment if there is a chance that there is something in it for him/her down the road. Real estate agents, on the other hand, commonly accept tiny fees for BPOs with the intention of getting a bigger payoff (a listing) later on. When bias is involved, human nature tends to skew a valuation in the direction which would be beneficial to the person doing the valuation.
    To be clear, there are incompetent people doing valuation work in the appraisal industry and the real estate sales industry. When lenders opt for the cheapest valuation option, they usually get what they pay for.
    AVMs, well it is exactly as the article states. Lenders can keep ordering AVMs from different sources until they get to the “right” price. If I were an investor in mortgage-backed securities, I would rather spend a little more to make sure my investment was safe.
    In conclusion, for those real estate agents who are doing BPOs to support the price of a property already under contract, you might want to check on your state laws regarding the legality of this practice. Many states prohibit this and if anyone were to get a copy of those valuations and turn you in to the state, you could be putting your real estate license at risk. The states have allowed a few exceptions for un-licensed persons to perform valuation services, and BPO establishment of mortgage collateral isn’t one of them.

  28. teresa

    I have been in real estate for 7 years. I admit as most realtors do that we do not have the same training/school that an appraiser does. I also have done a significant amount of BPO’s over the past two years. There is no advantage to me inflating the price of one since 99% of the time we don’t get the listing from BPO work. I can say that most of the banks or asset management companies really make it difficult to value the property at price we think will make it sell. I cannot tell you how many time the input system kicks out my comps because they are not close enough, too big, too small etc. I finally got fed up and stopped taking them since they obviously made it so difficult to do them. I was the realtor calling them and trying to explain the comps and the true market value and they really didn’t care so at the end of the day it wasn’t worth my time. I agree with a previous post on the fact that sometimes even appraisers are wrong even though it seems some of you don’t get. It really is not the appraisers or the realtors that are the problem though, and everyone seems to be forgetting that the falling market has created valuation problems that realtors/appraisers and mostly banks have had a hard time providing values.
    B

  29. Doug Quenzer

    I am a Real Estate Broker that sold real estate extensively for 4 years. I am a practicing certified residential appraiser. I have seen some of these BPO’s. Every time I see one I say, “What they heck are they thinking!” 90% of the time there is no justification whatsoever for the value. I’m not saying there aren’t some good brokers out there. But the good brokers do not do BPO’s on a regular basis. Why would they? I remember when I was selling millions of dollars of real estate a year. I wouldn’t even contemplate doing one. It was a waste of time. The agents that do BPO’s are generally the inexperienced agents that don’t have anything better to do. They work for peanuts, but peanuts is better than looking at the 4 walls wondering what to do.

  30. Peggy Baker

    Boy, so many vicious people out there. Both have their places, but as yet one more Broker (not salesperson, in the business since 1989) who has been doing BPO’s for a long time, NEVER ever have listed properties that I’ve completed valuations for. In fact, the companies I use do NOT allow such. So making blanket statements that we all perform BPO’s to inflate pricing and in hopes of getting the listing is way off base. And considering they often kick back comps, when they were a short sale or foreclosure, at least the companies I do business on arent necessarily trying to keep pricing at foreclosure prices, which in my opinion is the greater problem everywhere, when banks take appraisals that ONLY use foreclosures and short sales EVEN WHEN fair market sales occured in the neighborhood and on the same block. Yes for you appraisers, we know BPO’s are not the same, but as I did truly respect most Appraisers, and ‘most’ brokers, I find it sad to see all of poking and not so subtle insults going back and forth. I think the higher the Thou attitudes are rather childish and need to cease. There are a lot of bad apples in all professions, and those that truly care will want to speak up, but when I personally see so many banks NOW taking appraisals that ONLY used foreclosed pricing, that is where I have a problem… and frankly it isnt necessarily with you, the appraiser, it is with the banks for accepting foreclosure pricing as THE NORM and using this as a great outlet to devaluate homes by the masses across the county, to save their own behinds from other bad loans made. What I would like to know is what is the benefit to an appraiser to ONLY use foreclosures and short sales when fair market sales are clearly available? The entire country wasn’t over-priced like California and some other well-known publicized areas/states. As far as all BPO Brokers inflating prices for their personal benefit may take place somewhere, where regulations arent as strict, but it doesnt benefit me. And as far as the insults being hurled on getting a real estate license in a couple weeks, well the Appraisal classes to get licensed aren’t that different, so rather than hurl more insults why cant you people just cool-it with bashing each other. It is one thing to make your point, but as are nature of business is related, it is sad to see so many fingers pointing, when every state is different, and everyone’s experience is different whether performing BPO’s or appraisals. Considering us Brokers have been determining values of the homes we list for years now without too much difficulty, where the buyer ultimately determined the market price, all of a sudden appraisers think we are all mis-guided and arent worthy of any valuation period. Would you like us to utilize you, Mr/Ms Appraiser to develop pricing for our listings right from the start, would that make you feel better? Give me a break. You are not the God’s of home values despite what you think of yourselves, and I will add my own apology, as I feel my own teeth are showing with this comment, but we are all walking on thin ice these days, and I dont like anyone hurting anyone else. In closing, in my humble opinion, as long as banks allow foreclosures to be used as the new ‘market values’ this situation will not improve.

  31. John Enright

    Fortunately, in our area BPOs are rarely used in the loan application process. They are used mostly after the fact when REO property is reevaluated in the attempt to recover funds invested in foreclosed properties. Home values are primarily based on sound appraisal practices. As a result we have not seen the dramatic home price decreases other areas have experienced. The problem here is not in the valuation of the property. Rather it is in the valuation of the borrower and the structure of the loan. Williamsburg, Virginia, area appraisers know their business! Look to the lenders, and to some degree the real estate agents who recommend them, for answers why borrowers obtained loans they could not realistically afford.

  32. Vonn Isenhour

    15 years as a Realtor selling homes, and then 15 years of appraising homes.
    I will be the first to tell you that many appraisers don’t know what they are doing. Many appraisers have came into business during the last 10 years of the refinance boom. They mostly know how to obtain “ESTIMATE OF VALUE” on their appraisal order. They are now going to be lost when they can no longer be provided that estimate. But I will be the first to tell you that AVMs and BPOs are “not” the answer. How can anyone tell me that you can give an accurate value, without measuring or viewing interior. When a Realtor is trying to list a home they normally do both measure and view to have arrived at a suggested listing price. They are spending more time and consideration than when they are doing BPOs. Our government is going about this the wrong way. You cant now shop for the most experienced appraiser thanks to the new HVCC. You get to be assigned one from an appraisal management company. These companies are making it very clear that they are sending the work to who can do it “cheapest” while they are charging more. They are charging $400-$600 and paying us between $92-$240. Lets see how many good appraisers get out of business while the one with very little experience does these report for less than what appraisers charged over twenty years ago. How does that make any sense after realizing our lending mistakes have caused a world recession.

  33. Eddy Payne

    I am a Realtor and have been doing BPO’s since 2003. I also worked in the servicing side for several major mortgage companies as a loss mitigation manager. For James Amorin, President of the Appraisal Institute to say that BPO and AVM’s caused the sub-prime housing market to fail is a huge sign of false and misleading statements. I have never completed a BPO for a new loan approval, and never would. Loan approval values should come from a certified appraiser who is held accountable for a certified value. That provides the lender with assurance that an over-inflated appraisal will become the liability of the appraiser.
    A BPO is what it says- a Brokers Opinion of the Price. It is not a certified value.
    There are mainly 4 reasons a BPO is ordered by a servicer- 1. Portfolio evaluation (when a pool of loans is being sold and the buyer wants to make sure the underlying collateral supports the loan) 2. Loss Mitigation workout’s (i.e. short sales, modifications, Deed-In-Lieu of Foreclosure, et al) 3. Loss projection (when loans default and the servicer needs to estimate loss reserves they need to set aside when the loans are foreclosed on) and 4. Foreclosure bid pricing and REO valuations (what the servicer will sell the property for at foreclosure auction and/or after the foreclosure is completed.
    I can only imaging what would happen if borrowers had to pay $400-600 for an appraisal every time a $40-50 BPO is ordered. Think of how many homeowners would look at their reinstatement amount and see $1200-2000 in appraisal fee’s and have to pay that to keep their house. You think we have a lot of foreclosures now? Wait until BPO’s are banned. People will be losing their houses because they can’t afford the appraisal fee’s!
    I think appraisal should be used for loan modifications, since there is the potential for the loan amount to be reduced by several thousands of dollars.
    I don’t think BPO’s and AVM’s are a good choice for that function. There should be a certified, verified value established that holds an appraiser accountable for the potential loss that could result in an under-inflated valuation.
    I also am all for revising the current appraisal reforms put in place. Appraisal are a valued commodity in the lending business. Experienced, honest appraisers are an asset to the whole mortgage/real estate business. But BPO’s have their place in the business also. There should be some standard training and regulations for completing BPO’s, though. It is time for both Realtors and Appraiser to start telling people what they NEED to hear about the values, not what they think everyone WANTS to hear.

  34. Eddy Payne

    Re: QUESTION OF THE DAY by David on March 19….
    “Obtaining an appraisers license requires a minimum of 2 years experience in most states. In my opinion an appraiser with 2 years experience knows just enough to be dangerous. Yet…anyone can do a BPO for a lender NO EXPERIENCE NECESSARY!
    Earning a real estate license requires about 2 weeks of classes in our state. With 2 weeks of class work, a passed state exam, and NO EXPERIENCE a Realtor can go out and sell a home and earn an income. Neither appraisers or anyone else can sell a home to generate income without a license.”
    In Texas, a Real Estate salesperson license must be sponsored by a Broker for 2 years (same as an appraisal apprentice) before they can become a Broker. The sponsoring Broker must monitor and is responsible for the actions and performance of the salesperson. There is an additional substantial amount of training required to become a Broker. To say any Tom, Dick, or Harry can sell real estate is asinine! Brokers and sales agents are required to complete MCE and SAE courses on annual basis. The training requirements for licensed realtors is very similar to the requirements for appraisers here. To say a license Real Estate Broker is not experienced enough to have an opinion of the value of a property is just stupid. When the business we are in is establishing the sale price of houses we list and determining the correct offer price for a buyer, Brokers should know the value of a house in their market. If they don’t they will be out of business. I guess you would like to require an appraisal everytime a house is listed for sale? How many homeowners do think would pay $400-600 up front for an appraisal to list their house for sale? None. That would be like me asking for my commission when the house goes on the market, not when it sells. If their Realtor doesn’t have the knowledge to list their house for an appropriate price, there is a problem with the Realtor.
    For those of you who don’t know: A BPO is what it says- a Brokers Opinion of the Price. It is not a certified value.
    There are mainly 4 reasons a BPO is ordered by a servicer- 1. Portfolio evaluation (when a pool of loans is being sold and the buyer wants to make sure the underlying collateral supports the loan) 2. Loss Mitigation workout’s (i.e. short sales, modifications, Deed-In-Lieu of Foreclosure, et al) 3. Loss projects (when loans default and the servicer needs to estimate loss reserves they need to set aside when the loans are foreclosed on) and 4. Foreclosure bid pricing and REO valuations (what the servicer will sell the property for at foreclosure auction and/or after the foreclosure is completed.
    I can only imaging what would happen if borrowers had to pay $400-600 for an appraisal every time a $40-50 BPO is ordered. Think of how many homeowners would look at their reinstatement amount and see $1200-2000 in appraisal fee’s and have to pay that to keep their house. You think we have a lot of foreclosures now? Wait until BPO’s are banned. People will be losing their houses because they can’t afford the appraisal fee’s!
    I know everyone thinks their job and field is critical to society. and I appreciate the fact that David is proud of his job. But to say a licensed Broker does not have the knowledge to give an opinion of value is just egotistical!

  35. Eddy Payne

    Re: Posting by BPOS are a joke:
    you say “As an appraiser and realtor I have performed BPO work and all types of appraisals.”
    Why would a licensed Realtor have an Appaiser’s license? The role of an Appraiser is to verify the value of the collateral securing the promise to pay a loan. I would think there would be a serious conflict of interest with a Realtor completing an appraisal for any loan (unless you are selling commercial RE and doing residential Appraisals or vis-a-vis). The assumption COULD be made that every appraisal you complete satisfies a fellow Realtors goal of closing a sale (either inflated for the seller or deflated for the buyer)…..too risky for my ethics.

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