What are they thinking?
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"What are they thinking?" is in Reference to “The New Appraisal Agreement” - HVCC
There are a number of issues that need to be resolved regarding the appraisal process. Here are some of the major issues that are not addressed in "The New Appraisal Agreement". First the real question that no one wants to ask: "Do you know what real estate collateral is in your mortgage backed security?" As long as the following issues are not addressed, most importantly the first item, no one really knows for sure what real estate collateral is in their mortgage backed security. 1) There is a Fannie Mae / Freddie Mac underwriting guideline that I will paraphrase: The appraisal and underwriting departments should not report to loan production.
Most of the major players have given only lip service to this guideline. The
secondary market must enforce this major issue
or everything else is just a ruse. There is no need to proceed any further until
this is addressed. As long as mortgage lenders ignore this secondary market
guideline - specifically the separation of the appraisal and the underwriting
departments from reporting to the loan production side, conditions will
deteriorate with the collateralization of mortgage backed securities.
3) A direct line of
communication to secondary markets is necessary for appraisers to report
mortgage bankers and lenders who are applying pressure on appraisers. This is
not an Appraisal Board issue. It is a secondary market issue which deals with
the collateralization of mortgage backed securities and the very soundness of
our financial institutions. Appraisers must be able to notify the proper
agencies responsible for the oversight of these financial institutions and make
the lenders and mortgage bankers accountable.
A) No work if
you do not sign the vendor agreements that our E & O insurance companies
advise appraisers against signing. How can appraisers be unbiased after signing
one B) Comparable checks to see if the value is met prior to ordering an appraisal assignment. Comp checks by any other name are still value checks and should be eliminated. C) Stop the appraisal assignment if you do not think you can come in at the value requested. Payment of only a trip fee after the value conclusion is met is not acceptable.
D) The threat
of blacklisting an appraiser for whatever reason must be eliminated. Lenders
place appraisers on Do Not
Use lists
without notification that the appraiser may E) It appears that if an appraiser does not reach the value conclusion needed to make the deal, then a quality control issue exists. The quality of the appraisal comes into question most often when an appraiser fails to hit the number requested in order to execute the deal. This is a direct result of the appraisal and underwriting departments reporting to the loan production department. Is this not a clear violation of the secondary market underwriting guidelines? F) Appraisers are asked to remove items from a report which would tend to make the appraisal report misleading to the end user (s). G) Appraisal reports are unlocked by Appraisal Management Companies without the knowledge or approval of the appraiser. This is totally unacceptable. The Appraisal Management Companies which have unlocked appraisal files, for any reason, should be held liable for the appraisal report as if the Appraisal Management Company completed the report themselves. This opens Pandora’s Box and those responsible should be held accountable.
H) Refusal to
pay appraisers for services rendered when the value conclusion is not what is
needed to make the deal. Appraisers provide a valuable service and must be
paid 4) Appraisal Management Companies (AMC’s) must be licensed. Appraisal Management Companies that are not licensed in your state should not be allowed to handle appraisal assignments in your state. There should be no exception to this rule. The AMC’s must be licensed by the states and held accountable just like any appraiser or should not be allowed to provide appraisal services. This New Appraisal Agreement is the direct result of Appraisal Management Companies miss-using their authority. The national Appraisal Management Companies, many which are owned or have joint ventures with national mortgage bankers, are the same institutions which have succumbed to using preferred appraisers to hit the requisite numbers. Appraisal Management Companies must be held to the same standards as the licensed appraisers themselves. This New Appraisal Agreement appears to reward these same Appraisal Management Companies who have used preferred appraisers selected by the lenders. Many lenders have used these Preferred Appraisers to hit the number and make the deal. I guess one has to be a “Team Player” to make this preferred appraiser list. The Appraisal Management Companies have little or no liability in the entire appraisal process. What agency regulates the Appraisal Management Companies? NONE! This New Appraisal Agreement has not been well thought out. 5) HUD-1 Statements: An Appraisal Management Company in which the lender holds any ownership interest must show clear transparency on the HUD-1. This means when a borrower is charged $400.00 for an appraisal, the following must be disclosed: One line on the HUD-1 must show how much fee goes to the lender owned Appraisal Management Company and what percentage the AMC is lender/mortgage banker owned. A separate line on the HUD-1 must show how much the actual appraiser receives for appraisal services rendered and the type of appraisal assignment performed. 6) Mortgage companies should be allowed to order appraisals in-house. Mortgage brokers should be allowed to order appraisals from appraisers providing a quality product. That's right, the mortgage broker also has representations and warranties to buy back loans that do not meet secondary market guidelines and should be allowed to select the appraiser they use. Mortgage brokers and loan officers must be licensed. The lender also must face up to that fact that they have been asleep at the helm. It is the mortgage banker’s responsibility to perform due diligence on the loan packages that they accept. If the mortgage banker is not satisfied with the mortgage broker’s product, then the mortgage banker should stop accepting loan packages from that particular mortgage broker. It is this responsibility that both bankers and brokers have been remiss about in the past. Lack of due diligence is not an excuse by the mortgage banker and/or mortgage broker. The step in the process which is still missing is the separation of the appraisal and underwriting departments from reporting to the loan production departments. Where have the quality control procedures been to prevent a significant amount of this mortgage mess? 7) Some real estate appraisers suggest the answer to the mortgage melt-down crisis is to establish a non-profit organization to provide a centralized appraisal clearing house for ordering appraisals nationwide. At least that is my interpretation of the proposal. (A link to the IVPI Proposal is attached for you to preview and make up your own mind.) In my opinion, we do not need a centralized appraisal clearing house to handle the appraisal process. We do not need another government oversight agency. This would create an organization with far too much authority. Power corrupts even with the best of intentions, absolute power corrupts absolutely. I cannot imagine any agency that would be responsible enough to handle this problem efficiently and without politics involved. This is certainly not the answer to solving the mortgage melt down crisis that is now facing the mortgage industry and specifically the appraisal profession. We need to take the following steps in order to prevent a similar mortgage crisis from happening in the future: The Savings and Loan Crisis is not twenty-five years removed and we have demonstrated that we have not learned much from the past: A) Once again mortgage companies need to follow secondary market guidelines. Specifically, appraisal and underwriting departments must not report to loan production
B) Appraisers must
provide real estate appraisal services in a professional manner. This
means appraisers must learn to say
"NO". Appraisers are both part of the
problem and
C) Vendor agreements
must be acceptable to appraisers and their E & O Insurance companies. These
lender hold harmless clauses, etc. have to be eliminated. Appraisers and
D) A direct line of
communication is essential for appraisers to report lenders that are
unscrupulous in applying pressure to real estate appraisers. This includes
a source for direct E) Clear transparency is needed regarding appraisal fees on the HUD-1.
F) Appraisal
Management Companies must be state licensed without exception. Appraisal
Management Companies must be held to the same level of accountability as the G) Mortgage brokers and loan officers must be state licensed. This is just a start if the institutions responsible with oversight of our financial institutions really want to clean up the mortgage mess. Why do we need new regulations? The system would work if the current guidelines were adhered to and enforced. The appraisal process itself is broken and needs to be overhauled. Having appraisals go through Appraisal Management Companies is certainly not the answer. Let’s not reward the Appraisal Management Companies which have shown so little respect for the appraisal profession as a whole. I can be reached at 770.916.1074 should you have any questions or need for clarification.
Charles L. Drecksler
Other Articles by Charles L. Drecksler Appraisers Under Pressure posted 2001 Appraisal Report Integrity in Jeopardy posted 2007
04.22.08 File:Whataretheythinkg032508
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