My New Blog

The HVCC:

A Primer for Lenders & Loan Officers

02/14/2008

The recently finalized version of the Home Valuation Code of Conduct has done a myriad of things to the lending industry. It has also sent shockwaves through the appraisal industry. Many people, from all sorts of backgrounds have jumped onto the proverbial soap box to offer very harsh criticisms about the Code. The time for complaining about it has come and gone, it is now time to look at the brighter side of the code. What can the code do to help you and the appraisers continue to make money.

The intent of this article is to offer some points and advice to using the HVCC. It is quite possible the changes won’t really affect you at all. I am going to move through the code in the sequence it was written.

Section 1

A. The HVCC starts off stating that an appraiser must be licensed or certified

a. Right away, I think it is obvious that when selecting an appraiser to move into an HVCC compliant rotation, that the lender/client should make sure each appraiser is the most qualified.

b. Appraising is a very complex field, and selecting appraisers that are certified over licensed is a good start. Certification is a higher level of licensure, and requires more education to get.

c. Don’t forget that appraisers who are also designated have made huge efforts to obtain top quality additional education and undergone pretty rigorous testing and other requirements. SRA, SRPA, IFA and several others are pretty well known designations.

i. One note here, many folks know that the designation MAI is a top tier commercial designation. While many MAI’s practice and perform residential work, they are primarily commercial appraisers. A good suggestion is to make sure you have a thorough background on any appraiser you want to add. Work samples, resumes and a review of their recently attended continuing education classes (CE cycles every 2 years) will tell you a good deal about their work loads. If they don’t take residential classes, they probably don’t do residential work. The bottom line is that any appraiser that you use should be fully familiar and perform the type of work you are ordering from the appraiser.

B. This section is pretty straight forward. No one should try to try and influence the appraiser’s value. This is a form of fraud that puts you and the appraiser, if found guilty, in violation of title 18 in the U.S. Code. Simply stated, it’s a crime.

a. I think it should be touched on regarding Appraisal Management Companies (AMC), since lenders are going with AMC’s. While there is no pressure being applied with most AMC’s, they do indirectly pressure appraisers regarding fees. Many of the large AMC’s hire appraisers and pay them substantially sub-par of what normal appraisers work for. Often, they also mark up the fees.

i. It is prudent for you to choose AMC’s that use competent appraisers. Well respected and good appraisers do not work for the fees many of these companies pay. What this means to you, the lender, is that your loans are being valued by appraisers that are willing to work for a substantially lower fee. More often than not, these same appraisers do not perform due diligence in their work file, resulting in questionable values.

ii. These same AMC’s essentially are double dipping by reducing the appraiser’s fee, and then tacking on a mark up above what the appraiser normally does

iii. For what the AMC’s are up charging you, it is very probable that a desktop review could be performed by an appraiser within the same market area, for less than the mark up. This allows a technical review, which will certainly show if the appraiser was on target.

iv. AMC’s are, for the most part, unregulated at this juncture. State Appraisal Boards do not have the authority to regulate the AMC’s yet. They are able to act how they see fit, and if left unchecked they will focus on the bottom line. In most regards they are allowing fees dictate who is and is not a competent appraiser. If appraiser A charges 250 dollars, they will get preference over an appraiser who charges 350 dollars. The difference in fee most likely is that the cheaper appraiser does not perform due diligence needed for the report. You really do get what you pay for.

v. The HVCC does prohibit anyone at the lender to ask for free value checks. Some folks call this a comp check, pencil search, tax record search. Whatever it is referred too, it is not ethical to ask an appraiser to spend 15 minutes trying to figure out a pre-value.

vi. You cannot fire an appraiser from rotation if they are simply not hitting value. They must do something wrong. That means they have to omit technique, falsify values, or otherwise do dishonest work. I am sure unethical and unprofessional conduct is a good reason to remove them as well.

1. If you do fire them you have to let them know, promptly, why. In the tort friendly society we live in, it should be a legitimate reason. Many appraisers have been “blacklisted” with no explanation.

C. You can still ask for additional information to help you understand the report from the appraiser. Things that are appropriate fall into the following list

1. Additional Comps

2. More comments

3. Explanations

4. Listings

5. Absorption rate and statistical support for check boxes

6. More images of the subject

7. Copies of information referred to in the report

8. Many other things…

b. If you ask for something that an appraiser cannot provide, such as additional sales, it is best to just have them explain, in detail why they cannot. It is not a matter of will or won’t, it comes down to the due diligence of the appraiser. If they can’t, they should be able to prove that.

c. Mortgage Brokers cannot select appraisers, as well as Real Estate agents can not be a part of selecting the appraiser.

d. Loan production staff can not INFLUENCE the selection of an appraiser for an assignment or for a rotational panel. This means that someone outside of the sales side of the lender must establish and maintain a list of compliant and ethical appraisers.

e. The lender cannot use an origination appraisal prepared by someone that works for the lender, an affiliate of the lender, an entity owned by the lender, or an appraiser that owns the lender.

f. No AMC owner by the lender can use those reports either.

D. The lender can employ and use appraisers to review, support quality control of appraisal reports, and other similar tasks.

E. IVPI ( Independent Valuation Protection Institute) will be set up to allow lenders to report appraisers who do not do quality work. It is also set up for appraisers to report and seek protection from the lenders who abuse their roles working along side appraisers. It will also allow consumers to report violations from either of the other parties regarding the valuation process.

F. Lenders are going to be required to do quality reviews on 10% of all appraisals done.

G. Lenders are required to report appraisers who do not perform to the par established by already existing laws. This includes technique, application of proper theory, and other items of due diligence.

H. The lenders are require to “certify, warrant, and represent that the appraisal report obtained” per the Code.

I. The code is not forcing a lender to order an appraisal, nor is it to affect the scope of work required of an appraiser.

Now that the HVCC is going to become a reality it is important that both lenders and appraisers do their best to adhere to the requirements. Some , from both industries, are very much up in arms regarding the HVCC. Some claim that it hurts existing business relationships between appraisers and lenders. Some feel that it is not enough to fix the problems. At he heart of the HVCC, it is intended to do good for the public trust.

If a lender selects it’s panel of appraisers carefully, using sound business choices, then we can all rest easier knowing the right thing has happened. Some lenders are using large AMC’s that will negate the process. It does no one any good to simply select an appraiser on fee and turn times on the reports. It is easy to see that the appraisers who charge the least, are doing less work. A normal appraiser cannot reduce fees as much as 50% below the normal rate, and still afford to do the work required to complete a quality report.

Often, one can read an article regarding the valuation industry and the topic of fees will be a major underlined theme in many articles. If a lender wants to take part in the flight back to quality that is underway right now, it needs to be understood that each appraisal report written is a unique piece of work. Every single property will have a set of things that are wonderful marketing aspects, and will have negative ones as well. Each report requires custom work. Some reports will share similar data and analysis, but forth most part the appraiser should be writing a new and a subjective report each and every time.

There has been a long standing opinion of appraisers from the lending side that believe the appraisal is just another form that any one of thousands of people could fill out. This attitude has led to a gross under valuation of the appraiser’s role. The HVCC does set out to level that somewhat. It also sets out to stop the corruption that did take place regarding influenced appraisal reports by loan originators that established unethical relationships with appraisers. It may not be the perfect answer, but with any type of change like this, nothing will ever be perfect.

These reasons are why to for us to get along, we have to go along with the HVCC. If every appraiser set out to provide the best valuation they could, and every lender set out to make every loan an ethical solution for their client, then both industries would make more money and feel good for it. There are no short cuts to doing the right thing.

Please feel free to contact me with any questions. I will be happy to re-post updates to this when I receive good ones that we can all learn from.

Woody Fincham

Certified Residential Appraiser

wfincham@braunappraisal.com

We Have some new Articles up on our articles page. Please check them out.

  http://www.fmava.com/articles

AMCs will make you Go Bankrupt

It’s as easy as 1, 2, 3!!

The evolving market that residential appraisal firms work within is anything but business as usual as of late. It seems that there is some rhyme and reason to the big appraisal management (AMCs) firms that operate across the country in how they are setting their pricing. It has almost always been this way, but with times getting leaner and leaner, appraisers are really starting to take notice.

For everyone to be on the same page, AMCs are companies that act as a third party company between the lender and the appraiser being used to value the property being appraised. For the sake of fairness here is what Title/Appraisal Vendor Management Association (TAVMA) defines an AMC to be:

“ An appraisal management company, therefore, is an outsourcing solution that is paid by a lender-client to

act on the lender/client’s behalf to engage real estate appraisers and to perform the administrative functions

involved in the appraisal ordering, tracking, and delivery process. The AMC recruits, qualifies, verifies

licensure, and negotiates fees and service level expectations with a network of third-party appraisers,

administrative duties like order entry and assignment, tracking and statusing, pre-delivery quality control,

and preliminary and hard copy report delivery. It also involves ongoing quality control, accounts payable and

receivable, market value dispute resolution, warranty administration, and record retention”.

Now, that is a very pro-AMC definition and for the most part correct, but there are some things to look at a little closer.

US & Them

There are basically two camps of appraisers that work within the residential appraisal market that deal with lenders. There is the side that gets the majority of their work from lenders who use AMCs, and there are those that don’t. More often than not, the appraisers who depend on AMC work predominantly receive much lower fees for doing the work. I have seen this in my area where AMCs will contact me to do a report that is traditionally $350 for, the lowest so far, $190. That is such a low rate that normal appraisers often scratch their heads and wonder how someone can competently do this kind of work.

Usually the ones that do work with AMCs depend on volume to make money. When the boom market was running high, no one bothered to really take issue with it. I know that I had been solicited to do some of that work, but declined it having more work than I could do at the time. Now, I am on the verge of doing what many of you are doing or considering yourselves: working at reduced fees, or looking for other ways to supplement income. That is a sad reality considering more than a few of us are better at our jobs than a good majority of our peers. Even worse, we are the ones that want to do this as a long term career, not just make money doing something.

Many appraisers are afraid to have this conversation as it may be considered a violation under the Federal Trade Commission’s Anti-Trust Laws. I would agree if this article was being sent directly to all my local competitors, but this is also an issue of public trust and borrower rights. It is also a national problem that can, and has, negatively affected the economy. We will get to that in a little bit.

Are Borrower’s Benefitting?

Looking at the cost for consumers to borrower, one can not overlook the closing costs and upfront costs that every borrower pays. Normally, at least where I live, borrowers are asked to pay the appraisal fee and credit application fee up front. That way the lender’s direct cost to consider doing business with that borrower is taken care of.

AMCs get hired by lenders, and in some cases own part of or all of the interest in the AMC. Most of them look for appraisers that are minimally qualified and that will work for less than the typical rate for their locale. The fee being paid is not done so to reduce the cost to the borrower, but allow the AMC to add their fee into the process and in return the AMC makes money directly from the appraiser’s fee difference. Since the lender “hires” the AMC to take care of the appraisal component, they disclose whatever the fee is being paid to the AMC as the appraisal fee on the settlement expense. From my understanding after talking with several loan officers at various lenders who use AMCs, this is done across the board on all loans, with the exception of VA loans.

Competitive Pricing versus Competent Appraisers

Competition and pricing amongst appraisers is very well a business management component, and normally this would not raise any eyebrows. The problem is that no one on the lender’s side is asking about quality. The licensing that went into effect in the early nineties for appraisers was a needed, if mishandled affair. The Savings and Loan debacle spurred the creation of the Appraisal Foundation and the Appraisal Standards Board. From this minimum requirements were established, which were left in place until the requirements were recently increased in January of 2008.

Prior to the licensing requirements, the only ways to determine who was serious about appraising and who was just appraising as a job was the education the individual appraiser took, and continued to take over the course of their careers. Designated appraisers from the Society and the Institute were considered the best among their peers, and rightfully so as the education and experience needed to become designated was much more intense than what would constitute licensing requirements.

Even still, lenders would choose appraisers based on personal relationships that outweighed common sense. In some of these cases appraisers were selected to support the amount of the transaction rather than appraise the property. If you fast forward 15 years or so, you can look at basically the same problem reoccurring all over again. The minimum requirements in most states for appraisers to become licensed were simple enough that specialty schools could entice anyone interested in learning a new career to pay their fees for classes and text, and within 90 hours of beginning they were ready to sit for a state license. There was of course the minimum experience hours required, but when the market took off a few years ago, folks had no trouble earning the hours. Many people doing so in less than a year. Re-read that last sentence, someone could go from selling used cars to appraising lender collateral within a year’s time.

The local appraisal school where I live actually had an instructor that had been sanctioned by the board twice, yet that appraiser was still instructing. While I attended this school, I ended up supplementing my theory with appraisal Institute education, and by making friends with other AI members. Unfortunately, many of these folks went to work with various firms. Most of the time they were hired due to relationships with lenders or within real estate, helping their supervisor bring in clients they would not normally have had otherwise.

These are the same appraisers that are willingly taking AMC work for the majority of their assignments. AMCs do not look at background beyond seeing that the appraiser is licensed and has E&O insurance. If they did, designated appraisers and non-designated appraisers that are serious and career minded appraisers would be the first to be considered. AMCs, like the majority of the lenders themselves, concentrate only on the profit they make.

I understand that lenders want to use these companies to allow someone to stand between the lender and the appraiser. In theory it helps eliminate value pressure from the loan officer to the appraiser. It also allows for better management of the appraisal order, as most loan officers have a million other things to do besides track down the appraiser to get status updates.

If the system could be allowed to work on its own merit and ideals I would be the first to say leave it in place. The human condition in relationship to greed and wealth does not allow for most people to ethically go about their jobs as they should. That is why the concept of no regulation is such a bad idea. These AMCs for the most part prevent lender pressure to the appraiser, but that pressure is replaced with the attrition that comes about from AMCs choosing appraisers.

The same greed that affects the old way of doing things, is now being allowed to influence how appraisers are selected for work under the AMCs. Now instead of appraisers being black listed for doing honest work, they are being told to work for slave wages, or they will be replaced by lesser qualified appraisers. How this can benefit the economy in general is certainly not supported by what I am seeing, and many of you have had this same conversation with me.

When I review work it is less than acceptable many times. The system is broken, and as long as lenders are left to select AMCs who force appraisers into hardship over fees, we will end up with what we have now, a failing economy. There can be no hope for anything else if we continue to not learn from our own mistakes.

*************************************************************************************

I will have the second part of this article up in a couple of days. I look forward to your questions and comments.

FM & Associates is Ahead of the Curve!!

Let's face it, real estate markets are difficult in the best of times to read and understand. We have begun to include some charts that we make directly from data available to us from the MLS.

These charts help paint a picture that is accurate. Woody Fincham, our President, has not only started using this cutting end appraisal methodology, but helped write the program and the book on it.

Please stop by our site to read about it.

http://www.fmava.com/MCA

Glenn Beck and the rest of the “Entertainment Media”:

“In my opinion, 70% to 80% of appraisals that were done during the housing boom are probably not worth the paper they’re written on because the appraisers…were rewarded with more volume…”

Jonathon Miller, New York Appraiser during interview with Glenn Beck

I am sure many of you watched the interview Glenn Beck gave to Jonathon Miller. When someone first told me of it my initial thought was to lambaste the appraiser. I have thought on it for some time now, and I realize that while the percentage seems high that Mr. Miller quoted; for me to say he’s wrong I would be just as unfounded in my opinion. I hope that the percentages are not that high, but I truly do not know. I do think it is unprofessional of Mr. Miller to throw out such an unfounded estimation.

I applaud his courage to step out there, but he tossed us all under the bus whether he intended to or not. Mr. Beck, like every other talking head out there grabs the first person spouting numbers that sounds sensational enough to draw ratings and he lets one nut job paint a bleak portrait of an entire profession.

Why is there not more coverage of this issue in the media and amongst the candidates for office? The simple solution really boils down to the pressure from the lenders. No appraiser woke up one day and said “Gee, today I want to eat breakfast and then go commit mortgage fraud before my 2 o'clock massage.” The fact is there are immoral appraisers, but the lending industry, mortgage brokers in particular, made huge profits by trolling for inexperienced or unethical appraisers. Their pressure and willingness to push for the sake of a commission is what caused this.

The interview and segment was not all bad, but it did paint some mighty big brush strokes. I know of many ethical and upstanding residential appraisers. Why does Mr. Beck and the rest of the “Entertainment Media” not focus on the issues that really matter, oops I forgot they are busy covering dead movie stars with fake breasts and their custody issues.

I mean here we are:  a state level official has decided to strong arm Fannie Mae and Freddie Mac into an agreement that will stall investigations into their failure to protect the public.  I may be wrong, but I thought that our Federal Goverment had oversight here and should step in to decide if a formal investigation is warranted.  I think Cumo is trying to do the right thing, however it looks like his proposal is full of loop holes.  These loop holes are not really benefitting the individual appraisers, or the public in general. 

I do toss out there that all “Entertainment Media” professionals to please hear the cry for you to shine some light on a real story that really matters. I am sure your ratings will not drop to the extent that you think to cover some news that impacts each and every American homeowner out there.

So what say you Bill O’Reilly, Sean Hannity, Anderson Cooper, and the rest of you folks who have glaringly over looked the Andrew Cumo led HVCC and subsequent IVPI proposal headed up by George Dodd and Pam Crowley? I think it is time for you to leave the un-needed concerns of the entertainment world and see that America is aware of something besides what jumps up ratings. I do believe that all of you are tired of being led by the hand to cover worthless topics. I would hope there are real journalistic principles in your collective and individual consciousness.

I would think that since many of you have reported on the sub-prime problems and how they have affected minorities you would think the possible changes news worthy. As appraisers we want the ability to fairly do our jobs so we can help honest Americans make sound decisions.

Anderson Cooper: http://www.cnn.com/feedback/forms/form5.ac.html?10

Bill O’Reilly: oreilly@foxnews.com

Glenn Beck: me@glennbeck.com

I wanted to follow up the blog I sent out a few days ago with some real information this time. 

As many of you know I work as a reserach fellow with A La Mode, which is the largest software company for real estate appraisers in the country.  I have just completed a new article regarding the field data gathering application called Da Vinci.  There is also a link there to a review of the Motion LS slate tablet that I have been running the prototype on.  If you have been in the market looking for a good tablet, you should check this out. 

You can link to it here: http://www.alamode.com/labs/articles/A030.aspx?ClickID=LABS1007&ClickThruEmail=woody.fincham@fmava.com&ClickThruCustomerNumber=0

I am very proud to be a part of this research project and I hope that you will take the time to read about what your friendly neighborhood appraiser is up to when he isn't appraising your files.  

Here's to a successful October to all of you. 

Woody Fincham

President

FM & Associates, INC 

Woe, what a time we are all having in the residential lending world the past couple of weeks.   With the shut downs, and closings of many mortgage companies, people are starting to get panicky.  Major companies’ stock values are declining and before we all know it many companies that are still here today, will be gone tomorrow. 

I feel sorry for the people that are loosing their jobs; they do have families (many with children).  It has been inevitable for some time though, with so many people becoming hires of the industry.  We will see many agents, loan companies, appraisal companies, and title companies be forced out of business in the next several months. 

Many folks jumped in thinking they would make millions by striking while it was en vogue to be here.  It is fine with me that the folks who are only interested in the money are leaving.  The folks that want this as a career will be here when it's slow, just as they have always been.

Many of us are good at what we do and have a loyal following.  Many of us, us at FMA included, are still marketing and getting new clients, based on that following.  This weeding out period is healthy as an overall correction.  While being sad, it is a needed evil of economics.  I guess that is why they call economics the dismal science. 

We will all prevail through it, but don't let the down turn in the market persuade you to stop getting more education, more marketing done, and more shoring up of your position as a leader in your respective fields. 

 Friday, July 06, 2007

Nothing real industry related with this update, just a desire to wish you all a happy 4th of July week.  I realize I am posting this post holiday, business is still clipping along at a decent pace, so I am staying rather busy with everything. 

I was fortunate enough to spend a portion of my Saturday with some of the Nations finest and their families.  One of the young ladies that I coach made sure I got to attend a speacial sneak preview of Transformers. 

This being a story/toy line from my childhood, I was quite interested in seeing it.  The screening was at the Norfolk Amphibious Base, and considering that many of the guys that enlisted now, grew up as part of my generation, it was quite fun seeing the story brought to "real life", as it were.  I really enjoyed it, and many thanks to Chaya and her family.  I also have to say it was a true joy watching it, I felt like I was 10 years old again.

I also want to give thanks to the fore fathers that establishe an fought for this great country.  In that is also a very special prayer and well wishing to all the great men and women that have served, and those that do serve.  We all owe you our lives, alleigance, and respect.

Happy 4th of July!!!

Woody Fincham

 on behalf the Staff at FM & Associates Appraisal Services, Inc 

It is great to be back from Las Vegas.  I was there working a booth for the annual Wintotal, or a la mode software company.  I am a research fellow with that company, as I help them come up with new ideas for appraisal applications. 

They announced the new Da Vinci platform, which is a filed dfata gathering application athat allows appraisers to use tablet pc's to collect field data.  They also showcased the new Armstrong platform, which will eventually replace the current Aurora platform. 

It was an exhausting week for me, as standing on your feet all day is hard work, so hats off to you folks that wait tables, or work retail.  I enjoyed it, a sit allowed for me and the other Labs Fellows to meet and chat with appraisers from all over the country.  We were all moved by the strong showing of support for each of our individual projects. 

More on that later, but in the mean time you can see all the vegas info at alamode.com/labs. 

Woody 

We are looking to lease our facility on Lynnhaven Parkway in Virginia Beach. This is a great space for folks looking for prime commercial exposure for a small business. It would work well for a start up Mortgage Company, real estate office or even a virtual business that needs some staff space. There are 4 private offices, with a large open area and another office that is being used for a server/file room now. All infrastructure wiring for phones and high speed internet are in place in the current configuration. It includes five marked spaces for parking. The utilities and common area maintenance fees are divided amongst the tenants, and being that this is the smallest space it has the lowest fees. Don’t pass up on the chance to be in a great location close to major mortgage companies, attorney’s and the Lynnhaven mall shopping area.

The lease must be for the term ending May 1, 2009 and include a personal guarantee to take the space. 

The space is 1,182 square feet per land lord's sketch. 

It really is a great space, but we have decided to try and move to a more centralized location considering we cover the entire metropolitan area.

Please inquire with Woody Fincham 757-965-4903

Hey folks, sorry it has been a while since I've updated the blog.  I have been very busy with fee work, my coaching responsibilities and my a la mode projects.  I am happy as I am constantly occupied, I am always just a little short on time to get everything done.   

For the time being I am just going to provide two links to my articles with the labs project at a la mode.  Read them and let me know what you think.  My newest article will be up soon. 

http://www.alamode.com/labs/A001.aspx

Above is my first article.

http://www.alamode.com/labs/A008.aspx

Above is my second which expands on the first.

Before I jump on my soapbox, I do want to strongly make it known to readers of this article that I work with top notch professionals everyday. What I am writing about here is referring to an increasingly smaller amount of con artists that specialize in taking advantage of their customers, and the companies they work for. There are many people in this industry that do their job above beyond ethical and professional requirements. I consider it a privilege to work with many of them.

Once again I am reading articles regarding mortgage industry problems. This time through it is non-prime lending that is making headlines. For those of you outside of the industry reading this, on-prime or sub-prime loans are for folks with less than perfect credit scores. Like the last time there was a problem with mortgages, appraisers are taking a huge amount of heat. I will be the first person to say that appraisers deserve what they get when they intentionally lie or “massage” data to get pre-determined results. The root of the problem is not just appraisers who are in the back pockets of mortgage originators. The root of the problem comes from how mortgage companies do business.

Like many businesses in the United States, the mortgage industry relies heavily on commissioned employees or commissioned sub-contractors to sell their products, in this case, originate or bring in clients to apply for loans. That’s all fine and well and on paper it looks like it is a workable concept. It does run into some inherent problems, most of which revolve around human nature.

Whenever the general public does business with an unregulated business, there are all kinds of things that can go wrong, and often do.

Wait!

Put on the brakes!! The mortgage business is regulated isn’t it? (It is, but it isn’t, and I can speak of the State that I work in, Virginia, with some authority, but the remaining country I am not well versed on. So some of this will apply to many of the states out there, but some of it may not.)

Most states require that to do business in their borders you have to work for a licensed company. Now in Virginia, there are lenders and there are mortgage brokers. In the lender realm you have mortgage companies, banks, credit unions, and other types of companies that underwrite process and originate their loans. The mortgage brokers are generally sort of like a middle man that acts as an originator, but is actually brokering the loan to a secondary lender, or private investment company that is actually lending the money.

Many of the larger companies Like National City, Countrywide, Wells Fargo, and many, many more companies are very good about training and making sure their originators are pretty much staying within the applicable laws to lend money. These companies are very heavily policed, and do their best to make sure they can keep lending money. That is why these companies are well known for their prime lending, or loans that are available only to those with good credit.

Most of the big mortgage companies will not lend their own funds to non-prime borrowers. They do broker most of these products to other lenders, as their corporate structures do not like the risk that less than perfect credit lending can have. From what we are seeing now, I can’t say that I fault them.

Mortgage brokers, are often times, small companies that live or die by whether or not they can make a loan close. Most of these companies make no money, if they can not close a loan. They are not a division of a bank, or other related fields, so lending fees are important to them. There are very large mortgage broker companies out there that lend money to many states, most of which they do not actually have offices in. They work from a central location(s) and receive most business from cold calling, mail solicitations and print/internet ads.

So far it all sounds pretty harmless, doesn’t it? Well it would be if that were the end of the story, but it isn’t. When these companies are trying to get approval for the loans, they have to of course make sure the borrowers meet minimum criteria, or the Underwriter is going to say no, and that customer goes from being a possible stream of income to a waste of time for the loan officer.

Underwriters want each loan in this non-prime category to basically be a round peg that fits into a round hole. The loan to value ratio should be promising, the borrowers income is outstanding, the borrowers look to be moving in the right direction every where, and of course they are not buying beyond their means.

The appraisals that are performed for these types of mortgages are very important. Normal appraisal guidelines are often not as stringent as the requirements that are placed on sub-prime loans. As an example, if I need to go to another neighborhood to find a comparable for my subject, and this is normal for the area and the comp is a perfect match to the subject, many sub-prime underwriters will not accept it in the report. They will ask for additional comps, preferably from the neighborhood, even when they are not available. They will put so much emphasis on the appraisal report, that if they are not satisfied that home is worth what the appraiser says, and that the report he sends in does not meet the checklist of requirements they want met (no matter how irrelevant they can sometimes be) they will either deny the loan, ask for a second opinion or review, or they flat out deny the loan based on the appraisal. I totally agree that they should put merit to my report, even more so when there is a higher probability of foreclosure.

It still sounds like everything is just fine doesn’t it? Well let’s get just a little deeper, and we will see where the rabbit hole leads to…

This is where things get a little hairy. Many loan officers, when they don’t work in an area very much, will canvas appraisers within the local area of their borrower’s home. When I say canvas, I mean canvas like they are expecting certain criteria to be met. I bet you guys can’t guess what the main question is on the request when they solicit for appraisers. If you guessed turn around time, license status, price, resume type qualifications, or ability to perform the work competently, you would be wrong. The most requested thing they want to know is, my borrower thinks that their property is worth x, can the property make that value, or higher? This is called pre-comping a property.

It should be noted that it is illegal for an appraiser to provide an estimate of value, without performing an appraisal. In the state of Virginia, oral appraisals are considered to still be a binding report. In order for an appraiser to provide an opinion of value, he/she is supposed to perform a number of required practices to arrive a supported value opinion.

Once more, I have to re-iterate that I have done business with many of the companies that lend money as mortgage brokers and as lenders, and most of them are very ethical and do what they are supposed to, at least from my perspective.

Many appraisers are very small businesses, such as a one man to two man operation. They end up being in the same boat as many of the mortgage brokers: no work, no money!

Some appraisers, especially right now, are literally at the point of saying “if I don’t give them what they want, then I am going to go bankrupt.” This is a situation that is dangerous for both the lender and the borrower. I am seeing reports all the time now that are estimated at higher amounts than what could realistically be seen in a sale on the open market.

I really want to pound on this fact: I abhor lying appraisers; they should be sought out and removed from the business. In all honesty many of these appraisers are on their way out anyway, due to the downturn in business volume. Many of these folks got into the business as a quick way to make money, and that train has left the station.

These unethical appraisers are directly linked to the loan officers that seek them out. These types of loan officers are not interested in what is best for their client. Their interest begins and ends with the maximum commission they can get from the product they want to use. They are not interested in an appraiser that will help the borrower make sound financial decisions; all they are after is the biggest value.

My state’s board for mortgage lenders, The Bureau of Financial Institutions, has proven to me they are not set up for fraud like this. I contacted them regarding this type of practices on a lender that not only asked me to promise a value, but also was very nasty to me when they were told we can not do this. This loan officer had also canvassed about 20 appraisers from what I would tell from the cc line in the email.

The board contacted me and explained to me that there are no laws in Virginia that are set up to handle complaints from appraisers. Essentially the only people who could complain were consumers. That blew me away, and it still does 4 months later.

The mortgage industry, HUD, VA, and all sorts of industry giants all consider the appraiser as the “lynchpin” in the transaction. Meaning that we have the power to see that a deal is ethical or not, and our involvement with it is a matter of professional ethical conduct that is directly related to the appraisers professional obligations to the lender, the borrower and the community at large. So why does my own state refuse to act on what is obvious coercion from the lenders?

That is a question that only they can answer. I refuse assignments when they are directed at harming the borrower, and when I am expected to do things that are not on the level.

I see the Federal and State levels will pretty much handle this similar to how they handled the S&L crisis in the 80’s. In that debacle appraisers were required to have licensing and certification requirements that revolved around minimum education requirements and such. The appraisal industry will be going into it’s second increase in competency and education requirements on January 1, 2008. There will actually be a college degree required to get a license, and the appraisal education hours will significantly increase. This will exclude many un-qualified folks from becoming appraisers, but does little to influence currently licensed folks.

The next logical step in this process is to require Loan Officers to undergo similar education and licensure requirements. Some states already have some, but they should be put to task just like the appraisers. They should also be put under investigation whenever a complaint is received at the state level. As an appraiser people can complain anonymously against me and the state board still has to validate the grounds for the complaint. I can be found guilty in such a situation, and so should any other licensed professional.

Will licensure clean up practices? Perhaps, but it is a step in the right direction. Appraiser licensing has helped some, but it is still an industry that could see more regulation.

Appraisers are to blame to a degree with the sub-prime fall out that we are seeing now. In my opinion, this problem would be reduced by a large degree if the loan officers, who are vastly unregulated, were regulated and licensed. The dis-honest folks who are loan officers would have no choice but to either start doing right by their clients or do something else. I really think the industry as a whole has more egg on it’s face then does any appraiser.

Tax Assessments in Hampton Roads

By Woody Fincham

It is very likely that, living in Hampton Roads, that your tax assessment for real estate has gone up quite a bit in the last few years. I know mine has, and the local paper makes it’s job to present the situation as sensational as possible.

The mere fact of the matter is that the cities have been playing “catch up” with the market. Very likely, at least in most cases, the city is still behind in actual market value for your home. In the case of tax assessments, the assessor never walks onto the property. It is done via “mass appraisal technique”, and it generally is lower than what an actual appraiser would report as value.

I discussed this with a Norfolk assessor this past St. Patrick’s Day weekend. He told me that in several cases that he gets phone calls from citizens who are complaining, and insist that the city lower the taxes. He then tells them he would be happy to come out and do a full property inspection on order to clarify the situation. Upon arriving he usually sees things that are actually not included in the current assessment, and it makes the assessment increase.

That does not mean the assessor does not make mistakes from time to time. I have performed a couple in the last 18 months that have actually been higher than I could prove with comparables from the neighborhood. I am sure the folks we performed that report for immediately asked for their taxes to be fixed.

More often then not, I see mistakes in the way the property features have been reported. I won’t mention any names of the cities that do this, but as an example: the square footage is wrong, and often higher than what is there. I have seen this many times, and it can only result in the city having taxed the owners more than they should have. This often is prevalent in older areas, where the cities were using arcane methodology, and for some reason they haven’t gotten around to fixing it yet.

Now, there is a huge myth that I hear very often: “if you value my house at $100,000, and the city is supposed to be 20% under that, then my value should be…”. The honest answer is that is a complete waste of logic. Our cities and counties here, from what I know of them, try to establish market value. Remember that they are always about a year behind, and that in the market we are in, with the ebb and flow, values are subject to rising and falling some.

Hiring a fee appraiser, or independent appraiser such FM & Associates, can help you gather a piece of mind without initially involving the assessor’s office. If they do happen to be in the wrong, you can have a disinterested professional source upon which to base your concern. We will measure the property, take accurate notes, and create a very honest and market supported report. Even if you do not learn your property is over value, at least you will know what the salient features and other relevant items in your home are properly shown and accounted for.

Below are some links to the local city webpages, where you can look at your tax information.  Some cities have better information available at the assessors office.

http://www.norfolk.gov/

This is Norfolk's home page.  Once you reach that you click on the city services pop down and follow the links for  Real Estate Assessments".  This information is very limited and Norfolk actually has a very well put together system in their office that is available to the public.

http://198.252.244.20/e-gov/Real_Estate/index.jsp

This Virginia Beach's webpage for tax assessments.

http://www.chesapeake.va.us/services/depart/real-est/app/welcome.shtml

This is Chesapeake's webpage for tax assessments.

http://www.portsmouthva.gov/assessor/data/

This is Portsmouth's webpage for tax assessments.

http://www.suffolk.va.us/realest/

This is Suffolk's webpage for tax assessments.

http://www.hampton.va.us/sol/propertysearch/index.html#

This is Hampton's Webpage for tax assessments

https://www2.ci.newport-news.va.us/reisweb1/

This is Newport News's Webpage for tax assessments

Above includes the majority of the area we cover.  If you have any questions please let us know. appraisals@fmava.com

March 8, 2007

Today marked another successful informational seminar for a local real estate office.  Woody spoke before approximately 20 agents at Nancy Chandler & Associates, at their Norfolk office. 

Woody gave a structured review of an appraisal form 1004, and ended with a very informative question and answer session.  We have done several of these in the past 2 years, and welcome the opportunity to help bridge the gap between the fields.  It really is important that agents understand why and how appraisers obtain and use market data.  It helps them be better prepared for the appraisers they encounter in their day to day business. 

Topics covered included: matched pair analysis, cost approach, differences in licensed appraisers and unlicensed assistants, and several other minor topics.  The agents at Nancy Chandler, with their Managing Broker Hope Roots, asked some very thoughtful questions, and all seem to be of the best professional caliber.  It was a great pleaseure to have been able to spend time with them, and we look  forward to continuing to work with them in the future. 

If you are a local realtor, or loan officer that would like to have us come in for a free informational hour, please contact us at appraisals@fmava.com

I don't have any hardcore numbers for the area, in terms of foreclosures expected or current at this moment, but I wanted to let everyone know that we are no doing our 9th foreclosure use appraisal in 3 months.  We didn't do that many in the last 12 months preceeding that. 

That leads me to beleive that there is a high increase for the market.  I get questions about this almost daily, so I figured I would put that stat up.  I iwll have more info soon.   

Well blogging seems to be the buzz word of the year.  It seems everywhere I go someone is either talking about their personal blog, or about someone else's blog they love to read. 

I guess it's time we start doing it as well, especially since our provide has now created software to do it.  So we will be posting new blogs as time goes by and I hope that you all take an opportunity to subscribe with us and learn more about our company and whatever else we are doing at the moment.