by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
Have you heard of the Home Valuation Code of Conduct? New York Attorney General Cuomo forced Fannie Mae and Freddie Mac to adopt the measure, in what can only be described as a Machiavellian scheme. Essentially, mortgage brokers are forbidden from direct contact with residential appraisers; all appraisals for agency loans (not FHA or VA) must be ordered by a lender-approved appraisal management company.
What’s an appraisal management company? Exactly.
The intended result is to keep all loan production personnel (broker or banker) from undue influence on the independent appraisers hired to perform the valuation report. You see, rather than to cease doing business with rogue mortgage brokers or unscrupulous lenders, a minority of appraisers felt it necessary to encourage Attorney General Cuomo to “put the arm” on the lending industry to protect their past ethical trangressions.
Wholesale lenders, realizing that the appraisal would now be THEIR property, clamored to the idea. This was just another chance to restrict the value proposition of mortgage brokers (portability) and lock up some business.
Big Banks 1 Consumers 0
Wait! That’s not all! If the assigned appraiser is backed up, tough crap!
You see where I’m going with this? The lender pipelines are ALREADY clogged up because the volume has spiked and the employee count is down. Soon, we’ll be adding loan applications from the Obama refinance/loan modification plan and a further drain will be put on the overloaded appraisers. Can I choose to deal with appraisers who won’t do refinance transactions? Nuthin’ doin. Ya takes what ya gets under HVCC.
Big Banks 2 Consumers 0
Still, I persist like Mr. Magoo negotiates a maze. I took a loan application last week, checked Zillow for the Zestimate, closed my eyes and ordered the appraisal from the selected lender. I locked the rate for thirty days and uploaded the loan submission. I expected 10 business days in underwriting; surely, the appraisal would be uploaded within a week.
As Meatloaf might say “Stop Right There! Before we go any further…”
I received an e-mail from the lender instructing me to immediately extend the rate lock for another 15 days…at a .25% fee. For this $417,000 loan, the added cost to the borrower is $1042.50. I rejected those terms, cancelled the rate lock, and demanded the $350 appraisal fee to be refunded.
Sorry…there ain’t no refunds.
Big Banks 3 Consumers 0
My customer is stuck with a $1042.50 premium to account for the inefficiency of the appraisal management company, to assign a $350 appraisal….BUT
..the lender said the loan looks like a slam-dunk approval.
Big Banks 4 Well-Qualified Consumer (-$1,392.50)
It just keeps going, and going, and going…
Ann Cummings says:
And it just keeps getting worse and worse for the consumers with all these so-called protections set in place.
We’re running into less-than-adequate appraisers coming into my area, several from out of state and not even knowing how to get here never mind knowing anything about this market, using the most ridiculous comps, which of course causes the appraisals to come in low. Do they ask any questions about the comps? Heck no, they’re an appraiser – they know everything even though they may have come from 3 hours away and needed directions on how to get here.
We’ve run into appraisals that used Zillow and REALTOR.com for their comps. What?? If you only knew how ridiculous Zillow is for this area, you’d be sick to your stomach. We had a drive-by appraisal done on one of our listings this past week, and that appraiser, from 2 hours away, used Zillow for his information. You’ve got to be kidding!
And this junky work is supposed to be better for whom?? Certainly not the consumers, that’s for sure.
The consumers are the losers in this, and just how long will it take before the idiots who passed this rule begin to get the message?? It will take far too long. The simpler thing would have been to do just as you wrote, Brian, ‘weed out the unscrupulous’……but no, let’s do things to actually reward those people instead….
The things that make ya go ‘huh?’……..
May 15, 2009 — 1:54 am
Cheryl Johnson says:
I’ve been wondering: As a real estate broker, could I open up my own appraisal management company?
What are the requirements to become an appraisal management company? Are they licensed?
Suppose I did open my own appraisal management company, and a mortgage broker I work with ordered the appraisal for one of my transactions through my company?
Is that kind of connection addressed in HVCC? I don’t see it, but maybe I am missing something.
May 15, 2009 — 5:56 am
Jonathan Miller says:
Well said Brian, with one significant correction. The Cuomo/FNMA HVCC agreement DOES NOT require banks to order appraisals through AMCs.
However, it does enable the use of AMCs since many lenders severed relationships with appraisers to cut costs during the mortgage boom because they could shift the process over to mortgage brokers who would then order an appraisal. We moved from a bias towards inflated valuation via mortgage broker (who gets paid on whether the deal closes) to a bias towards incompetence/randomness/conservative because competent appraisers (and I am generalizing here) tend not to work for AMCs unless they are the only game in town.
Lenders will use AMCs because it is easier and because many of the people running mortgage operations are the same people who were there during the mortgage bubble.
Jonathan Miller
NYS Certified Appraiser
May 15, 2009 — 6:42 am
Mark Green says:
Brian,
You’ve inspired me here to write my next BHB article – and I think you know what’s coming.
Christopher Dodd and the rest of these ultra-liberal left-wing nut jobs are firmly entrenched in the pockets of the big banks:
http://www.huffingtonpost.com/2009/04/17/chris-dodds-personal-bail_n_188034.html
By the way, politically speaking, I’m not a liberal nor am I conservative. I’m not trying to create a political firestorm here. But if you want to objectively learn why the broker industry is so severely under attack by the depositories, all you have to do is follow the money trail.
Banks—> MegaPowerful PACs—> Chairman: Committee on Banking, Housing, and Urban Affairs—> Massive influx of Category Killing Legislation NAMB is illequipped to fight…
http://www.senate.gov/general/committee_membership/committee_memberships_SSBK.htm
My next BHB article will address the simpleton’s take on what’s going down.
May 15, 2009 — 7:20 am
Frank Gregoire says:
Brian, Appraisers from around the country have been sounding the alarm about the HVCC how it would end up increasing the costs to borrowers. Ken Harney (The Nation’s Housing) has a column about this that is ready to run this weekend. Let’s hope now that consumers are getting hit where it hurts, (their wallets) Fannie, Freddie, the Federal Housing Finance Agency and New York Attorney General will come to their senses, be responsible, and take action to at least delay the implementation of the HVCC.
The Harney story HERE
May 15, 2009 — 8:01 am
Jim Quist says:
Count me out on dealing with AMC’s. They quite possibly work well in some markets but in rural areas with limited data resources and sales spread out from here to the “well hole” and back it isn’t a reasonable choice for anyone.
In the meantime I’ll stick with the happy hunting grounds of divorce and tax appraisal. Much more fun!
Nothing like giving the shaft to consumers. Nice job Washington!
May 15, 2009 — 8:12 am
Thomas Johnson says:
We just had one on a rural property. 3 weeks to perform the appraisal. The fellow who measured the property is not the appraiser who signed the appraisal unless he is transgender, since the appraisal was signed by a female. Oh, he missed 800 square feet on a 4300 sqft house. Of course, this appraisal firm is protected by the 3rd party deal.
May 15, 2009 — 9:42 am
Jim Quist says:
TJ
Not overly surprising and expect that scenario to be the “norm” rather than the exception henceforth.
In reference to appraisers who are unfamiliar with the market being used. Those folks may want to refer to USPAP guidelines. If you don’t know it and don’t have access to the tools to properly perform the job then why are you doing it?
I would love for an E&O provider to weigh in on this thread.
May 15, 2009 — 11:39 am
Esko Kiuru says:
Brian,
That’s what it looks like now under the new HVCC rules. The consumer is taking it to the chin at about every turn. The current mortgage and real estate mess has frightened many industry regulators into enacting laws, with a nice push from certain interest groups, that aren’t making much sense overall. And we are not done yet.
May 17, 2009 — 4:49 pm
Doug Quance says:
Maybe I missed it… but the appraisers are only going to get a portion of the money they used to get for performing the appraisal – with the management company keeping the rest.
I’m sure THAT will improve the quality of the appraisals performed…
In Georgia, the banking lobby won another round (the last one being that banks didn’t have to disclose yield spread while the mortgage brokers do) by getting loan officers to be licensed – as long as they don’t work for a bank.
Part of the qualifications include a three-year personal history of no collections, foreclosures or bankruptcies on the part of the LO.
So, if you were a hard-working LO who watches out for your clients and didn’t gouge them – but the downturn in the market has dinged your credit… you’re toast. It doesn’t matter if you’ve been an LO for twenty years… you’ll need to find a new line of work.
But if you body-slammed your clients into those high-profit loans that made you a ton of money, but hosed your clients – possibly to the point of foreclosure… well you probably made enough money to keep your credit in great shape – and you’ll get to keep your job.
Yep… all these changes are going to be sooooo good for the consumer…
May 18, 2009 — 11:45 am
Jennifer James says:
I’m a certified appraiser who is employed with an AMC. Every AMC works differently, some good, some bad. Not all are bad.
I believe QLS is different primarily because they are owned and operated by experienced appraisers. It is extremely important for the person ordering the appraisal to know how to find appraisers in the subject’s area and not hours away. This is not done by a customer service rep making $7.00 an hour.
Rural properties are different but local appraisers are still available if they know how to find them. Another issue could be the AMC doesn’t want to pay a local appraiser the fee they require, therefore, placing the order with an appraiser out of the area.
I think a big misconception about appraisers is that now they will just value all properties lower because they cannot be told any estimated value. The appraiser can get in as much trouble with the state for undervaluing a property as to overvaluing. If you think an appraisal is wrong based on comps, etc. then send it in to the state and let them investigate. This is how those appraisers who don’t do their jobs by USPAP will go away.
I hope lenders will get tired of bad appraisals and seek out AMC’s who provide quality. Only time will tell.
May 26, 2009 — 8:27 pm