Real Life HVCC Misery

July 29, 2009 at 5:31 pm | Posted in Uncategorized | 2 Comments
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*I’ve noticed that I’ve been complaining a bit more than ususal.  I appologize for this, but when you write, you tend to write about what you’re riled up about- good or bad.  I promise to make the next post one that will make you smile… enjoy.

I got an order to do an appraisal last month.  It was one of my better clients- one whom I have worked with for over four years.  But since May 1st, they like everyone else have had to work through an Appraisal Management Company (AMC)- someone was buying a home- this was in Glendale, Arizona- a suburb of Phoenix.

As usual, I received a copy of the sales contract so I could analyze the details of the transaction.  This is done so that the Appraiser can see if there are any “sales concessions” within the deal.  Good examples of sales concessions are when the seller pays for a home warranty on behalf of the buyer, or if the seller contributes say 3% of the purchase price towards the buyer’s loan expenses.  So if a home is under contract for$200,000 and the seller is contributing 3% towards closing costs, then the buyer is technically only paying $194,000 even though the contract might show $200,000 and when it records it will show $200,000.  So it is very important to analyze the contract for this reason to determine the “real” purchase price.

The problem with purchase appraisals is that too often, the Appraiser sees the contract price and now has a “target” value that he might shoot for.  This is the subtle version of lender pressure- instead of the loan officer saying “I need the appraisal to come in at over$200k”, they let the contract do the talking.

So I appraise the home and unfortunately, despite the $200,000 contract price, the data of comparables only supported a value of around $180,000.  The whole point of the HVCC is to eliminate lender pressure right? Right?  So they can’t fault me for coming in at the true value right?  Right?

About a week later, I get an email via the AMC saying that the contract has been revised per my Appraisal and now the parties have agreed to a contract price of $180,000.  Sound great doesn’t it?  The email asked me to revise the contract section of the appraisal accordingly (perfectly legal) and the email also says that now the seller will not pay any of the buyer’s closing costs.  I look over the new addendum and sure enough it shows the new contract price and it’s dated and signed by both parties.  Cool.

But uncool is the fact that nowhere on the addendum does it mention that the seller isn’t paying closing costs.  The original contract shows that they are, and if they are not doing so anymore, then the contract needs to clearly state that.  So, I can’t revise the report without that information in writing.

As I mentioned, the email I received detailed what they needed, so I can just reply to that email and tell them that I need more info, but no… the AMC is set up to send these automated mail server “emails” that you can’t reply to.  And of course there’s no actual contact person or real email address or phone number to call. (don’t you hate when you reply to an email with a verbiose and well thought out letter and after you send it, it bounces back with a “ha ha!  fooled you.  this isn’t a person’s email address” message?)

So I log onto the AMC website- it looks very nice and there’s an option to send the lender/client a message- cool.  But then I see that the “messages” are simply radio check buttons.  You get to select one of about 20 canned messages like “borrower no show”, “delay of 24 hours, “no power”, etc.  I figure there must be an “other” selection with a text box but no.  I look for an appropriate canned message and the best available is “please send sales contract”.  That’d work… but I already have the sales contract as far as they are concerned.  I need a page of the contract which they haven’t sent.  How are they supposed to know what I mean?

So, unlike most guys, I give in to asking for directions.  I call the AMC and a very courteous person comes on the phone and he explains that I have to use one of those canned messages in order to comply with HVCC.  I explain to him the situation and the fact that this system will now only creat confusion and delays, and he courteously replies with “we are HVCC compliant, I understand the situation, but that’s how it works.”  There’s no use getting mad at this guy and I’m so used to being mad at situations and policies, that I keep my cool and let out a Charlie Brown sigh.

I next call the lender directly whom I’ve worked with for years.  The processor I know is unable to help me.  Long story short, I eventually called the listing agent who promptly sent me the addendum.  Situation resolved.  When all was said and done, between the time they sent the revised request and when I sent it back to them- 3 hours.  No big deal.

But is it a big deal?  Well, it’s been three weeks since I finished that assignment.  The deal is closed, I’ve been paid, and here’s the funny part- I haven’t received another order from that lender since.  This is the lender I’ve worked with for four years averaging about 6 deals a month.  And you know who I can contact to find out why I haven’t received any orders since?  Neither do I.

If you’d like to share your own story of how the HVCC has affected you, let me know.  And if you feel that the HVCC must be stopped, I ask you to do two things- sign the petition at www.hvccpetition.com and contact your congressman about HR 3044 which would put a moratorium on the HVCC www.govtrack.us/congress/bill.xpd?bill=h111-3044.

Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

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My Analysis on the HVCC

July 16, 2009 at 12:08 am | Posted in Uncategorized | 2 Comments
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Here’s the layman’s synopsis of the dreaded Home Valuation Code of Conduct and why it’s important to you- regardless of who you are.  I recently gave this presentation to a group of other local professionals, and now I’ve attempted to put it in some sort of written form.  Now that I’ve read it back, it’s downright boring!  But it is important and worth a few minutes of your time.

BACKGROUND

In the late 1980’s there was the great Savings and Loan collapse.  “Bad lending practices” is the 2 second synopsis.  And the US Goverment (taxpayers) bailed them out to the tune of $125 billionish.  In the wake of this, among other things, Appraisers were officially required to be licensed, follow universally accepted standard, etc.  In other words, rules and regulations were established.  Those rules included minimum education hours, minimum experience hours, testing standards, licensing procedures, background checks, etc.  Today, that means 2500 hours of experience, 120 hours of initial education, FBI check, nationally established test, a 4 year college degree, errors and omissions insurance, etc.

And every two years, Appraisers are required to repeat one specific class known as USPAP, which basically covers the methodology of appraising- including ETHICS.

Why so much to be an Appraiser?   Well after all, Appraisers are signing a legal document saying what the estimated value of a property is.  And that document is then used by decisionmakers on whether a loan should be given for a particular property.  Basically, the Appraiser is giving the diagnosis on a piece of property, and the bank then decides the course of action.

Every state has an Appraisal Board which consists of a group of professionals who enforce appraisal standards and licensing.  And when someone complains about an Appraiser for competence, ethics, or any other legitimate reason, that board investigates complaints against Appraisers.   The board reprimands Appraisers up to and including revocation of licenses and even pursuit of criminal charges to be carried out by the Attorney General or whomever else would pursue the matter (I’m not a lawyer).

All these things have been mandated or expanded since 1989 by what is known as FIRREA- you can google that on your own if you’d like.

Recent Housing Situation

So as we’ve all seen, over the past several years, the market has seen a significant decline, and by significant, I mean huge.  But rather than accept the fact that it’s normal for markets rise and fall, the tendency is to try and place blame. 

So whose fault was this big mess? 

  • Was it the homeowners- who saw prices going sky high and did whatever they could to buy a house, or two, or ten.  Or maybe they irresponsibly overleveraged themselves to get these homes.  Or maybe they even lied in order to get these loans.
  • Was it the Realtors, who took their clients to homes that were above their price range and “sold” them into going through with a purchase that they really didn’t feel comfortable with.
  • Was it the Appraiser’s fault for falsely estimating values because they were scared that they’d lose clients if they “killed” deals?  Or perhaps they were working in cahoots with lender in some sort of “straw buyer” scheme.
  • Was it the mortgage broker’s fault for putting borrowers in risky loans- or fudged the financials of the borrower to make them fit into a loan? 
  • Was it the lender’s fault for creating these risky loans in the first place- like stated income, no income no job, or negative amortization loans? 
  • Maybe it the politicians- who passed legislation and threatened to sue lenders if they didn’t provide more loans to unqualified borrowers simply for the sake of giving more minorities the chance to own a home.

The answer- it was everyone’s fault and more.

But now that the mess is made, sure we see the news stories of heartache and trashed homes and bankruptcy and divorce.  But the people who we hear and see most now are the politicians who represent us and are able to promote legislation (or mandate it).  But let’s just say that I am cynical and although I believe that many politicians have noble intensions, oftentimes they are only posturing in order to let the masses think that they are doing their job.  The politicians have to look like they care right?

So here’s the deal.  A few years ago, Washington Mutual got in trouble for putting pressure on Appraisers to get deals done.  Turns out that WAMU owned their very own appraisal company subsidiary.  So if you got a loan through WAMU, your appraisal was essentially done by an employee of WAMU.  So ultimately their staff Appraisers were caught inflating values to make deals work- even if they weren’t wise decisions for the bank.  People complained and it was uncovered that the “objective” Appraisers were anything but- and that they were pressured into inflating values.  WAMU is now in the process of being bought by Chase so we know how that worked out for WAMU. 

So about this time, the attorney general of New York- a single person named Anthony Cuomo took it upon himself to dictate that mortgage companies are not allowed to directly contact the Appraiser, but instead use a “neutral” Appraisal Management Company (AMC) who then selects Appraisers at random.  You can read the actual code here if you’d like.  Appraiser independence, no pressure.  Yay!… But does it really provide Appraiser independence and does it really eliminate lender pressure? 

Once the code was announced, these AMCs appeared out of nowhere in droves.  Everyone wanted a piece of the action.  I mean where else can you start a business that mortgage companies have to use?  And did I mention that these AMCs are unregulated?  Did I mention that these AMC’s are unregulated? (yes I meant to repeat myself).  So starting May 1st of 2009, it is now required that for any transaction backed by Fannie Mae or Freddie Mac, safeguards must be in place to eliminate any whiff of guidance by the loan officer on the Appraiser.

So… how do these AMC’s make money?  Well, it used to be that the borrower would pay the Appraiser- around $350 for a typical home appraisal.  Good lenders would insist that borrowers pay the Appraiser directly- that way, even if the deal fell through, the Appraiser got paid for services rendered.  So if the Appraiser gets $350, then  how does the AMC make money?  Two choices- charge more for the appraisal so the Appraiser can still get paid the same amount, or find an Appraiser who will do the work for less than $350.  Oh wait, three choices- charge more for the appraisal AND find an Appraiser who will do the work for less than $350.  So it’s now common for borrowers to get charged $500 for an appraisal and the Appraiser gets paid $250, $200, or even less- depending on how much the AMC is willing to pay and how desperate the Appraiser is.  And since lenders must now use AMC’s, Appraiser must now work with AMC’s.  So in a given market- say Phoenix, a single AMC might have 30 Appraisers to choose from to do an assignment.  And one AMC in particular will simply email an opportunity to all local Appraisers and the one who quotes the best combination of cheap and fast, gets the work.  Or the “better” AMCs will broadcast an assignment and the first one to reply will get the work.  Sounds sort of like a feeding frenzy eh?

Now before you start saying that Appraiser’s are sharks, please remember the sharks aren’t filming the video, and the sharks aren’t providing the fish.  These sharks are hanging around waiting for food because they are starving to death.  Meanwhile the smart shark has been out on his own, doing his own fishing- but now he’s not allowed to do so and he has to join in with the others or starve to death.  Sounds a bit like socialism doesn’t it?  And who are the starving Appraisers who are doing the work for very little compensation?  It’s the freshest and greenest Appraisers who aren’t necessarily the best at what they do.  Why do high end cancer specialists and baseball players and singers get paid so much?  Because they have proven themselves and their work speaks for itself.   What if you wanted to see a concert and when you got there it wasn’t someone you’ve heard of, and it was rock when you are a country fan and they weren’t very good?  Not very good for the consumer is it?

And what happens if the appraisal is bad and the lender isn’t happy?  Who can they take it out on?  Sure the Appraiser’s name is on the report.  It’s the Appraiser’s errors and ommissions insurance and license and phone number on the report.  But with a dead deal, what’s the simplest solution for the lender?  Go to a different AMC who will provide appraisals that make value.  So the “pressure” was perhaps on the Appraiser from the lender, but now the pressure is on the AMC who now puts pressure on the Appraiser- another layer of beauracracy.  So if an Appraiser comes in at a value that isn’t good enough, he might stop getting orders from the AMC- again, the unregulated AMC.

Who is benefitting from the HVCC?  It’s not the Appraiser.  It’s not the borrower.  In actuality it’s the lender and the AMCs that are benefitting most.  The lender can now charge a strange fee of say $500 that covers the appraisal.  The lender can pay the AMC $350, who then pays the Appraiser $200.  And even if the appraisal kills the deal, the lender makes $150.  So instead of the Appraiser charging a simple $350, two other entities make money out of the same transaction.  Now I know that this scenario is very simplistic, but it’s a perfect example of how some are taking advantage of the HVCC.

This rant has gone on pretty long so if you’ve even made it this far, I thank you and I will try to wrap it up.  I’ll actually give real examples later down the road.

What Can Be Done by YOU

Don’t get me wrong, clients come and go, so I still appreciate referrals of mortgage professionals, management companies, lawyers, Realtors and even homeowners.  But my request for you today is to take action against this legislation.  And here’s why it’s not a futile attempt.

  1. The appraisal industry has the weakest lobbying group in DC.  So it was easy for the HVCC to get crammed into action.
  2. The National Association of Realtors (NAR) has one of the biggest lobbying groups in DC and while they let this go into effect, the impact has been enormous in just two months.  Realtors and mortgage brokers are seeing their deals getting killed by inexperienced Appraisers and borrowers are seeing very high Appraisal fees and even second Appraisal fees for deals that go nowhere.
  3. So the president of the NAR is finally taking action against the HVCC and has met with Anthony Cuomo.
  4. Go to this website and watch the video which is very well done and explains much of what I have done in this blog.  (and sorry if you read it first and are now saying “you mean I could have watched the movie instead of reading this poorly written crap?!)
  5. Sign the petition on that same website.  Last I checked it had 52,000 signatures so far.
  6. Share that website with everyone you know.
  7. There is a bill in the US House of Representatives right now- HR 3044.  It already has 19 cosponsors.  Please contact your congressman and voice your support for this bill.  Hopefully he or she will want to cosponsor the bill.

Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Give me a call at 480-544-1217 if you have any questions. I look forward to working with you. Now serving the San Tan Valley community.

Faith in Humanity- Restored (for now)

July 3, 2009 at 6:19 pm | Posted in Uncategorized | 2 Comments
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Get ready for a long story and rant.  But there’s a lesson to be learned…

Ever since moving to Arizona, I’ve worked with a particular Realtor who has fed me all his appraisal deals- I golfed with him, we went to each others kids’ birthday parties and I considered him a friend.  As a business owner, you have to make executive decisions on getting paid and although sometimes slow, I’d always get paid for the appraisals I did for him.  He had his go to loan officer whom I never got along with, but it was a relationship with the Realtor that precluded anything else.  The loan officer (she) would often call me in a huff- either to whine about the value I came in at or otherwise second guessing my work.  I have confidence in my work so I always found it annoying that after 3 years she never lightened up.

In May 2008, I got an appraisal request for a property purchase.  The order- as always, said “COD” but all orders in this arrangement say COD.  As a small business, I always err on the side of COD if I am at all leary of whether I’ll get paid or not.  I’ll bill orders through escrow only if I have an established professional relationship.

So I finish the appraisal, the deal looks like it will work handily based on value and I submit the report.  Well about three weeks later I get a call from the loan officer.  She tells me that she’s changed companies midstream and needs the appraisal changed to show the new client (who is the company that is actually doing the loan).  I ask her to send that request via email so that I can have a record of it and then she asks for me to show the invoice as Paid.  I tell her that I can’t do that since I haven’t received payment yet and she said, “well the deal is closing this week, so just change it to Bill Through Escrow and everything will be fine.  Again, my own personal accounting practices are just that- my own.  I feel confident that if I don’t get paid through escrow, my Realtor friend will cut me the check, so I oblige the loan officer.

Fast forward another three weeks.  I notice a few unpaid appraisals and shoot an email to the loan officer asking for status.  She says that the loan closed and that she already got paid and that I should have as well.  I ask her to look into it for me and instead of doing so, she sends me the phone number for the escrow company- so now it’s my job to check up on my payment (typically, a loan officer will look out for their Appraiser and do this for them).  I give in and call the escrow officer who very nicely says that everything’s been distributed.  She shows that the appraisal fee was paid to the mortgage company as part of a lump sum.  I ask for documentation and she happily sends me a copy as well as what is known as a Disbursement Recap which shows my fee which is supposed to go to my company.  Here’s where the situation turns bad.

I call the loan officer back who sais that she doesn’t know what happened, and like the escrow officer, she gives me the main phone number of the mortgage company- no contact, no introduction, just a worthless level of help.  I call the office and speak with the “branch manager” who says that she will look into it and get back to me later that day.  Fast forward another call like this with no call back and I ask for her boss.  I leave him a voice mail, follow it up with an email and get no reply.  So now I’m getting a little bit upset (ok, I got upset a few days prior).  In the meantime, I had called my Realtor friend, the loan officer and even the borrower.  The borrower gladly sent me a copy of his settlement statement which clearly shows that he was charged for an appraisal fee.  He even offered to go down to the mortgage company and “kick someones ass” on my behalf.  I tell him to lay low.

In all this time, the owner of the mortgage company never called me back but then I got an email from him- that’s right, a saveable and printable conversation where he basically accuses me of trying to steal from their company and he even threatens to blacklist me for even trying to collect my fee.  I know my own integrity, and after googling his name I see that he’s at the other end of the spectrum.  I research and then find that I should file a complaint with the Arizona Board of Financial Institutions.  I’m skeptical of government beuracracy but I reply that I will file a complaint unless he sends me payment.  He then replies with an offer to pay me half my fee!

So about August of 2008, I print out numerous emails, copies of everything (the appraisal, the order, HUD-1 statement, etc), and send it all to the Arizona Board of Financial Institutions.  Within a month, I get a letter back- apparently they quickly sent the complaint to the mortgage company who had to reply rather quickly.  The response was that I was trying to double bill for the appraisal.  By this time, my energy level for this situation has been more than completely depleted, but I reply via another certified letter.

Fast forward to October of 2008.  I’m measuring a house and get a phone call from someone at the Arizona Board of Financial Institutions.  The gentleman is not some robotic turd, but instead he aks me to explain the situation (I guess they want to get a feel for my legitimacy) and he says that he will personally put this one at the top of his pile (of over 100 cases).  I sarcastically joke about beauracracy and he agrees completely.  Then he explains that his already short staff will be cut in half in November, so he might not even have a job.  Great guy, but I’m not feeling very confident in any resolution.

So the holidays pass, a new year begins, I do my taxes and see that this is the only outstanding bill for all of 2008 but I’m so far past caring that it’s no big deal.  I probably spent 20 hours “working” on this to no avail.

But in April of 2009 a call comes in.  A pleasant lady who says she works for the mortgage company in question.  She says she’s calling because of the complaint and tells me that.  She then tells me that the “owner” isn’t the owner and that he no longer works there.  In fact nobody still works there that did a year prior.  She asks me to confirm the details of the loan and then tells me… “we have no record of that loan”.  Now I’m not upset, because I couldn’t care less about what sort of Nixonesque mass shreading might have taken place when the prior regime left, but I got a little ill just thinking about all the other Appraisers who might have been ripped off here, or all the homeowners who might have done business with this company, or the fact that this company’s practices is NOT an isolated situation.  Yet it’s the lowly Appraiser and other professionals and homeowners who get hosed.  How many people do not take action and simply accept that they’ve been ripped off?

So, after sending copies of the appraisal, order, HUD-1, loan number, escrow number and more, what arrived in my mailbox literally 365 days after the inspection?  That’s right, my fee.  Was it worth it?  Well monetarily it absolutely was not worth it.  But coming from a cynical person like myself, the exercize served the purpose of giving me just a little bit of confidence in government entities, the power of documentation, the power of persistence, the power of knowing when you’re right, the power of foregiveness.

Lesson learned?  Always collect COD!

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