Oops!!! I Did it Again!

October 14, 2010 at 9:58 pm | Posted in Uncategorized | Leave a comment
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I’m not a fan of Britney Spears, but I do know she had a big hit called “Oops I Did it Again” and I can hum the song but don’t know the words.  So despite not knowing her music, “the Brit” popped into my mind yesterday because of something I did, but at least it was appraisal related.

Back in the good ol’ days, when lender pressure was rampant, we appraisers would get assignments that would say things like “must hit $250k” or “$300k minimum”.  Well the bad appraisers would hit that value no matter what, and the good appraisers would hit that value if it was warranted.  But either way, future business was often dependent on how you did on your most recent appraisal.  Some loan officers would put feelers out before they actually ordered an appraisal- you know, do some research on if there were supportive sales before they took their borrower head first down the refinance path.

Now when an appraiser’s client base can come and go based on your last deal, it can be a bit stressful.  It used to be that whenever I’d get an order where I pulled the comps and knew before even going to the home that it wasn’t going to make their deal work I always get a lump in my stomach.  If it was a COD order, I wouldn’t feel too bad because at least I’d get paid, and sure I’d feel bad for the borrower, but if it was a bill through escrow situation, I was always wondering if I’d really get paid (assuming that the deal dies because of low appraisal value).  I actually had one of my longtime clients order an appraisal of a luxury home in North Scottsdale- gated, golf, gargantuan, and it took me 3 hours to measure the dang thing.  As property values were proven to be declining, I marked that on the appraisal, and next thing I know, I got an email from my client’s assistant railing on why I marked “declining”.   I never heard from that client again, and I was out $1,200.

So flash forward to HVCC- the Home Valuation Code of Conduct.  You know, the Anthony Cuomo contrived system to protect the transparency of the system.  Put in place to ensure that there was no undue pressure on appraisers from loan officers.  They say that it was put in place because some of the biggest lenders in the country actually owned their own appraisal companies thus causing conflicts of interest.  As a few real life examples so as not to sound biased, Countrywide/BofA owns Landsafe Appraisal, Wells Fargo owns RELS.  Now the operative word is “owns”, not “owned”.  So in other words, despite these changes which affected appraisers nationwide, the biggest lenders still have their appraisal companies working for them.  But in the meantime, a majority of appraisers have now been subjected to a major shift in business as appraisals must now be ordered through third party AMCs- Appraisal Management Companies.

If you’ve read any of my previous articles you can see my opinions on AMCs- and in case you don’t want to read it all, I’m generally in favor of the new system.  I won’t go into that here, but let’s just say that I didn’t work directly with any of those big banks, so all my clients went with AMCs that they didn’t own.  Now in this shakedown I lost some clients because they went with AMCs that I couldn’t effectively become an appraiser for, but I also gained some clients that truly ordered their appraisals randomly.  However, a few clients went with an alternative AMC solution- which was more of an electronic AMC.  Imagine that instead of having to contact a person to order an appraisal, you could go to a website which truly and somewhat randomly and anonymously selects the appropriate appraiser based on proximity, experience, etc.  I’ll talk more on that type of AMC some other time.  So because a few of my clients used that sort of system, I was able to get full or pretty close to full fees with transparency and lack of pressure.  Life was good.

But then one of my lenders started whining about deals that were killed because of low appraisals and their lack of control of the process.  I started getting calls from loan officers… I never wavered from my value, but still- a conversation that should never happen any more.  So what did they do?  That’s right, since they couldn’t fire the appraiser (assuming I’m not the only one who has come in low for them, they simply decided to change the AMC they used.  The new one was the human kind and guess what- it happened to have the same physical address as the lenders headquarters!  So this smaller lender decided to create their own AMC with employees who are paid essentially from the same revenues as the loan officers and they are now within walking distance of each other.  Does anyone see any potential problem here?  Here’s kicker number one- perfectly legal.  Here’s kicker number two- now that they had to go with a different AMC they claimed they had to cut the fees paid to the appraiser so that they could justify the cost of running their new AMC division.  The borrower was still getting charged $425+, but now the appraiser was getting paid less.

Let’s break it down to what prompted me to write this article since I’ve already engulfed a lot of your time.  If I do not hit the value needed by this AMC/lender, I inevitably get a call- but up until this point it had never been a call of value pressure.  But more of a “why didn’t you call me when you knew the value was going to be low?”  And as a reputable and reasonably articulate appraiser I would simply say, “I didn’t realize it was low”.  But in my mind was the question of whether I’d get further business from them.  And I always did.  But then it got down to the dread whenever an order would come over.  Before I actually accepted the order, I would look it up and do a quick search of comparables.  If I knew that the value wouldn’t be there, I’d simply decline the order.  That sounds pretty much like the life of an appraiser before HVCC went into effect doesn’t it.  Instead of calling it like it is, I would simply avoid appraisals that would make me look bad in the end.

Smash cut to a few weeks ago.  I got a request for this lender- purchase price of $350k.  I pulled comps and found everything similar selling for $220ish.  I was puzzled by this.  So I did (I’m so ashamed) a Zillow search and found that they thought it was worth around $250ish- still way below the contract price but emphasizing that something was fishy.  Since there is so little recent sales data, I did a “quick” paired sales analysis from the last time the subject sold and found that there was no reason for the home to be worth $130k more than its peers.  So as oftentimes today buyers use the appraisal as a bargaining chip, I accepted the order (40 minutes of unpaid work so far).  I then went and inspected the home- top of the line everything, best house on the block.  But the comps I had- although in most cases inferior, were not $130k inferior.  We’re not talking about a million dollar home here- we’re talking about a tract home.  The Realtor actually provided me with a handful of what she felt were good sales- but they were either 600-800SF bigger or in different neighborhoods or custom/semi custom homes.  I of course examined each one and realized that they were inappropriate sales.  So with what little but supportive data I had, I arrived at a value closer to what Zillow figured- based on the preponderance of similar utility homes, coupled with a recent sale of a larger home to warrant some upward adjustments.  I submitted my finished report and a few days later I got confirmation that my appraisal passed their QC standards and that the file was closed. Oh yeah, and I got paid on it a few days ago.

So this past Sunday- two weeks later, I’m at the park with my family and my email pops up from the head reviewer at the AMC with attached comparable sales (the same ones provided by the Realtor) and a message to call or email him.  So since he said call OR email, I immediately email back and ask what his concerns were so that I could answer any questions.  To which he replied, “you need to call me”, to which I replied “please inform me on what you need me to call you about so that I am adequately prepared to discuss it with you”, to which he replied in all caps and red, “YOU NEED TO CALL ME”.  So I’m not dumb.  I know why he wants to talk.  I call him on Monday morning to which he replied “you’ve got me at a disadvantage because I don’t have the file in front of me” to which I reply “if you would email me your concerns, I’ll be happy to address them professionally and promptly.”  His basic concern was why I included a sale of a much larger home that sold for $380k but still arrived at a value of $250k.  I explained that this sale was by the same builder and was on the same street and was used to bracket the subject’s GLA, thus justifying the appraised value coming in significantly higher than what would result in only the consideration of similar sized homes.  In other words, I gave that sale some weight, but by far the least weight.

Now remember, my appraisal has already passed their QC department 2 weeks prior, and I have subsequently been paid, so why is anyone calling me in the first place? Why would this reviewer care what the value was?  And how would this senior reviewer have the exact same MLS sheets as were provided to me by the Realtor with her exact handwritten notes on each one.  And why would anyone at all call to argue with my comparable selection when the bottom line is that my appraisal is used to help the lender make a financial decision on whether the underlying transaction makes sense for them.  I end the conversation with “Sir, I believe I understand what you want me to do, please email me your request through the proper channels and I’ll be happy to remove that sale and get the revised report back to you promptly”

Here it is, four days later, and I have yet to receive that request and I doubt I will.  Are you figuring out what is going on here?  Notice that this “senior reviewer” has not sent me any sort of documented request on what they want me to do?  So what is my recourse?  What proof do I have that I was being pressured into doing something that I didn’t want to do?  That’s right, I have no proof- and that’s how they like it.  Lender pressure is there, appraiser has to spend time defending his findings, dread on if further business will come from this source.

Getting back to Britney, I’ve learned my lesson.  I really wish I could go after this guy/these guys, but unfortunately I have no real evidence.  When my spider senses were tingling over whether I should even accept the order, I went against my better judgment based on past experience.  I can’t stand Britney.  And I can’t stand lender pressure- regardless of who the messenger might be.

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


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.


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.

But the Bathwater is so Dirty!

April 28, 2009 at 3:32 am | Posted in Uncategorized | Leave a comment
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…or is it?  Short post here simply because I know that I have loyal readers.  And I’m actually plaigerizing this one sforgive me.  It’s more of a “spread the information” sort of post:

The National Association of Mortgage Brokers (NAMB) Friday called on its members to contact their Senators and/or Representatives to stop or halt the Home Valuation Code of Conduct, which is set to be implemented May 1.

After recently dumping its lawsuit against the FHFA over the proposed changes, the NAMB stepped up its political fight against the key appraisal changes.

The agreement eliminates mortgage broker-ordered appraisals, prohibits appraiser coercion, and reduces the use of in-house appraisals and captive appraisal management companies.

It was the result of a 2007 lawsuit in which Attorney General Andrew Cuomo sued First American Corp. and its eAppraiseIt unit for falsely inflating home values tied to Washington Mutual home loans.

But NAMB argues that the proposal will hurt consumers and small businesses, and could violate certain procedural and compliance laws.

Instead of relying on independent appraisers, HVCC will require the use of “unregulated” Appraisal Management Companies (AMCs), which are often located thousands of miles away from the subject properties.

NAMB believes independent appraisers with in-depth knowledge of local market conditions will be sacrificed for large AMCs, despite the fact that an AMC was the focus of the lawsuit that led to the creation of the HVCC.

The brokers also believe the changes will negatively impact the consumer, who will incur higher costs, limited choice, and longer processing times at a time when lending is already quite backed up.

Additionally, they feel the HVCC breaks procedural law and is a potential violation of RESPA (confusion that could push mortgage brokers out of the picture), while arguing that appraisal standards already exist.

Unfortunately, their pleas may fall on deaf ears, as reports like this from the Center of Public Integrity found tons of fraud on both the lender and appraiser end, making it pretty clear that big changes are necessary.

Please visit the NAMB website for more information.

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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