Matrix Blog

The National Association of Realtors has created a resource area called Field Guide to Power Lines. Part of the problem with this issue is that there has been a battle of competing health studies that of course, are on the opposite side of the sprectrum.

Position: Power lines don’t affect property values
This party claims that since there is no definitive proof of a health risk, no loss in value should occur to property owners. The key driver of this movement has been the powerline industry.
[Links]
American Transmission Co.
American Trails From an operational perspective, EMF is not much of an issue for trail activities…
Colgate Univ Term Paper Just a term paper and not a scientific study but it concludes that there is more evidence that says there are limited health risks and on that basis, possibly not detrimental to value.

Position: Power lines affect property values
This party claims that since there is evidence that there is a health risk, a loss in value to property owners should be recognized. The key driver of this movement has been the environmental groups.
[Links]
University of Missouri-Kansas School of Law A review of a case where “…that a tax assessor’s opinion that the proposed power line would not change the assessed value of the property for tax purposes was incompetent and prejudicial…”
Wave-Group An exerpt of the correspondence: “Late last year, New York’s highest court, the Court of Appeals, ruled that the owner of property adjacent to a utility’s high-power electrical transmission lines could seek damages for a decrease in the market value of the property caused by the fear that the power lines might cause cancer, even if such a fear was not medically or scientifically reasonable. That decision has already begun to change the outlook on electromagnetic field (EMF) litigation for utilities.”

Valuation Links
Power Lines and Property Values: The Good, the Bad, and the Ugly An incredibly detailed discussion on valuation approaches for powerline properties.
Realty Times Columns Concludes that homeowners would probably pay less for a property near a powerline just because of the uncertainty.

Common Sense Application for Appraisers
In a valuation matter, where an appraiser is asked to value the effect of power lines on property values, wouldn’t it come down to how the typical homebuyer in a market felt about the uncertainty of risk? In other words, if two properties are identical, but one is located under or near a powerline and one is not and the former sells for less, isn’t that indicative of the effect on value? Whether or not EMF causes cancer or not, if a buyer pays less, it would seem to me that the difference before and after is a quantifiable measure of effect.

What do you think?

Tags: Soapbox Blog, Appraisal Process, power lines, EMF

3 Comments

For some reason, Fannie Mae was inspired to change ALL the appraisal forms they use, effective November 1, 2005.

This will be a painful conversion process for most appraisers and will generally be met with skepticism for a few reasons:

• Cost – The new FNMA forms seem to be written to prevent other traditional uses such as appraisals for estate, trust, litigation, divorce and other purposes. The Appraisal Institute, in good faith and possible anticipating a revenue stream, has created AI Reportsâ„¢ Residential Summary Appraisal Report Form. The press release sounds interesting, but Letter Sized formatting for a professional versus legal look? Commercial appraisers generally write letter sized narratives and residential appraisers do not. Think of the thousands of appraisers out there all set up to use legal documents. Once again, the orientation of the AI remains for commercial appraisers. This new form is being developed by all the major software vendors.

Here’s a radical idea. Keep using the old FNMA 1004, 1073, 1075 and other appraisal forms for non-lending use. They are USPAP compliant and appraisers already have the software. I want to see how this shakes out before I consider using the AI form.

• Liability – The new forms hard code pages and pages of liability pitched back to the appraisers. I call these the silent killers. The text is not that well written creating more confusion to the reader.

• More data to present – The forms harp on days on market type stats for all of the comps and lots of other detail. In a perfect world, this is great stuff, but the reality is that many markets do not have this level of detail. The added time spent to collect this data warrants a fee increase, yet that likely won’t happen. As a result, we will all get used to inserting Not Available in many of the fields. Again, good intentions by FNMA to catch “flipping” but unrealistic implementation. Bad appraisers will remain bad.

• More headaches for lenders using OCR software – Some national lenders fought the introduction of these forms, an unprecendented quantity at one time, because all their OCR scanning software and back office systems have to be re-designed to input this information.

Tags: Soapbox Blog, Appraisal Process, Appraisal Forms

10 Comments

The danger of appraisal inflation is not apparent to many consumers.

The consumer begins to believe the inflated value as valid and it is validated each time the property is over-appraised. When its time to cash out, the fall from the clouds can be unforgiving.

But problems arise when the appraisal is higher than the home’s actual value. Such overvaluation can lead homeowners to overborrow. And later, when they resell, they could learn that the till they thought was full of money contains much less — or nothing at all.

At the end of the day, the homeowner just wants the job done. Herein lies the problem.

Its called “detached from reality.” The mortgage is not being done for the homeowner at all. Its being done on the lender’s behalf to assess the collateral. However, the typical lender sees the report only after it has been through the food chain.

See: The beginning of the end, or how this mess got started

Tags: Appraisal Management Companies, Soapbox Blog, Appraisal Pressure, Appraisal Process, Mortgage Fraud

2 Comments

Ever notice how the only people who seem to be espousing outsourcing are those who gain financially? appraisal management companies themselves…

As a self-proclaimed technology maven, I wonder if technology is the answer to all our problems within the appraisal process? In many ways, it can dumb it down, causing the process to drift away from its original intention. The AMC process seems to be an automated paper handling compliance machine.

Another AMC took outsourcing abroad to perform appraisal reviews.

How is it humanly possible to perform a review appraisal from another country unless the report is nothing but a compliance document and not a basis of risk analysis?

AMC’s are here to stay. Where is there middle ground between form-filling compliance automation and hand done reviews?

[Webmaster Note: This post has the highest number of “?” in any posts in this blog ;-)]

Tags: Appraisal Management Companies, Soapbox Blog, Appraisal Process

6 Comments

Its hard to imagine its finally happening, but regulations proposed in early 2005 were just finalized that make Fannie and Freddie now responsible to detect and report mortgage fraud to OFHEO [Office of Federal Housing Enterprise Oversight [Note: PDF]].

This is a first step (albeit tiny) in creating some sort of enforcement activity against mortgage fraud considering the trillions of mortgage dollars under their watch. However, I am not sure what ability they will have to undertake this responsibility.

Now its time to turn attention to state enforcement, to ensure they have adequate budgets to fight appraisal fraud.

Tags: Soapbox Blog, Appraisal Pressure, Mortgage Fraud, Redlining and Predatory Lending

2 Comments

Unusual properties require added homework to all parties. [Note: Subscription] Its a good idea for homeowners (or their brokers) with unique properties to do research on similar properties. With the time pressure placed on appraisers these days, they may not have time to look under every rock…of course, unscrupulous clients may not want them too anyway. 😉

Portfolio lenders are less likely to feel comfortable with atypical properties requiring the presentation of a lot more data.

According to USPAP, appraisers are compelled to disclose their competency on a property type they are not familiar with. Here is an article that discusses competency.

One of the most common violations of the competency rule is when appraisers travel to other areas where they don’t understand the nuances of the local market or local neighborhoods. Appraisers who get out-of-area assignments should refer the jobs to local appraisers, get local appraisers to help them select comps or decline the assignment.

It always amazes me how we get calls from appraisers from another market, who ask for comps. More specifically, they ask for three comps (presumably because thats all that is required on the Fannie Mae forms). Thats the extent of their research. And then, they somehow seem to turn around their assignment in 48 hours. Needless to say, we do not share data with appraisers outside of our market.

Tags: Soapbox Blog, Appraisal Pressure, Appraisal Process

1 Comment

CNN just ran a story on incomes of appraisers. This survey stikes me as a bit overstated. Specialization is key, especially if the focus is on complex properties.

IMHO, I think the appraisers on the residential side that are generating a lot of income, own very large operations with a lot of trainees and are tied in tight with wholesale lending channels. Its going to be interesting to see how these firms do when or if refi or sales business drops off significantly. On the commercial side, its the firms tied in with conduits. With capital in abundance these days, demand for these appraisers is high.

A study on appraiser incomes [Note: Abstract], done in 1999 at Washington State University, was reported to be the first of its kind.

Tags: Soapbox Blog, Appraisal Process, Mortgage Fraud

3 Comments

Today our appraisal firm received a frantic call from a mortgage broker we occasionally do business with. We have had a number of problems in the past from this firm with being pressured for values so we don’t encourage the relationship. In order to curb the pressure, we require payment in advance for all work from this firm and firms like them.

The call goes like this [names withheld to protect the guilty?]:

Mortgage Broker: The appraiser and supervisory appraiser that signed your report are not approved by the out of state bank we are submitting the report to. The report looks terrific but we need the names changed.

Appraiser: What do you mean? Are other appraisers in our company approved?

Mortgage Broker: Yes, we need you to change the names on the report so we can get this loan done. We send you a lot of business and this is not a big issue.

Appraiser: Sorry, we can’t do that. Do you realize what you are asking?

Mortgage Broker: Yes, and its not a big deal.

Appraiser: No, thats not possible.

Mortgage Broker: Exasperated sigh, [Click]

Tags: Soapbox Blog, Appraisal Pressure, Mortgage Fraud, Series

2 Comments

The Federal Bureau of Investigation received more than double the number of mortgage-related “suspicious activity reports” from 2003 to 2004.

Common mortgage fraud schemes include:

• Property Flipping – Property is purchased, falsely appraised at a higher value, and then quickly sold.
• Inflated Appraisals – An appraiser acts in collusion with a borrower and provides a misleading appraisal report to the lender. The report inaccurately states an inflated property value.

Mortgage fraud indicators include:

• Inflated Appraisals – Exclusive use of one appraiser
• Increased Commissions/Bonuses – Bonuses paid (outside or at settlement) for fee-based services and/ or higher than customary fees

Mortgage fraud is growing and moving from cities to more rural areas and appraisals using fraudelent information is an important component.

If you look at what causes fraud, it’s a case of economics,” said Bill Matthews, vice president of Reston, Va.-based Mortgage Asset Research Institute, “If you have a frothy market it causes fraud to go undetected.”

Tags: Soapbox Blog, Appraisal Pressure, Mortgage Fraud, FBI

5 Comments

Predatory lending has run largely unchecked. Here’s one of the best articles I have seen written on the topic….Wolves in Small Print

excerpt…

Buyers aren’t the only ones screaming. Nationally and in Fort Worth, some of those working in the real estate and mortgage business are also coming forward to charge that the real estate lending business is fraught with fraud. Those professionals say that appraisals are being inflated to buoy up higher housing prices, bigger loans, and higher fees for the industry. First-time home buyers without down payments and with poor credit histories are being pushed through the mill, critics say, and come out the other side with loans they have little chance of repaying. That in turn is pushing foreclosure rates to alarmingly high levels.

Tags: Soapbox Blog, Appraisal Pressure, Mortgage Fraud, Redlining and Predatory Lending

3 Comments

2 sentenced for real estate scheme

In this case, its sounds like the appraiser was duped, but it is a scary thought. It makes for a good argument to get the sales contract on your transactions (besides other obvious reasons, like understanding the terms of the sale). We match up the seller with public record.

I am amazed how many real estate brokers have said to us that we are the first firm to actually ask for a copy of the contract.

Its a USPAP standard as part of the appraisal licensing requirement [i-2e(iv)]

Tags: Soapbox Blog, Appraisal Process, Mortgage Fraud, Identity Theft

1 Comment

The article in Consumer Reports describes appraisal inflation as a potential…

Watch out for the bloat!

Tags: Soapbox Blog, Appraisal Pressure, Mortgage Fraud

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