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[HVCC and AMCs Violate RESPA?] Here’s a possible solution

March 16, 2010 | 12:01 am | |

I was provided an interesting solution to the AMC appraisal issue from Tony Pistilli, a certified residential appraiser who has been employed for over 25 years in the appraisal area, at governmental agencies, mortgage companies, banks and has been self employed.

He wants appraisers to get the word out. His solution is compelling.

Anyone who reads Matrix knows what I think of the Appraisal Management Company and the Home Valuation Code of Conduct (HVCC) problem in today’s mortgage lending world.

Here’s a summary of the his article before you read it:

  • Appraisers, Realtors, Brokers HATE the HVCC.
  • AMC’s and Banks LOVE the HVCC.
  • Regulators are disconnected from the problem just like they were when mortgage brokers controlled the ordering of appraisals during the credit boom.
  • Appraisers and borrowers are paying for services the banks receive.
  • Banks should pay for the services received from the AMC’s.
  • Appraiser’s fees should be market driven.
  • Banks should be held accountable for the quality of the appraisal.

AMC/HVCC appears to violate RESPA (Real Estate Settlement Procedures Act) since a large portion of the appraisal fee is actually going for something else coming off the market rate fee of the appraiser.

(RESPA) was created because various companies associated with the buying and selling of real estate, such as lenders, realtors, construction companies and title insurance companies were often engaging in providing undisclosed Kickbacks to each other, inflating the costs of real estate transactions and obscuring price competition by facilitating bait-and-switch tactics.

The Ultimate Solution for the Appraisal Industry

by Tony Pistilli, Certified Residential Appraiser and Vice-Chair, Minnesota Department of Commerce, Real Estate Appraiser Advisory Board, Minneapolis, Minnesota

Since the inception of the Home Valuation Code of Conduct (HVCC) in May 2009, there has been much discussion, and misinformation, about the benefits and harm caused by the controversial agreement with the New York Attorney Generals office and the Federal Housing Finance Agency. This agreement, originally made with the Office of Federal Housing Enterprise Oversight, requires Fannie Mae and Freddie Mac to only accept appraisals ordered from parties independent to the loan production process. Essentially, this means, anyone that may get paid by a successful closing of the loan cannot order the appraisal.

In the past 6 months while the Realtors© and Mortgage Brokers associations point fingers at appraisal management companies for their use of incompetent appraisers who don’t understand the local markets, appraisers are complaining that banks are abdicating their regulatory requirements to obtain credible appraisals by forcing them to go through appraisal management companies at half of their normal fee.

Banking regulations allow banks to utilize the services of third party providers like appraisal management companies, but ultimately hold the bank accountable for the quality of the appraisal. Unfortunately, the banking regulators have yet to express a concern that there is a problem with the current situation.

I need to state that appraisal management companies can provide a valuable service to the lending industry by ordering appraisals, managing a panel of appraisers, performing quality reviews of the appraisals, etc. However, banks have been enticed by appraisal management companies to turn over their responsibility for ordering appraisals with arrangements that ultimately do not cost them anything.

The arrangement works like this, the bank collects a fee for the appraisal from the borrower; orders an appraisal from the appraisal management company who in turn assigns the appraisal to be done by an independent appraiser or appraisal company. During this process the appraisal fee paid by the borrower gets paid to the appraisal management company who retains approximately 40% to 50% and pays the appraiser the remainder. So for the $400 appraisal fee being charged to the borrower, the appraiser is actually being paid $160-$200 for the appraisal. Absent an appraisal management company the reasonable and customary fee for the appraisers service would be $400, not the $160 to $200 currently being paid to appraisers.

Rules within the Real Estate Settlement Procedures Act (RESPA) have allowed this situation to occur, despite prohibitions against receiving unearned fees, kickbacks and the marking up of third party services, like appraisals. RESPA clearly states, “Payments in excess of the reasonable value of goods provided or services rendered are considered kickbacks”.

Banks are allowed to collect a loan origination fee. This fee is intended to cover the costs of the bank related to underwriting and approving a loan. Ordering and reviewing an appraisal is certainly a part of that process. Understanding that banks ultimately have the regulatory requirement to obtain the appraisal for their lending functions, why is it that borrowers and appraisers are paying for these services that are outsourced to appraisal management companies? Does the borrower benefit from a bank hiring an appraisal management company? Does an appraiser benefit from a bank hiring an appraisal management company? The answer to those two questions is a very resounding, no! Clearly the only one in the equation that benefits is the bank, so why shouldn’t the banks be required to pay for the outsourcing of the appraisal ordering and review process?

It is here where I believe the solution for the appraisal industry exists. Since banks are the obvious benefactor from the appraisal management company services, the regulators should require that the banks, not the borrowers or appraisers, pay for the services received. This one small change in the current business model would allow appraisers to receive a reasonable fee for their services and in turn they should be held more accountable for the quality and credibility of the appraisals they perform. Appraisal fees would be competitive among appraisers in their local markets, much like the professional fees charged by accountants, attorneys, dentists and doctors. Appraisal management companies would suddenly be thrust into a more competitive situation where their services can be itemized and their quality and price be compared to those of competing providers. This will ultimately lead to lower fees and improved quality of services to the banks. The banks will then have a very quantifiable choice, do they continue to outsource their obligations to an appraisal management company and pay for those services or do they create an internal structure to manage the appraisal ordering and review process? Either way, the banking regulators need to hold the banks more accountable at the end of the process.

When all of the previously discussed elements are present, I believe the appraisal industry will be functioning the way it was intended. Appraisal independence will be enhanced and borrowers will be rewarded with greater quality and reliability in the appraisal process. This is exactly the change that is needed, in addition to the HVCC, to stop the current finger pointing and address the poor quality and non-independent appraisals that have been and are still rampant in the industry.


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HVCC, still stymieing deals, may be sunsetted


[HVCC Watch] Amendment to CFPA of 2009 Snuck In – Return To Old Days?

October 27, 2009 | 4:10 pm | |

Oops! Wrong HVCC (not Huron Valley Corvette Club).

We’re talking Home Valuation Code of Conduct and its quickly running its own course (sorry).

Last week, an amendment was added to the Consumer Financial Protection Act of 2009 that would effectively “Sunset” the Home Valuation Code of Conduct or “HVCC” (pronounced “Havoc”).

From Valuation Review magazine:

An amendment was added late Wednesday Oct. 21 to the Consumer Financial Protection Act of 2009 that would sunset the HVCC, allow appraisals to be ordered by mortgage brokers again and would make a new Negotiated Rulemaking Committee responsible for creating one set of appraisal independence requirements across all the federal agencies.

This amendment was championed by the National Association of Mortgage Brokers (NAMB) who were dead set against HVCC for very different reasons than the best appraisers in the industry are. Regardless, HVCC is a systemic accident waiting to happen.

Setting aside the weak production quality, this video is a great source of clarification about the misunderstands surrounding HVCC.

Mortgage brokers were targeted by HVCC as providing undue pressure on appraisers for overvaluation. Systemically, thats absolutely true – of course there are always exceptions. But you can’t rely on the honor system for a financial system structure – thats what where we just came from.

Mortgage brokers get paid when the transaction closes. Guess what kind of appraiser thrived in this kind of environment? Form-fillers.

However, removing mortgage brokers from the process enabled AMC’s which are even more problematic, providing low biased appraisals. Simplistic assessments of the removal of HVCC as a good thing for appraisers is short sighted.

How about the public getting a lending system that has a neutral appraisal environment so the parties getting paid don’t game the system? That means that appraisers shouldn’t be getting assignments from individuals whose commission depends on the outcome. If HVCC is removed and we revert to the prior way of doing business, its a missed opportunity to give consumers fair valuations.

To demonstrate how detached from reality Freddie Mac is, they seem to think HVCC has improved appraisal quality?

This is an opportunity to break free of the past and break free of HVCC and replace it with a better way.


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[REALTOR Mag] The Trouble With the HVCC

August 24, 2009 | 11:53 pm | |

I often disagree with NAR and have frequently pointed out their missed opportunity to earn the public trust despite their interests as a trade organization, but hey – they are coming from a different vantage point. However this time I agree with their view on the Home Valuation Code of Conduct (the position itself rather than how they get to it.)

There’s a good article on HVCC which tells the story from the appraiser’s perspective called: “The Trouble With the HVCC: How new rules meant to ensure the integrity of the appraisal process have infuriated appraisers and stymied sales from coast to coast.

I am quoted in the opening of the piece.

“You can’t make this up,” New York appraiser Jonathan Miller riffed in his entertaining blog, Matrix, back in June.

Miller was recounting the frustration of a real estate salesperson who was trying to refinance her own New York apartment with her current lender. According to Miller’s telling, the out-of-town appraiser walked into the apartment, threw his hands in the air, and asked “How am I supposed to appraise this thing?”

My always insightful appraisal colleague Francois (Frank) K. Gregoire, IFA, RAA, with Gregoire & Gregoire Inc., of St. Petersburg, Florida has one of the best quotes in the piece:

The HVCC sets up AMCs as the guardians of appraiser independence, and isn’t it ironic that the investigation that prompted the rules centered on an AMC allegedly manipulating the system to please its customer?

He is referring to New York State Attorney General Cuomo’s lawsuit against eAppraisIT and it’s relationship with WaMu.


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Appraisers and HVCC


May 3, 2019

Plastic Covers Don’t Hide The Housing Market

I saw this picture on Twitter (NSFW) this week and it brought back many memories. No, not from visiting my relatives’ homes in my youth, but from my six-month stint as a real estate agent in Chicagoland before I became an appraiser in New York City. I was driving to see a listing on the weekly broker tour day, listening to Dire Straits’ “Money for Nothing” on the FM radio, thinking how glad I was to be out of the hospital administration world, just having quit my job. I walked into the home to see all the yellow furniture covered in plastic. The picture also reminded me of a college friend’s home with blue plastic-covered furniture in the “shrine” called the “living room” that was carefully carpet-raked to expose any invasions by their children.


I suppose this photo is a deep metaphor for real estate transparency in some way but I leave that to you. I’m a bit under the weather today and am not at my creative best.

But I digress…

The Manhattan Market Dollars Skewed to Top of the Market

There is a cool graphic from the New York Times Calculator column by Michael Kolomatsky in this Sunday’s print edition of the Real Estate section that illustrates Manhattan’s dependence on high-end real estate. Using the data from a chart I began right after 9/11 and we continue to update, he illustrates this point:

Almost half the money spent by New York City home buyers in the first quarter of 2019 went toward the most expensive properties. That wasn’t always the case.


Billionaires Row Continues to be Challenged

It’s been no secret that super luxury Manhattan sales have been the hardest hit segment of the market since 2014. The slowdown is related to the oversupply of new development created from the vast amounts of capital looking for a home since the financial crisis. Perhaps the most famous representation of the super-luxury market has been “Billionaires Row” centered on 57th Street in the heart of Manhattan’s central business district in Midtown Manhattan. The introduction of supertalls to the skyline has provided never before expansive views to the buyers.

I was asked by the New York Post to provide a snapshot of this submarket. Since contract data is not public record and is easily manipulated, I estimated the state of the key buildings as best I could, using ACRIS for closed sales, Streeteasy contract tags, and feedback from market experts in and around the brokerage community. The result was really no surprise to anyone in the real estate business but because it was concentrated in one place, the story went viral.

Now its time for me to confess. I read the online NY Post article just as I leaving for the airport to speak at an event in Florida. After I arrived at the gate, there was a newsstand with a fresh copy of the NY Post so I bought it to read it on the plane. But I bought it because of the cover story and never gave a thought to the “Billionaires Row” story. After I read the Anthony Weiner story I spotted the ‘Billionaires Row’ Story and saw that it included a table not in the online version. Took a picture of the table and included it above.

NPR Interviews Author of Moneyland

Last year I was interviewed for (and might be included!) in the new book “Moneyland” by author Oliver Bullough. My copy is coming next Tuesday but the topic of kleptocracy fascinates me and I have learned over the past five years that it is far more widespread than people realize.

Oliver was recently interviewed by Terry Gross on NPR.

Journalist Oliver Bullough runs kleptocracy tours in London, in which he points out mansions bought by corrupt foreign leaders and oligarchs. Moneyland describes their secretive transnational world.


Getting Graphic


Len Kiefer‘s Chart Handiwork

Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC site.)

Analogy: AMCs Are Like Starbucks

There was a great podcast last month from Planet Money and the story sounded familiar.

AMCs are adding more and more services that are NOT appraisals. Automated valuation models, loads of hybrid products and yet, the cost of this service is higher than a traditional appraisal. The NPR show on Starbucks seemed like the perfect analogy.

The cost of coffee beans is going down. So why is a cup of coffee becoming more expensive? We break down what it costs to serve you a cup of coffee in the morning.

BREAKING The New York State AMC Law Is Now In Effect

I wrote this blog post on Saturday, so in case you missed it…

Back on April 19th, I wrote about the New York AMC law in my Housing Notes newsletter. After years of AMCs chipping away at the public trust, the New York AMC law was designed to protect the consumer.

The bill summary was:

Relates to the registration of real estate appraisal management companies or an individual or business entity that provides appraisal management services to creditors or to secondary mortgage market participants including affiliates by the department of state.

Yesterday Appraisersblogs ran it as a standalone post and I got a lot of feedback. To be clear, the bill was signed into law by Governor Andrew Cuomo at the end of last year and became effective 120 days later which is today.


Here is the NYS “AMC Law” as a PDF or in plain text on the landing page of the law.


The NY State Coalition of Appraisers (NYCAP), led by my friend and appraiser Becky Jones who along with other unnamed heroes worked hard to help make this possible, wants you to know that this law was not a last-second, fly by night effort as being characterized by The Real Estate Valuation Advocacy Association (REVAA) – the trade group that represents the bulk of the AMC industry in the U.S. – inferring this law was flimsy and easily overturnable.

No, it isn’t. Its been a long road and achieved unanimous consensus during the process.

When the draft of the bill was approved by the NYS Board of Real Estate Appraisal, Carol DiSanto who is the Vice Chair, walked it across the street to The New York State Association of REALTORS (NYSAR). In effect, REALTORS of New York State were made fully aware as the “draft” became part of NYSAR record at their next business meeting. Becky Jones sat on the Legislative steering committee at NYSAR and informed them about the bill. They had no objections to the bill before submission to the state legislature.

A similar proposal was introduced by the New York Department of State in 2015. Senate Bill S9080 was introduced two years ago during the 2017-2018 legislative session, signed into law on December 27, 2018 and became effective today. The voting was unanimous in favor by the rules committee of both houses and the body of both houses.

Here are the vote tallies (the same in both the NYS Senate and Assembly):

And here was the timeline:

A couple of AMCs we work with for some private banking groups sent emails to us yesterday:

Some thoughts

  • If you’re not an appraiser, then you want to read this. It is a 2011 take that still holds up on the AMC industry from American Banker’s Bankthink column (I’ve written a column there before on another subject): Appraisal Management Companies Create More Problems Than They Solve

  • When the realization sunk in that this was a new law, not a proposed bill, attendees began to text me from the joint committee meeting of The Appraisal Foundation. I got the play by play when the news was shared. It sent shockwaves through the AMC-types because, in my view, it effectively destroyed their ability to hide how much they are gouging the consumer and how little the appraiser gets from the actual “appraisal fee” (typically less than half). Seriously, the value-add provided by AMCs to the appraisal process in the delivery of actual appraisals might be 5%, but no chance in hell it is 75%. This is why we need consumer protection in the mortgage business.

  • I’ve been told by several colleagues that they’ve heard one of the main AMC concerns is whether New York interpreted the original law correctly to arrive at this form of law regarding AMCs. From my perspective, it’s like not buying a house because one of the gutters is missing a few screws to hold it in place. The criticism seems like a weird attempt at fogging since this law is protective of USPAP and the public trust, something that has been forgotten in the attempt to “modernize” the appraisal industry. But I’m no lawyer so I’ll look for clarification on their logic. But consider this:

  • REVAA’s biggest concern about the law was specifically the disclosure to the consumer as to what part of the fee goes to the appraiser. Not only does the appraiser get to state the fee, but the AMC fee must also be disclosed. This was upsetting to REVAA director Mark Shiffman presumably because the consumer would finally see that most appraisers get half or less than half of the appraisal fee the consumer thinks they are paying for the appraiser. REVAA has fought hard to hide this from the consumer, pushing back on prior attempts to disclose the breakdown, and finally, New York State has effectively brought to light this predatory practice. Transparency is good for the consumer and for the appraiser. Should a consumer be aware that the check they wrote at the time of mortgage application specifically for an “Appraisal Fee” be used to pay the appraiser less than half of it with the remainder to a wildly inefficient third-party institutional middleman they know nothing about?

  • The NYC AMC law will likely damage the evaluation platform that the Appraisal Institute has been advocating so intensely in state legislatures without disclosure to their own members yet diminishes the meaning of an appraisal certification to the consumer. It is interesting to see that AI National hasn’t taken a position on this new groundbreaking law, like yesterday. They’ve been progressive in their quick denouncement of other important issues, like appraisal waivers, so the lack of denouncement against AMCs is curious.

  • This new law only applies to appraisals ordered through AMCs (which control an estimated 80% of U.S. mortgage appraisal volume) for properties in New York State. (note: this why the law is described as “AN ACT to amend the executive law, in relation to registration of real estate appraisal management companies by the department of state”) New York is one of the few “voluntary” licensing states. There is no mandatory licensing so agents and brokers can perform appraisals and BPOs all day long. This was a key point that REVAA was trying to convey to NYSAR (I hold the CRE designation and all CREs in New York are automatically members of NYSAR) a few weeks ago when REVAA was on a mission to stop the law going into effect. REVAA reached out to NYSAR to claim how bad the law was for their agents and brokers but NYSAR wasn’t buying it because they could still perform BPOs and evaluations for local banks – just not for AMCs. Becky Jones shared a story about this situation from one of the CE classes she teaches: I had an agent work the whole thing in her head out loud during the class and at the end…the agent deduced on her own that she will contact local banks for the BPO work and she was especially thrilled because she realized that she will probably get the listing and therefore an opportunity to make more income. She was so thrilled she “high-fived me during class.”

  • A concern shared with me by a friend and appraiser colleague in Virginia was that most of the large AMC platforms, such as CoreLogic, Appraisal Port and Xome, use a portal that strips the report and the appraiser’s invoice is one of the forms that does not get uploaded (because they don’t want the consumer (i.e. mortgage applicant) to see how much the actual cost goes to the person providing a value opinion of their home. If AMCs continue this practice in New York State and are caught, they will lose their ability to do business in the state. They can risk it, but the stakes are high. There is always a concern that oversight of this will be lost in the shuffle so it is imperative that appraisers keep the pressure on.

  • Another appraiser colleague and friend I know in Illinois said: “So if you are curious what is happening in Illinois, here’s how we must report our fees. When discussing this issue 10 years ago, we were of the opinion that the invoice could get lost, but pages in the appraisal report don’t get lost. That’s why it must be in the body of the report.” Here’s the Illinois AMC law.

And finally…

It is ironic that the New York Governor, who was the creator of HVCC when he was NYS Attorney General and was a board member of a former Ohio-based AMC owned by a friend that eventually collapsed, leaving many appraisers unpaid for their work, was the signer of this law. Despite the irony, his concern for the consumer is incredibly appreciated by the appraisal community who have been beaten up by the AMC industry since 2009 under the false narrative that they are embedded in the process to protect the system. In reality, AMCs gave the mortgage system an empty promise that left the consumer and the taxpayer exposed to excessive costs, bureaucracy and a systematic deletion of quality. Even worse, they stole the economic livelihood of the actual market valuation experts and replaced them with form-fillers.

It is nice to see a state pay more than lip service to consumers within the mortgage business.

OFT (One Final Thought)

Great piece on what happens when a factory closes down and was the dominant source of employment. Click on image for the story.


[NYT Magazine]

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll stop being a kleptocrat;
  • You’ll be a billionaire;
  • And I’ll get super tall.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan J. Miller, CRP, CRE, Member of RAC
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Appraisal Related Reads

Extra Curricular Reads


BREAKING The New York State AMC Law Is Now In Effect

April 27, 2019 | 10:38 pm | | Milestones |

Back on April 19th, I wrote about the New York AMC law in my Housing Notes newsletter. After years of AMCs chipping away at the public trust, the New York AMC law was designed to protect the consumer.

The bill summary was:

Relates to the registration of real estate appraisal management companies or an individual or business entity that provides appraisal management services to creditors or to secondary mortgage market participants including affiliates by the department of state.

Yesterday Appraisersblogs ran it as a standalone post and I got a lot of feedback. To be clear, the bill was signed into law by Governor Andrew Cuomo at the end of last year and became effective 120 days later which is today.


Here is the NYS “AMC Law” as a PDF or in plain text on the landing page of the law.


The NY State Coalition of Appraisers (NYCAP), led by my friend and appraiser Becky Jones who along with other unnamed heroes worked hard to help make this possible, wants you to know that this law was not a last-second, fly by night effort as being characterized by The Real Estate Valuation Advocacy Association (REVAA) – the trade group that represents the bulk of the AMC industry in the U.S. – inferring this law was flimsy and easily overturnable.

No, it isn’t. Its been a long road and achieved unanimous consensus during the process.

When the draft of the bill was approved by the NYS Board of Real Estate Appraisal, Carol DiSanto who is the Vice Chair, walked it across the street to The New York State Association of REALTORS (NYSAR). In effect, REALTORS of New York State were made fully aware as the “draft” became part of NYSAR record at their next business meeting. Becky Jones sat on the Legislative steering committee at NYSAR and informed them about the bill. They had no objections to the bill before submission to the state legislature.

A similar proposal was introduced by the New York Department of State in 2015. Senate Bill S9080 was introduced two years ago during the 2017-2018 legislative session, signed into law on December 27, 2018 and became effective today. The voting was unanimous in favor by the rules committee of both houses and the body of both houses.

Here are the vote tallies (the same in both the NYS Senate and Assembly):

And here was the timeline:

A couple of AMCs we work with for some private banking groups sent emails to us yesterday:

Some thoughts

  • If you’re not an appraiser, then you want to read this. It is a 2011 take that still holds up on the AMC industry from American Banker’s Bankthink column (I’ve written a column there before on another subject): Appraisal Management Companies Create More Problems Than They Solve

  • When the realization sunk in that this was a new law, not a proposed bill, attendees began to text me from the joint committee meeting of The Appraisal Foundation. I got the play by play when the news was shared. It sent shockwaves through the AMC-types because, in my view, it effectively destroyed their ability to hide how much they are gouging the consumer and how little the appraiser gets from the actual “appraisal fee” (typically less than half). Seriously, the value-add provided by AMCs to the appraisal process in the delivery of actual appraisals might be 5%, but no chance in hell it is 75%. This is why we need consumer protection in the mortgage business.

  • I’ve been told by several colleagues that they’ve heard one of the main AMC concerns is whether New York interpreted the original law correctly to arrive at this form of law regarding AMCs. From my perspective, it’s like not buying a house because one of the gutters is missing a few screws to hold it in place. The criticism seems like a weird attempt at fogging since this law is protective of USPAP and the public trust, something that has been forgotten in the attempt to “modernize” the appraisal industry. But I’m no lawyer so I’ll look for clarification on their logic. But consider this:

  • REVAA’s biggest concern about the law was specifically the disclosure to the consumer as to what part of the fee goes to the appraiser. Not only does the appraiser get to state the fee, but the AMC fee must also be disclosed. This was upsetting to REVAA director Mark Shiffman presumably because the consumer would finally see that most appraisers get half or less than half of the appraisal fee the consumer thinks they are paying for the appraiser. REVAA has fought hard to hide this from the consumer, pushing back on prior attempts to disclose the breakdown, and finally, New York State has effectively brought to light this predatory practice. Transparency is good for the consumer and for the appraiser. Should a consumer be aware that the check they wrote at the time of mortgage application specifically for an “Appraisal Fee” be used to pay the appraiser less than half of it with the remainder to a wildly inefficient third-party institutional middleman they know nothing about?

  • The NYC AMC law will likely damage the evaluation platform that the Appraisal Institute has been advocating so intensely in state legislatures without disclosure to their own members yet diminishes the meaning of an appraisal certification to the consumer. It is interesting to see that AI National hasn’t taken a position on this new groundbreaking law, like yesterday. They’ve been progressive in their quick denouncement of other important issues, like appraisal waivers, so the lack of denouncement against AMCs is curious.

  • This new law only applies to appraisals ordered through AMCs (which control an estimated 80% of U.S. mortgage appraisal volume) for properties in New York State. (note: this why the law is described as “AN ACT to amend the executive law, in relation to registration of real estate appraisal management companies by the department of state”) New York is one of the few “voluntary” licensing states. There is no mandatory licensing so agents and brokers can perform appraisals and BPOs all day long. This was a key point that REVAA was trying to convey to NYSAR (I hold the CRE designation and all CREs in New York are automatically members of NYSAR) a few weeks ago when REVAA was on a mission to stop the law going into effect. REVAA reached out to NYSAR to claim how bad the law was for their agents and brokers but NYSAR wasn’t buying it because they could still perform BPOs and evaluations for local banks – just not for AMCs. Becky Jones shared a story about this situation from one of the CE classes she teaches: I had an agent work the whole thing in her head out loud during the class and at the end…the agent deduced on her own that she will contact local banks for the BPO work and she was especially thrilled because she realized that she will probably get the listing and therefore an opportunity to make more income. She was so thrilled she “high-fived me during class.”

  • A concern shared with me by a friend and appraiser colleague in Virginia was that most of the large AMC platforms, such as CoreLogic, Appraisal Port and Xome, use a portal that strips the report and the appraiser’s invoice is one of the forms that does not get uploaded (because they don’t want the consumer (i.e. mortgage applicant) to see how much the actual cost goes to the person providing a value opinion of their home. If AMCs continue this practice in New York State and are caught, they will lose their ability to do business in the state. They can risk it, but the stakes are high. There is always a concern that oversight of this will be lost in the shuffle so it is imperative that appraisers keep the pressure on.

  • Another appraiser colleague and friend I know in Illinois said: “So if you are curious what is happening in Illinois, here’s how we must report our fees. When discussing this issue 10 years ago, we were of the opinion that the invoice could get lost, but pages in the appraisal report don’t get lost. That’s why it must be in the body of the report.” Here’s the Illinois AMC law.

And finally…

It is ironic that the New York Governor, who was the creator of HVCC when he was NYS Attorney General and was a board member of a former Ohio-based AMC owned by a friend that eventually collapsed, leaving many appraisers unpaid for their work, was the signer of this law. Despite the irony, his concern for the consumer is incredibly appreciated by the appraisal community who have been beaten up by the AMC industry since 2009 under the false narrative that they are embedded in the process to protect the system. In reality, AMCs gave the mortgage system an empty promise that left the consumer and the taxpayer exposed to excessive costs, bureaucracy and a systematic deletion of quality. Even worse, they stole the economic livelihood of the actual market valuation experts and replaced them with form-fillers.

It is nice to see a state pay more than lip service to consumers within the mortgage business.

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February 1, 2019

Cockroaches and Housing Seem To Survive Anything

With this recent Polar Vortex event and how they are becoming more regular and that we should name them like hurricanes…I thought about the “name a star” promotion many year’s ago that would enable a person (not officially) to name a star after a loved one. Now we’ve come full circle in the naming rights department with a new affordable service: You can name a cockroach after your ex in time for Valentine’s Day, and it costs only $2!

From stars: To cockroaches:

What a time we’re living in!

But I digress…and I’m somewhat brief today (too much to talk about in Appraiserville!)

Manhattan Townhouse Annual Numbers

From our research for Douglas Elliman (formal report with a lot of drill-down information will be online soon) which is a ten-year moving window of annual sales activity:

General observations

“Sales and price trends outperformed the apartment market over the decade.”

  • Market share of townhouses was 2.2% of all residential sales, consistent with the decade average
  • Price trend indicators showed mixed results as sales size expanded
  • Inventory fell expanded from year-ago levels while sales declined
  • The number of Downtown sales rose sharply, the only region to see an annual gain
  • Since the financial crisis, the median price of a townhouse is up more than fifty percent
  • Townhouse median sales price rose twice as fast as the co-op/condo market from 2009
  • Every region saw a shift towards larger sized sales
  • Northern Manhattan prices more than doubled since 2009


Manhattan Apartment (Co-op+Condo) Annual Numbers

From our research for Douglas Elliman (formal report with a lot of drill-down information including neighborhoods will be online soon) which is a ten-year moving window of annual sales activity:

“The decade demonstrated a noticeable shift to more large-sized sales and their higher price levels.”

  • While the overall sales volume rose nearly 40% since 2009, the sale of 4+ bedrooms jumped more than 90%
  • The overall median sales price has remained remarkably stable for the past four years
  • Price trend indicators all declined year over year as the legacy contract pipeline ran out of product in early 2018
  • Annual sales saw the largest year over year decline since the financial crisis
  • The annual number of sales declined for the fourth time in the last five years
  • The largest sales surge occurred in 2010 when sales quickly rebounded from the “bottom” reached in 2009


This Week in Aspirational Pricing: $239,958,219.15

The buzz of last week’s mega-million sale of $238 million still floats through the air of the real estate market but with a clear understanding that the sale represents a simpler time – when homes were worth whatever the seller wanted. In the New York Times real estate section, the precise number filed in public record was $239,958,219.15.

The hard math provided in the subtitle was brutally straightforward: “What’s the difference between a $200 million penthouse and a $100 million penthouse? About $100 million.” The context was provided in a world where little is offered. Even with the context, however, mere mortals will continue to process how hard it is to relate to housing for us mere mortals. It reminded me of my visit in 1970 to Dover Air Force Base in Delaware as a ten-year-old. I still remember that a C5-A transport plane could carry 100 VW Beetles or 58 GM Cadillacs. Perfectly valid comparisons but I couldn’t imagine all those cars in our driveway.




Getting Graphic: New Home Sales By Price

h/t Steven Miller

Love this visualization! Click to expand.


Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC site.)

Appraisers Sue New Jersey Appraisal Board Saying They Don’t Have To Follow USPAP

Gerald McNamara and Colleen Kudrick were admonished by the board in a five-count takedown. There is a lot of nuances here but the sanctions seemed to be based on the fact that one of the appraisers wasn’t licensed at the time and could not explain how she valued the property. The other who was certified said he did not assist in the preparation but did inspect the property. The client made a complaint and the board investigated.

Seemingly doubling down on damaging their reputations, they filed a lawsuit against the appraisal board and seem to be saying that USPAP is unconstitutional because The Appraisal Foundation is a private organization. This has ramifications for many reasons including:

  1. The evidence presented against the two individuals is quite detailed, and if accurate, shows that the appraisers were negligent enough for a financial services firm to complain.
  2. It questions appraisal laws on a technicality that USPAP is overseen by a private organization.

The following documents are available in public record and are worth reading:

McNamara v Grewel et als Docket Report 20190118

Doc 1 McNamara v Grewel et als Complaint 20190107

Doc 2 McNamara v Grewel et als Plaintiff Verifications 20190107

Doc 3 McNamara v Grewel et als Summons 20190107

Doc 4 McNamara v Grewel et als Amended Exhibits to Complaint 20190107

Doc 5 McNamara v Grewel et als Notice Rule 5_1_a 20190107

Regulators Misrepresent Appraisers’ Role In Mortgage Process

Peter Gallo shared the North Carolina Real Estate Appraisers Association [NCREAA] comment to the proposed threshold change proposed by federal regulators. You can and SHOULD provide your own comments as well. You can do that here. The regulators describe the rule change like this:

The OCC, Board, and FDIC (collectively, the agencies) are inviting comment on a proposed rule to amend the agencies’ regulations requiring appraisals for certain real estate-related transactions. The proposed rule would increase the threshold level at or below which appraisals would not be required for residential real estate-related transactions from $250,000 to $400,000. Consistent with the requirement for other transactions that fall below applicable thresholds, regulated institutions would be required to obtain an evaluation of the real property collateral that is consistent with safe and sound banking practices. The proposed rule would make conforming changes to add transactions secured by residential property in rural areas that have been exempted from the agencies’ appraisal requirement pursuant to the Economic Growth, Regulatory Relief and Consumer Protection Act to the list of exempt transactions. The proposed rule would require evaluations for these exempt transactions. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the proposed rule would amend the agencies’ appraisal regulations to require regulated institutions to subject appraisals for federally related transactions to appropriate review for compliance with the Uniform Standards of Professional Appraisal Practice.


Unfortunately, they use the phrase “safe and sound banking practices” but in the weeds, all they care about is eliminating appraisers all together to save the consumer a few hundred dollars. Its lip service since the discussion only concerns the cost and timing of appraisals. Get ready taxpayers. With the rising probability of a recession by 2020, it is a great time to reduce neutral oversight by appraisers and shift to relying on automation. I’m already being told that underwriting systems are already being tweaked to reduce loan kickbacks.

NCREAA Threshold Letter

Only 275 Comments So Far? Please Submit Your Comments to the Threshold Rule!

From the Central Texas AI Chapter:

The Federal bank regulatory agencies have proposed to increase the residential appraisal threshold level from $250,000 to $400,000, exempting nearly three-quarters of residential real estate-related financial transactions from appraisal requirements.

In 2017, the exact same proposal was evaluated and answered as part of the federally mandated EGRPRA (regulatory relief) process – a process that encompassed four different notice and comment periods and six public hearings. From that process, the same agencies decided it “would not be appropriate” to increase the threshold from $250,000 based on safety and soundness and consumer protection considerations.

Now, in an apparent attempt to pacify rural community banks, the agencies will increase the threshold unless they hear convincing comments and evidence from stakeholders, including consumers and appraisers. Standing unified in opposition to the proposal, a coalition of nationally recognized professional appraisal organizations will be submitting comments on the proposal. These organizations encourage all appraisers to do the same by the February 5th comment deadline.


To comment, click here.

The Digital Transformation of the Appraisal Industry

By Jeff Bradford, Bradford Technologies

Jeff’s PR team reached out to see what appraisers think of bifurcation of appraisals.

Hello Jonathan,

On behalf of Bradford Technologies, I’m speaking to appraisers to gauge the response and thoughts towards Hybrid appraisals. It appears that going forward a ‘team’ approach to developing and delivering appraisals will continue to grow.

Our CEO, Mr. Bradford, has written an article addressing the anticipated approach. I’d love to hear your thoughts.

If you’d like to take a closer look at ClickFORMS we’d love to guide you through a 15 day evaluation. http://www.bradfordsoftware.com/

Kind Regards,

Darlene Conners 800/622- 8272 ext. 209 Corporate

Here is Jeff’s essay. Admittedly I view hybrids as more expensive and less reliable for lending purposes and frankly are incredibly idiotic. However, many software vendors are caught in the middle trying to figure out the zeitgeist so they can survive. Here is what Jeff wrote:

For over 30 years, I have been serving appraisers and during that time I have seen many changes in the appraisal industry. Mostly these changes have been due to advancements in technology, but not all were due to technology innovations. Some were due to changes in compliance and regulations, such as the Home Valuation Code of Conduct (HVCC) and Dodd-Frank, or due to the changes in requirements to become a Certified appraiser. There were changes caused by advancements in technology, such as dot matrix printers to laser, film cameras to digital, fax to email (if you do not remember these changes, you are very young). Remember when everyone would FedEx the report; then PDF became acceptable, and today we live in a connected world where information is just a click away. All of these changes had an impact on the appraisal profession, but producing an appraisal report is still a legacy business. We all do it the old fashioned way–manually collecting data, pictures, working the sales grid and then writing the report. It’s definitely easier and faster than it was 30 years ago, but we still follow the same steps.

Change is Coming

Well, as you might have guessed, more changes are coming and it’s technological for sure, but it’s not driven by an invention, such as when the digital camera was invented. Today it is demographics that is driving the change. The millennials are forcing businesses to change. It is estimated that at their peak, there will be 75 million of them. They are expected to be a larger force than the baby boomers. The millennials have never seen a fax or dot matrix printer. They only know mobile. They live in a digital world connected by their mobile phones, and they expect everyone they deal with to be digital as well. That includes the mortgage industry.

This group has given rise to the FinTech industry–startups that are out to disrupt the financial industry. Their aim is to make it easy to get a loan, make payments and do anything financial using their smart phone, and they don’t understand why an appraisal takes seven days. They certainly don’t understand why last year there were areas of the country where it took four to six weeks to get an appraisal.

This pressure has caused the GSEs to take notice and to begin to take action. As many of you know, the GSEs are on a three-year mission to remake appraisals into a much more efficient process. Last August, Fannie Mae CEO Timothy Mayopoulous stated, “Appraisers should be at their desks,” not in the field with a measuring tape or making phone calls to track down homeowners. This has led to pilot programs to test the validity of using third party inspectors paired with appraisers at their desks to study if appraisals can be produced quicker without a loss in quality. Many are saying the pilot programs are working well. Additionally, based on the changes the GSEs made to the 1003 (loan application form), the new 1004 will be pared down considerably, with fewer data points, creating a new slimmed down UAD dataset based on the new MISMO 3.3. (The current UAD is based on MISMO 2.6.) If the move toward bifurcation of the appraisal succeeds, this could open up some great opportunities for appraisers and the industry in general. Let me explain. Eight years ago, we introduced a product to the market that used a third party inspector. Our reasoning was that teams can do more than individuals. That product was not widely accepted. Why? It was less than successful because the inspector and the appraiser were not teammates. They were just individuals doing a job without regard to each other’s issues or concerns. We had missed the concept of teammates and the need for close collaboration between the two. It did not help that trainees and licensed appraisers were essentially banned from working together on the appraisal for fear that the appraisal would be rejected by a lender.

Fast forward to today. If lenders accept third party inspections, they will also have to accept appraisals completed by teams managed by appraisers. This change will open the door for appraisers to create their own teams consisting of assistants and trainees that produce the appraisal, opening the door for trainees to once again be part of the appraisal process.

The key to high performing teams is tight collaboration. It’s the elimination of the distance and time factors between the stakeholders and team members. If the appraisal process is going to become more efficient and accepted by millennials, there needs to be better collaboration between all stakeholders in the valuation (lenders, AMCs, appraisers, inspectors, assistants, reviewers, and anyone else involved with the valuation). In the past, we collaborated by phone, then email, and today we can collaborate instantly by taking advantage of the digital workspaces that are being developed in the cloud. For example, Google already has 1.4 billion users collaborating using apps on G-Suite. There is Slack, Microsoft Teams, Dropbox, Box and Apple iWork just to name a few others. There is now even a new term to describe people who work primarily in the cloud—Cloud Worker. They log in, do their work and log out. They work from anywhere, anytime on any device. Companies that want to remain relevant are moving to the cloud. They are becoming digital businesses with an emphasis on allowing their employees to collaborate seamlessly and on delivering their services as quickly as possible with full transparency of the process (think Amazon).

From Legacy to Digital

An example of a company that made the transition from legacy to digital is Domino’s Pizza. In 2008, its stock was at $3 and they were hurting. Today it’s at $277 and they are thriving. They did two things: 1) made improvements to the quality of their product, and 2) realized they were also in the pizza delivery business. They started thinking of themselves as an e-commerce company that happens to sell pizzas. This revelation led to a commitment to innovate the pizza delivery experience. Today, they have a Chief Officer of Delivery Technology who makes sure you can order a Domino’s pizza from the web, by email, by texting, or by asking Alexa to order you a pizza. They are a digital business catering to the anytime, anywhere, on-any-device millennial crowd. Domino’s is currently experimenting with delivery by drones and self-driving cars. Little Caesars pizza has followed suit with their own Pizza Portal and mobile app for ordering, scheduling and pre-paying for a pizza. The point is that moving from a legacy business to a digital business is not only good for business, it may be the only way to stay relevant in the age of millennials (think Sears).

As I write this article, JPMorgan Chase just announced that they are building a “FinTech campus” in Silicon Valley where it expects to have 1,000 employees focused on building its digital banking business. Chase understands what is at stake.

Appraising is a legacy business and if it’s to remain relevant and not marginalized by appraisal waivers, it must transform itself into a digital business. The GSEs are going to make some structural changes to the process. They will probably simplify the form, remove some fields and reduce the amount of data that needs to be collected. This change will make it quicker to create a report, but it does not transform appraising. It does not transform a legacy business into a digital business. Appraisers are the ones who need to make this transition. Appraising is at an inflection point. Just like Domino’s, it needs to improve quality (no more silly mistakes, unsupported comps and arbitrary adjustments) and it needs to realize that it’s in the appraisal delivery business. The industry needs to start collaborating to improve efficiency, quality, transparency and delivery speed. The one size (1004) fits all approach is no longer an option. This is primarily why you see so many different alternative valuation products springing up.

What does it mean to be a digital business? It means that you are doing most, if not all your work in the cloud, in a digital workspace. It means that you are connected to cloud resources (data, imagery) simply by plugging them into your workspace. It means that you are working as a team, collaborating via your digital workspace. All the time and distance factors that would normally slow your appraisal process down no longer exist because all files automatically sync with every team member.

Collaboration is the key and it starts at home. Appraisers should start thinking about how to incorporate team concepts into their workflows and processes and by thinking of everyone as a teammate–not a partner or an assistant–a teammate. If you have one teammate assisting you, think of using Dropbox as your digital workspace for sharing files. It’s good for storage and backup as well. If you want to expand, consider online form processing and the use of a mobile inspection app linked into your digital workspace. At this point, you are starting to empower teammates to work from anywhere, anytime on any device. At Bradford Technologies we’ve developed a Team Appraising platform to provide that digital workspace for you. It’s a little ahead of its time (like many things we do), but when bifurcation of appraising is accepted by the lenders, appraisers will want to control and manage their own teams to defend their business and outperform the competition. Like Domino’s, appraisers need to realize they do more than just produce a product, they are also in the appraisal delivery business. AMCs, likewise must realize they do more than manage an appraisal order; they are also in the appraisal delivery business. For the industry to fully transform to a digital business, appraisers need to extend the concept of a team beyond their office to include AMCs. Both need to work more cooperatively, as teammates to produce and deliver a product for their mutual client, the lender. If both do this in a collaborative fashion, working in a digital workspace with all the time and distance factors removed, the appraisal industry will be transformed and secure its position as a valuable, highly relevant component of the financial community.

About Bradford Technologies

For over 31 years, Bradford Technologies has been providing appraisers innovative software solutions such as ClickFORMS, the most intuitive appraisal report processor and Redstone, the leader in valuation support analytics. Today, the company is focused on its new cutting-edge solution for residential appraisers – Team Appraising. Utilizing “team” concepts and providing connected mobile, desktop and online solutions for inspection, report processing and communications, residential appraisers can create an efficient digital business that excels in the all-digital world of tomorrow.

About the Author

Jeff Bradford is the founder and CEO of Bradford Technologies. Mr. Bradford has been recognized as a Valuation Visionary by the Collateral Risk Network and a Tech All Star by Mortgage Bankers of Association for his continual innovations in the appraisal field and support for residential appraisers.


Voice of Appraisal E216 Will Bifurcation lead to Market Blindness?!?!

Yes it definitely will.


A Day In The Life

h/t Lori Noble

OFT (One Final Thought)

Since I’ve been obsessed about housing price records as of late, here’s a great read on the surfing wave height record. Things that go viral aren’t always what they appear to be.

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll be less cockroach obsessed;
  • You’ll be more wave obsessed;
  • And I’ll be more price record obsessed

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan J. Miller, CRP, CRE, Member of RAC President/CEO Miller Samuel Inc. Real Estate Appraisers & Consultants Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads


September 21, 2018

Even Rats Are Safety Orientated In Condo Housing

In high school, the big stupid prank was pulling the fire alarm. At one point, the school administration covered the alarms with a chemical that would turn the prankster’s fingers pink. Upon inspection by teachers and administrators, the perpetrator was outed. Of course, this was the seventies and gloves weren’t invented yet.

In NYC we had the Pizza Rat and now…

but I digress…

The Financial Crisis In Retrospect

We’ve had a decade to reflect on what happened. I’m finding out that there is a limited consensus on the specific cause or the moment of truth. Marketplace put out a piece with a video of Dodd and Frank that is way too long. Frankly, I ran the video as background noise when I was working. Frank famously missed the development of the crisis years earlier and Dodd was outed for being a “Friend of Angelo” so it is weird to see them placed as the elder statesman of the fixing of the crisis. Dodd-Frank was overreaching and tried to prevent the past crisis from happening again. Yet each future crisis will be based on something emerging from the distortion of the past. This is a national platform yet it got fewer views (765) than my friend Phil Crawford gets on his Voice of Appraisal podcasts.


However, there was an epic New York Times Business section infographic that I implore you to look at. Click on the graphic to explore.


Here’s a Bloomberg News series of interviews a la “Where were you?”


Must-reads reflections on the financial crisis

Barry Ritholtz on Misunderstanding the Financial Crisis [Bloomberg Opinion]

The Day the Economy (Almost) Died [New Yorker]

What caused the financial crisis? The Big Lie goes viral [WaPo]

10 Things People Still Get Wrong About the Financial Crisis [Bloomberg]

“Unprecedented amount of fraud”: Decade after Great Recession, Denver attorney still cleaning up Lehman mortgage mess. [Denver Post]

The Shaky Ground Edition [Slate Money Podcast]

The Causes and Costs of the Worst Crisis Since the Great Depression [The Balance]


Visit the Appraiserville section below – “Reflecting On The Financial Crisis a Decade Later” – a snippet of my own take on the front lines as an appraiser.

Good Enough For Government Work

NYC OMB report on Current Economic Conditons

This NYC OMB economic report is more numbers-centric than the Fed’s Beige Book, but just as digestible. It chronicles the same slow down in sales that I reported on earlier this year. Also, Brooklyn saw the most permits while Manhattan had the second-lowest of the 5 boroughs.

Here’s page 8 that covers the residential market:

NYS Office of Comptroller Report On The Securities Industry

Wall Street (The Securities Industry) has been a core economic engine for decades. The Office of the New York State Comptroller just released their report on the state of the securities industry.

Since the financial crisis, their NYC tax revenue share has remained stable…

as has its ratio of salaries to the private sector…

and employment growth has been anemic…

and although bonuses remain high, the bonus as a percentage of total compensation is not what it was before the financial crisis (>50%)…


Bonuses made up 40 percent of securities industry wages in 2017, a much larger share than in any other industry.

And with deferred comp growing, gone are the days when the bonus announcements would cause an Oklahoma Sooners-style rush to buy real estate. Still, the performance of the securities industry is critical to the housing market and the NYC regional economy, so there’s that. Hopefully news outlets will completely stop doing stories on Wall Streeters rushing to buy the latest edition Maybachs during bonus season.

Upcoming Speaking Events

September 26, 2018 – Asian American Real Estate Association of America (AREAA) – East Meets West Real Estate Connect Conference. “This year’s four keynote speakers, highly regarded professionals in their respective fields, are John Catsimatidis, Chairman and CEO of Red Apple Group; Streeteasy’s General Manager Susan Daimler; Adam Spies, Chairman and CEO of Cushman and Wakefield, and Jonathan Miller, President and CEO of Miller Samuel.”

You can register here.

Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC site.)

Reflecting On The Financial Crisis a Decade Later

Over the past several weeks, there has been a slew of thought-provoking pieces on the financial crisis of ten years ago. There are so many varying views on what happened and what caused it. It was such a systemic event that ten years later, there are strong opinions on the cause and the lessons learned and not learned. I’ve always looked at it from a valuation/mortgage/credit standpoint since that has been my business orientation. I saw the events roll out from my perspective, but I only saw a sliver of what the crisis represented.

Mortgage brokers I knew that thrived back then, are either gone or generic loan reps at large institutions, never to be heard from again. Appraisers I knew who succeeded on the massive volume thrown to them by star mortgage brokers collapsed and lost their licenses or their businesses. Those appraisers never lost their self-respect because they didn’t have any, to begin with.

I was a confusing and stressful time as I wondered what math class I missed in high school and what ethics class I missed in college as our business suffered and my competitors made deals with mortgage brokers from the back of limos. In 2005, I was sure I would be out of business by 2008. Fortunately, it worked out in the long run but the period from 2005 to 2008 felt like an eternity.

Late in the crisis, I provided numerous consultations to the office of NYC Attorney (then Andrew Cuomo) to understand the problems appraisers faced from enormous economic pressure by mortgage brokers to hit the “number” but being disappointed when Cuomo opened the AMC pandora’s box with HVCC. A deputy told me they pushed the envelope as far as their authority reached, but it enabled AMCs, the institutional middleman that has mostly served to destroy quality valuation practices in the U.S. Cuomo’s office wanted names of the perpetrators and I basically said it was systemic and there were no names to give because it would be almost all the names in the mortgage broker industry. After all, why did a mortgage broker get to pick the appraiser they used when the mortgage broker only got paid if the deal closed. At one point I was literally on the phone with Cuomo’s office and at the same time got an email from a mortgage broker in Florida who was looking for an appraisal to be completed in New York that needed to be at least $1,200,000 so the borrower could draw down money to buy a boat. At that moment I could have forwarded that email to the AG, but because nearly all mortgage brokers spoke like that, it confirmed to me that it was systemic and not a few rotten eggs. If only that mortgage broker knew how close she came to losing her license.

Although the Lehman moment didn’t cause the financial crisis, it was a symbol of the beginning of true consumer awareness of the problem. Sales contracts collapsed 75% in my market from September to December. However, I saw the rumblings begin in the prior summer when the two Bear Stearns mortgage hedge funds and American Home Mortgage collapsed. I experienced this first hand when the head of those funds join a company that was going to acquire our company. I disconnected from the relationship shortly after that.

My wife and sister, who are my business partners, sat down and reinvented our business, jettisoning appraisal management companies and most retail mortgage work, inverting our practice away from mortgage rate dependent work. In many ways, the experience was a gift, because our firm became more profitable and we focused on good clients. We avoided clients represented by a 19-year-old chewing gum demanding to know where our report was ordered 24 hours ago.

RAC Member Ernie Durbin Goes Mano a Mano With Phil Crawford

My good friends Ernie and Phil show us a Cincy-style discussion on appraiser issues of the day at the 2018 RAC conference last week in Plano Texas.

Calling Zestimates into Question and Identifying Their User Addicts

The New York Times did a great piece on Zestimates and the addicts that check them daily. I chime in about your horoscope – BTW I’m a Libra so I’m clearly “well balanced.” Then Ryan Lundquist shows how much the Zestimate weights the current average sales price with an actual example. It’s amazing.

John Brenan of The Appraisal Foundation Pens A Thoughtful Piece on “Why Appraisers Matter”

Read the piece in Realtor Magazine.

the number one caveat for consumers is that these estimates are not a substitute for formal appraisals
Appraisal Institute is Working Hard to Fog The Rural Appraisal Narrative

The following CSBS article essentially written by the Appraisal Institute which is being distributed by lenders – continues to misrepresent the idea that the number of appraisers is falling and no new appraisers are coming into the profession.

Notice how CSBS tracks the number of appraisers from the peak of the housing bubble? If this organization’s or the Appraisal Institute’s intentions were honest, they would show the trend before the housing bubble as well. In this piece, they show that credentialed appraisers have fallen 21% in 10 years which is far less than Appraisal Institute membership. There are actually more appraisers now per mortgage origination than back then. Why? Because despite record low rates, mortgage origination volume has fallen since 2008.

That my friends is the missing context here. In other words, the CSBS/AI research piece is at best propaganda and at worst, a lie.

Here is the Appraisal Institute’s (I mean CSBS’s) summary of observations (with my comments appended):

  • Some rural and underserved areas do not have enough appraisers. That’s been the case for one hundred years and only became problematic when AMCs became dominant and typically pay less than half the market rate.
  • The National Registry of Real Estate Appraisers does not accurately reflect local shortages of appraisers. And it doesn’t show surpluses, nor does it reflect non-free market business practices of the AMC industry that AI National so dearly loves.
  • The Title XI waiver process is unclear, lengthy, and underutilized. This is a bizarrely desperate and a made up reason that sounds impressive but says nothing.
  • Congress acknowledged with the passage of the “Economic Growth, Regulatory Relief, and Consumer Protection Act” that obtaining appraisals for certain rural transactions are an issue and that an avenue for relief is needed.This a wildly misleading statement of what this act actually is. According to ABA: to qualify lenders must show that three appraisers were not available within 5 days beyond a reasonable time frame (determined by the bank) for an appraisal. Appraiser licensing and credentialing processes create barriers to entry.Name one! We’d have a lot more doctors if we didn’t require an education and experience.

Can these reasons be any more self-serving and dumb?

Appraisers Taking Exams Jumps 14% YTD 2017 to 2018

This is fresh from the Appraisal Foundation:

Over the same period last year, there has been an increase of 9% people taking the Licensed Residential exam; an increase of 41% taking the Certified Residential exam; and a decrease of 10% people taking the Certified General exam. The overall total equals a 14% increase in the number of people taking an exam in 2018 vs. 2017.

Here is a chart that tracks the age range of test takers from 2013 to 2017. The 26-35 subset (purple) is the highest for each year showing that youth is indeed entering the profession.


More Examples of FIRREA-Breaking Laws That Require an MAI-Designation

A few weeks ago I posted several legacy laws in California that were pre-FIRREA and are still on the books. I share these because these laws and others like it allow AI National to be run like a dictatorship without accountability to its membership. If a member criticizes the organization, then that member can be suspended or kicked out, having a severe impact on their livelihood. Therefore I am on a mission to share these laws. Here are three more to investigate:

  1. City of Santa Fe, New Mexico

Purchase of City-Owned Property

Requests to purchase parcels or portions of City-owned property are first reviewed by all relevant City departments to determine whether the property is planned for future uses by the City. If the City verifies that the property can be sold, the request is forwarded to the City Council for conceptual approval of the sale. If the sale is approved in concept, the applicant must provide a current survey of the property along with an appraisal prepared by an MAI-certified appraiser. Upon receipt of these items, the purchase request is forwarded to the City Council for final approval. Purchases are often subject to reservations for existing utilities or easements.

  1. City of Salt Lake City, Utah

Offsets to Impact Fees (18.98.070)

E. The value of land dedicated or donated shall be based on the appraised land value of the parent parcel on the date of transfer of ownership to the city, as determined by an MAI certified appraiser who was selected from a list of city approved appraisers provided by the director and paid for by the applicant, who used generally accepted appraisal techniques.

  1. City of Indianapolis, Indiana (h) (Note: Updated May 9, 2016, but contains very outdated references for designations!)

Consolidated Zoning/Subdivision Ordinance

Market Value: For purposes of flood control regulation, the market value of the structure itself, not including the associated land, landscaping or detached accessory structures. The market value must be determined by a method approved by FEMA and the Bureau of License and Permit Services. If an appraisal is used, the appraiser must have at least one of the following designations: 1. Member of the American Institute of Real Estate Appraisers (MAI); 2. Residential member of the American Institute of Real Estate Appraisers (RM); 3. Senior real estate analyst of the Society of Real Estate Appraisers (SREA); 4. Senior residential appraiser of the Society of Real Estate Appraisers (SREA); 5. Senior real property appraiser of the Society of Real Estate Appraisers (SRPA); 6. Senior member of the American Society of Appraisers (ASA); 7. Accredited rural appraiser of the American Society of Farm Managers and Rural Appraisers (ARA); or 8. Accredited appraiser of the Manufactured Housing Appraiser Society.

More to come.

OFT (One Final Thought)

OK.


Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll be more reflective;
  • You’ll learn how to debate cincy-style;
  • And I’ll say OK.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan J. Miller, CRP, CRE, Member of RAC
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads


May 5, 2017

Those Blue Turtles Dreamt About Housing

I’m trying to be a little more careful about what I eat these days. Ok, truth be told, not really, well sort of. It’s hard to concentrate on the important stuff like the housing market when we don’t have the proper utensils to make our sandwiches. There’s a metaphor for housing in here somewhere (See Sting listing further down), but I’m famished.

Here’s a matrix table on sandwich alignment that might help organize your thoughts:

h/t @matttomic via @flowingdata

Full disclosure – I classify as a radical sandwich anarchist.

Utensils are key…The Frork (spelled correctly) – I need one of these utensils.

Ok, on to the useful stuff.

The Elliman Market Report Series Gets Mansion Global’s Attention

I’ve been authoring the expanding Elliman Report series across their U.S. market footprint since 1994. Real estate brokerage firms are often afraid to be candid about market conditions with the mantra – it is always a good time to buy – yet that does no one any good. Buyers won’t buy, and sellers are anchored to market conditions that only exist in their mind. MG writes about it in Good Market Reports Are Page Turners For the Savvy Investor

The housing market is heartless and unrelenting like the cyborg in The Terminator as described by the Kyle Reese character:
_______________________________________
You still don’t get it, do you?

He’ll find her. That’s what he does. THATS ALL HE DOES.
_________________________________________

Here’s a great recap by Jay Parker, CEO of Douglas Elliman in South Florida:

“Our market reports are something that buyers can use to really understand where opportunities are arising, and get a sense of how they need to adjust their expectations to the current market conditions,” said Jay Parker, the CEO of Douglas Elliman’s Florida Brokerage. “While we know that most real estate decisions are driven by emotion, these reports can help buyers make a more sophisticated, data-driven purchase.”

Thanks, Jay!

Connecting and Disconnecting With Reality

Connect
We continue to see more and more high-end sales proving the point that there is demand, but only at the market price. Sellers are traveling farther to meet the buyers at market levels. While this is an obvious statement, it hasn’t been part of the seller dialogue for several years.

  • $85M David Geffen Malibu, CA house just sold for $85M, but asked $100M a year ago.
  • $38.5M Celine Dion waterpark-like Jupiter Island, Florida house just went to contract after a 47% price cut from the asking price of four years ago.
  • $28M Beekman Place Townhouse Manhattan, NY went on the market for just under $50M in 2014, to $37.5M in 2015 and now $28M in 2017. Hint, the luxury market has not fallen by 44% since 2014. Seller sentiment was wildly over-optimistic in 2014. I appraised this property for different prior owners a few times a long time ago. There are impressive river views for a townhouse.

Oh, one more.

$56M Sting listed 15 CPW condo for double what he paid for it in 2008. That sounds outrageous at the onset, given my ranting about aspirational pricing. However, I took a look at every original sale in the building that had a subsequent sale or 2 or 3 with the last one in the years 2014-2017. Those condo sales sold for an average of 116.9% or a little more than double the original purchase price. Perhaps that was what all those blue turtles were dreaming.


Photo Credit: Thinkstock


Disconnect
In a semi-related topic, when you walk the streets of Manhattan, and most towns in the outlying suburbs I have visited over the past year, there are a lot of vacancy signs to see. The massive shift to online provides – namely Amazon – is crushing the retail market. Secondly, there has been a multi-year run of investment property sales with insanely low cap rates because of the shortage of inventory. Many investors with cash that burned a hole in their pocket are now forced to jack up the retail rents to justify their purchase. The problem is – their asking rents are significantly disconnected from what the market can support. During a recent NYC real estate conference, a sarcastic comment was made as only a New Yorker would say on retail rents:

But Billy Macklowe stole the show with his thoughts on the retail market. Though other landlords have taken the “Fifth is forever” approach, Macklowe offered no such comfort. “I think retail is fucked,” he said. “Plain and simple.”

 

Gentrification Measurments

On Richard Florida’s Citylab site – one of my favorite regular, go to’s – there is a fascinating post on gentrification, and specifically New York City based on research from NYU Furman Center. The study helps explain the significant changes to the city over the past 15 years: Focus on Gentrication.

Look at the percentage change in the number of business from 2000-2015.


While we’re on the topic, here’s a pretty cool video by Public Square NYC on the 2020 Manhattan skyline.


Cash sales are all around us

I can get pretty snooty about Manhattan’s nearly 50% market share of cash sales every quarter with very few distressed investor cash purchases. The implication of cash sales in most housing markets, however, infer distress.

According to ATTOM as reported in REALTOR Magazine:

Cash sales made up about 30 percent of all single-family and condo sales in the first quarter of this year, according to ATTOM Data Solutions’ First Quarter 2017 U.S. Home Sales Report. That is well below their peak of 44.7 percent in the first quarter of 2011 but higher than the prerecession average of 20.4 percent from 2000 to 2007.

 

Streeteasy (Zillow)’s Premier Agent Program Gets Tweaked

One of the tragedies of the real estate brokerage industry is that they held on to their Gatekeeper status for too long and it ended up creating opportunities for others. Streeteasy evolved into the defacto Manhattan MLS, but since its acquisition by Zillow a few years ago, it is slowly being Zillowized, by eliminating cool features and inserting annoying features. Recently there was an uproar about their installation of the Premier Agent service which was done in such a way that it did not show the consumer who the listing agent was. This prompted a great read by The Real Deal New York that laid it all out. However, Streeteasy succumbed to broker outrage and changed the linkage issue that gives the consumer a link to the listing agent, so it looks like this crisis has been resolved for now.

The Architect of Hollywood

I’m a regular listener of 99 Percent Invisible, and this podcast about Paul R. Williams was fascinating [Click on the graphic].

Appraiserville

My advice to all appraisers…This week I testified in DC as an expert in litigation based on the New York housing market – no appraisal was done for this assignment and no details of the case can be shared, but I crushed it. I think every appraiser needs to testify at least once in their career – hopefully early on. You see the appraisal process much differently when a lawyer is asking you to explain yourself. There is a clarity that washes over after the first time. Throw yourself into it. Through repetition, you deaden your nerve endings, and you get immersed in a lucrative appraisal discipline. Personally, I love it. The other thing you need to do is read about the profession all the time. Our industry has been beaten down for years, but I think a lot of that has to do with not being aware of the upcoming regulatory changes and the activities of industry institutions since those such as AI National and AMCs count on your complacency.

One of the best ways to hone your appraisal craft is to read about problem-solving from your peers. Not about byzantine rules, but how to problem solve each unique valuation situation you face. Nearly every week I link out to Ryan (take a knee) Lundquist’s blog and Tom (blogging for your noggin) Horn’s blog posts for excellent insights. I tend to be a little macro in Appraiserville, but wow, these guys drill down on front line appraisal stuff like nobody’s business. Sign up for their weekly emails in the links at the bottom of these Housing Notes. I learn a lot from them and you will too.

AI National’s Web site log-in for members was down this week

The log-in for members on the AI website was down from Wednesday until a few minutes ago (Friday morning). Everyone has technology issues. However, remember that this is the same organization that is going to “take” chapter funds to solve a problem that doesn’t exist. I sure hope their site doesn’t go down when a chapter needs some of their funds to pay bills.

Lawyer: Zillow ‘Zestimate’ illegal appraisal hampering home’s sale; Zillow: Only estimate, not appraisal

I met one of the founders of Zillow at a party the day before they launched more than a decade ago. The Zillow name came from “Rhymes with Pillow” i.e. your home. I’ve always had a huge issue with the “Zestimate” because it infers an accuracy it doesn’t have. The voyeurism can be fun, but when the results are zeroed down to the dollar, it can become an accepted source of value by the consumer masses. Now someone has taken issue with that and are suing Zillow.

Phil Crawford has an interview with the plaintiff on the upcoming free Wednesday edition of Voice of Appraisal. Fascinating topic. A while back, the WSJ interviewed me because of my Zestimate (I have a 200-year-old historic home), was 5x what it was optimistically worth. If I was uninformed about my market, I suspect it would take me years to resolve my anchoring to the inflated number. It’s hard enough to de-anchor a high value when the Zestimate is 10% too high let alone five times too high.

January 7th is National Real Estate Appraisers Day

Every appraiser needs to subscribe to Dave Towne’s musings on our industry. Send him an email (dtowne@fidalgo.net), and he’ll add you to the list.

If the date selected for the appraiser day becomes ubiquitous, it’ll help me remember to get a birthday card for my wife (kidding!). Dave writes:

Texas appraiser Mark Paulson has submitted an application to the National Day Calendar™ web site to get Jan 7th on their calendar as an official day to recognize appraisers. I found his posting about this on The National Appraisal Coalition Facebook page.

Let’s get behind this effort! Re-send and re-post this message to your appraiser buddies and other bloggers, web sites, trade journals, etc.

While this might seem somewhat tongue in cheek, this calendar is used by media folks across the US to help publicize a variety of ‘days’ each year. Being on the calendar is a good way for the average Joe & Jane Public to get a better understanding of what we appraisers do in their communities, because some media outlets may want to talk to appraisers in advance for inclusion in stories about our work.

Here’s a link to the calendar: https://www.nationaldaycalendar.com/january/

If Mark sees this message, please keep us informed about the process to get accepted. I don’t see a way to support the effort until the Calendar web site posts a message there to ‘vote’ on inclusion.

Coester Chronicles: Appraisers Get LESS THAN HALF The Apraisal Fee

This week, an appraiser received an order from CoesterVMS, the AMC run by Brian Coester who is being sued by Mark Skapinetz in Georgia for allegedly hacking Mark’s email. I’ve redacted it for privacy but to illustrate the way the fee is being handled.

Here’s how the appraisal fee gets parsed out.

  • Appraisal Fee: $790 – Amount paid by borrower
  • AMC Fee: $445 – Coester VMS gets 56% of appraisal fee paid by the borrower for maintaining a web site that tracks appraisal status and reviews the report when delivered.
  • Appraiser Fee: $345 – The valuation expert gets paid 44% of the appraisal fee paid by the borrower to apply their local market knowledge to the collateral the lender is using for the mortgage that will likely be sold to a GSE and guaranteed by the taxpayer in the form of a federal backstop.

In other words, banks and mortgage company hire this AMC because they place more value in administration, rather than the expert taking the risk and coming up with a professional opinion of value to make a lending decision. This incorrect emphasis is somehow acceptable to the banking system.

I remember when HVCC went into effect on May 1, 2009 (eventually sunsetted into Dodd-Frank) and the justification mantra for banks and AMCs was a combination of cost-savings and a firewall. But it looks like

  • the consumer is being screwed because they are overcharging for unnecessary bureaucracy ($445).
  • the appraiser is being screwed because they aren’t being paid the prevailing market rate ($790), i.e., what the consumer is willing to pay.
  • the taxpayer is being screwed by being forced to pay for a future cost during the next banking crisis as competent appraisers exit the profession. Good appraisers are moving on to other things. The quality of AMC work is poor and getting weaker as watered down expertise enters the business.

Here’s the heavily redacted order form:

Translation of above investor comments in red: If you are blacklisted (excluded) by any investor, it is ok to work on this assignment if you aren’t on the list of this particular investor. Of course you could be blacklisted as an appraiser because you are honest and didn’t hit the number for a previous assignment…or you can be blacklisted because you are a horrible appraiser. Either way, Coester doesn’t care given the presentation on this order form. Coester is simply saying: just tell us whether you are blacklisted or not with this investor in so we know what jobs to assign you. I find this makes the review process of this AMC highly suspect.

Here’s the fee breakdown on the form.

The fact that this fee arrangement is typical is absolutely surreal and unacceptable. Regulators and banks don;t really appreciate how bad the appraisal management process really is.

Updates from the Real Estate Industrial Complex

Here are some posts over at my forum known as the Real Estate Industrial Complex where I have been chronicling the unfortunate anti-membership activities of AI National.

AI Immediate Past President Scott Robinson, MAI, SRA, AI-GRS, spoke in Belgrade, Serbia, on “Valuer Licensing in the U.S. and Lessons to be Learned by Serbia.”


Appraisal Institute President’s Message March 31, 2017 Regarding The Residential Appraiser Project Team

Back on April 10, I wrote a post here that essentially pronounced the residential committee that Jim Amorin proposed was DOA since it had been months since there was any feedback shared. I received a few emails today that shared the month old email announcing the committee. Here is the original header and the specific section of the letter that covers the committee.

/////////////////////////////////////////////////////////////////////////////////////////

/////////////////////////////////////////////////////////////////////////////////////////

Sadly, I believe that this effort is a waste of time. I hope I am wrong. It is a noble attempt by AI members to repair the diluted SRA designation brand that so many worked so hard to obtain.

Now step back and imagine the leadership of a trade group or professional organization asking itself why they forgot about a large contingency of its members for a decade – coincidentally they began to question this past bias against residential appraisers while under siege for the “taking” policy? And then expecting those same leaders to embrace any recommendations from such a committee? Let us remember that the idea to form this committee was by leadership that ignored residential membership during this critical decade.

AI National leadership already knows what to do about the residential membership neglect and the dilution of the SRA brand. The top leadership is not a bunch of children, and there is no magic or complex research needed to solve the residential appraiser void at AI National. It would take AI President Jim Amorin and his handful of executive peers 5 minutes (or less) to include residential within the organizational culture and start moving forward in a meaningful way.

I believe it is simply too late and the residential profession has already passed them by. I can foresee the acknowledgment process by senior leadership morph into a procedural labyrinth, unlike the “taking” policy that was done without effective notice – evidenced by the widespread outrage at the end of last year.

After/If the January 1 “taking” occurs, this effort will be moot – I can’t believe AI National leadership will care about residential once they have control of chapter funds – or the organization collapses as a result of the chapter outrage that will ensue.

A Brilliant Idea

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them. They’ll dream of blue turtles, you’ll dream of them dreaming about blue turtles, and I’ll finally accept the fact that blue turtles don’t Sting.

See you next week.

Jonathan Miller, CRP, CRE
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants

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March 4, 2016

Housing Notes Turns 1: So Let’s Talk Banana Bread Pudding, Half Fees and The Big Short

Believe or not, I started writing these Housing Notes a year ago. The first Housing Note was more of an introduction, but this effort quickly morphed into a weekly ritual that I can’t seem to stop thinking about. Where else can you get housing commentary AND discussion on a new twist on banana bread pudding (h/t OC) and housing? Which forces me to point out, BECAUSE THE BREADTH OF COVERAGE DOESN’T EXIST ELSEWHERE.

And it’s important to appreciate where the best banana bread pudding comes from: Magnolia Bakery. Remember this 2005 SNL video called ‘Lazy Sunday‘ where someone macked (sp?) on some cupcakes? Who made those cupcakes? Yep, Magnolia. This video went viral in 2005 when the wheels were coming off the housing wagon (and I started to blog) but most didn’t see it yet. It is simply diabolical to take it a step further and see Magnolia as famous for it’s cupcakes but the informed love them for their banana bread pudding. You need to understand this because that 2005 SNL short made a new little startup called Youtube go viral and probably influenced Google to buy them for $1.65 Billion shortly thereafter…as free flowing credit allowed anyone to purchase anything, everywhere, yo. Watch it.

But I digress…

Since I’m reflecting on the past (and banana bread pudding), it would be appropriate to look back at an event that started this writing journey, the housing/credit bubble. It spurred my forays into podcasting as The Housing Helix (in my first 2009 podcast intro, I sound beaten up by the financial crisis), blogging on Matrix (my first post was a Marketplace Radio segment how appraisers were pressured to hit numbers), social media, magazine and commentary in newspapers, op-ed pieces and a lot more. After all, appraisers are observers of the housing market from the street view, why not get a closer perspective?

The Big Short Has To Be Explained Through Comedy

My wife and I finally carved out time to go see The Big Short – the story of the financial crisis that brought down the housing market. Our delay in seeing it wasn’t a sign of reluctance but rather my lack of enthusiasm to commit to watching ANY movie (except Repo Man as been discussed on HN before). I’ve always been that way. But combine a book that Michael Lewis authors, my favorite Led Zeppelin song and the housing bubble and I’m in.

Michael Lewis said during an interview once that he never imagined The Big Short being made into a movie, unlike others such as Moneyball and The Blind Side. It was too complicated. The director had to provide comic relief and break down the fourth wall to keep it interesting. Otherwise how could they expect a movie-going audience to understand all the technical terms and concepts, when Wall Street clearly proved they didn’t understand them either – despite creating them.

THE BIG SHORT

Here are some incredible quotes on IMDB from the movie:

Overheard at a Washington, D.C. bar: “Truth is like poetry. And most people fucking hate poetry.”
Mark Baum: I don’t get it. Why are they confessing?
Danny Moses: They’re not confessing.
Porter Collins: They’re bragging.
On screen quotation from Mark Twain: It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.

I thought it was weird to seemingly pin the beginning of this whole thing on Lewis Raineri who invented securitization although he is rightfully in the top 25. It’s also never fair to exclude home buyers and home sellers from this list (remember liar loans) as well as whole industries related to Wall Street.

Joshua Brown aka The Reformed Broker (@reformedbroker) did a great video summary with Time Inc. on the importance of the movie and the lessons learned. This is really worth a watch.

Here are a collection of the movie trailers.



So I think you can tell I liked the movie. If you still don’t want to see it, then at least read the book. It was so riveting I read it in two evenings. The housing market conditions we are experiencing now are actually the hangover caused by the financial crisis depicted in the movie.

Appraisal Fees As By-Product of Financial Crisis

Ryan Lundquist of my often referenced must-read Sacramento Appraisal Blog created graphics that illustrate how fee adjustments can eat you alive. Now imagine what happens after systemic price chops are made and their adverse impact to the intellectual experience of an industry that is supposed to assist with mortgage risk management? Dodd-Frank (initially HVCC) literally gutted the reliability of the bank appraisal industry overnight (on May 1, 2009) and good appraisers like Ryan and myself moved on to greener pastures of non-bank work, where the fees are higher and the respect for expertise actually exists. Speaking for myself, my expertise and those of my experienced peers has been lost forever by the mortgage lending industry. We’ll probably never return. Like the Wall Street depicted in the movie, generic retail national big bank higher ups have no idea what is going on with asset valuation (appraisals) used to determine lending risk on their mortgages.

UPDATE I still find the state of appraisals absolutely incredible: We are in the midst of a prolonged period with the tightest mortgage lending conditions of the modern era. If lenders are being conservative (risk-averse), they are still oblivious to the risk of basing their adequacy of collateral decisions almost exclusively on third party institutions (AMCs) whose business model relies on, and only can survive on, poor quality appraisals.

The following charts by Ryan can be found on Ann O’Rourke’s must-read Appraisal Today Blog: The True Cost of Lower Appraisal Fees

appraiserfeesSAB1 appraiserfeesSAB2

The financial crisis hangover that has destroyed the bank appraisal industry has been Dodd-Frank’s insertion of a middle man (appraisal management company) aka AMCs in between the bank and the appraiser, embedding scare tactics to blame the widespread collusion between mortgage brokers and some appraisers as justification. Here’s the dysfunctionally illogical thinking that prompted the post-financial crisis appraisal regulations now embedded in mortgage lending policy:

  • Collusion between some appraisers and some mortgage brokers must be stopped because that relationship caused the financial crisis although it didn’t because it was a symptom of widespread conflict of interest, not a cause.
  • Let’s implement policy using unclear language to infer that banks MUST use a third party institution (AMC) to order appraisals and vet appraisers so the lender is separate and clear from the process even though banks were the parties during the crisis who heavily relied on mortgage brokers and shut down their in-house appraisal departments as “cost centers.”
  • In order to comply with regulations, let’s take a modest appraisal fee and give half of it to a third party to manage appraisers because everyone knows that managing the flow of appraisers workload by 19 year olds chewing gum is equally critical to risk management as the expertise and training that used to go into appraisal quality.
  • In order to justify AMC importance to the lending system as they take half of the appraisal fee from appraisers, let’s create a system where “scope creep” runs amok so that clerical staff without valuation experience go through expanding checklists of clerical requirements to justify the AMC half of the appraisal fee.
  • Lets make a big assumption that defies logic or reason to cut the wages of the entire bank appraisal industry by half and because AMCs have lobbying power, argue that the quality of appraisals won’t deteriorate working for half price and untenable turnaround requirements and because AMCs are paying lots of non-appraiser clerical staff to manage appraisers and use internal analytics sourced from crappy data scraped from reports of rushed and underpaid appraisers who remain in the industry as well as those few new entrants who were never mentored.
  • Let’s not assume that an overnight cut in the bank appraiser’s wages won’t attract a lesser quality appraiser to enter the industry. After all, entire industries or trade groups such as lawyers, public officials, bankers, politicians, regulators all had their wages instantly cut by half since the financial crisis, right?
  • Lets mislead the public to think there is an appraisal shortage to save the AMC model when there is clearly only a shortage of appraisers willing to work for half the market rate.

Conclusion

Appraisals are not a commodity. Experienced appraisers are valuation professionals and we are dwindling in numbers. We are not a title search or a flood certification.

Tim Geithner Blames The Housing Bubble on Thin Home Equity?

The former New York Fed chair and Former U.S. Secretary of the Treasury Timothy F. Geithner hosted a lecture series on Coursera, which is an awesome teaching platform.

John Wake at Real Estate Decoded, an excellent blog by an economist turned real estate agent, takes a look at the course.

John concludes: Geither’s top cause, “Home equity was too thin.”

The distortion of having Geithner provide his perspective, much like the well written “access journalism” book “Too Big Too Fail” forgot about the part where Geithner ran the New York Fed during the run-up and New York is where most of the big banks were headquartered. He was part of the problem so his contribution to providing the solution is unsettling to me. Geithner’s actions were specifically talked about in the excellent read: Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.

Speaking of Cutting Things in Half

With the recent NYC development boom’s focus on the very high end of the market, we are seeing the top begin to soften. High end co-ops are starting to loosen their rules, forced by competition from new condominiums. The new development condo market way overemphasized very large units and we are starting see developers react by chopping them in half. The logic being that there are more buyers for two $20 million condos than one $40 million dollar condo, or something along those lines. This is illustrated by this Bloomberg piece NYC Penthouse Gets Sliced in Two as Luxury Market Falters. This can only work if the pricing of the sum of the parts is much less than the price of the whole.

Keeping a Global Prospective on What You Get for $1 million

The Knight Frank’s brilliant research piece, the Wealth Report 2016 was launched yesterday. I’ll talk more about it next week but I thought it would be interesting to look at this illustration captured from yesterday’s event with Douglas Elliman by The Real Deal:

kfgraphicFP

Crazy, right?

Best Headline of the Week

The Hartford Courant’s (CT) goes crazy with:

Attorney: Developer Might Change 50 Cent’s Farmington Mansion Into Assisted Living

Bouncing Around The U.S. Telling House Stories

My friend Alexei Barrionuevo is the editor-at-large for VoxMedia’s Curbed. He is writing a weekly column on U.S. housing and it’s always good. Here are the last three and if you like them, there’s more. :

Charting Fairfield County Connecticut, With A Splash of Greenwich

I shared new chart idea last week, illustrating the change in market behavior of Greenwich, CT since the financial crisis – ironically a housing market driven by Wall Street. I thought I’d share more charts from the region, Fairfield County. Despite New York City’s luxury market boom of the past 5 years, Fairfield County and specifically Greenwich, hasn’t enjoyed the same intensity at the top of the market.

4Q15FF-ASPnos

4Q15FF-avgmedian

4Q15FF-condoSFmedian

4Q15FF-DOMdisc

4Q15FF-suppdemand

4Q15GR-avgmedian

If you need something rock solid in your life (particularly on Friday afternoons), sign up for my Housing Note here. And be sure to share with a friend or colleague. They’ll see The Big Short, you’ll try donut ice cream cones and I’ll keep eating banana bread pudding without chocolate.

See you next week.

Jonathan Miller, CRP, CRE
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants

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November 13, 2015

The Strange Power of Land: Truly A 4-Letter Word

Earlier this week I read an article about Ross Perot, Jr., the largest land owner in the Dallas-Fort Worth region who has amassed a fortune rivaling his father, the former presidential candidate, Ross Perot Sr. (Senior is still alive?) Ross Perot Sr. was well known for his homespun sayings. My favorite was “It’s time to pick up the shovel and clean out the barn.” Man, I love that one. Well, Junior has a few new ones that are pretty good and they relate to the power of land.

“What I like about land is I can drive out and check on it,” Perot, 57, with a net worth of $2.1 billion on the Bloomberg Billionaires Index, said last month in an interview in his Dallas office. “It doesn’t go anywhere. It’s hard to steal land.”

Aside from “credit”, the price of land is the single most important factor today concerning the distortion of the housing market. Last year I wrote a couple of columns about land during my year long Bloomberg View column adventure. One of my favorites, which was proudly one of the most read on the Bloomberg Terminals worldwide was Housing Bust Wasn’t About the House where I illustrated the idea that home price appreciation is really a function of the land underneath the house. When a property appreciates, assuming no significant change in the home itself, the land is doing the appreciating, not the house.

Appraisers know this by heart.

Here is the chart I developed to illustrate my point.

land prices chart

The same logic applies to the new development boom the world is currently experiencing. In this low interest rate environment, global investors have been canvasing the globe, seeking out higher returns.

When insatiable investment demand meets limited supply, land gets a lot more expensive. And it did.

Since we just went through the biggest housing boom of the modern era, much of the low hanging fruit (land) had been picked over and what remains was prohibitively expensive and more complicated to work with. During this 5-year boom, housing development skewed towards the high end in virtually every housing market in the U.S., if not the world – despite tepid wage growth and tight credit conditions. Land owners, at least in the 18 U.S. housing markets I cover, tend to be longer term investors, not speculators looking for a quick flip. I realize this is a broad generalization but it has been my experience. As a result, they don’t have to sell. There is no urgency. Someone recently joked to me “as the patriarch of the family lay on his deathbed surrounded by his family, his last words were ‘don’t sell our land, no matter what.'”

Since real estate developers are in the business of developing and need to acquire land to build unless they’ve been stockpiling it, they have to pay to play. They have been “forced” to pay record prices in many cases and have to reverse-engineer that land price into record high sales prices for single family homes and condos in order to make a return on their investment and risk. Over the past few years, the heavy volume of new product that has been in the pipeline has been coming on to the market. Combine that with a stronger U.S. dollar, weakening economies around the word, the potential for higher interest rates and the visceral images of construction creating bloated inventories, we are at an inflection point.

In fact with the stronger U.S. dollar we’re starting to see a perspective in real estate coverage on foreign buyers such as Stronger Dollar Emboldens More Americans to Seek European Dream Home and For Foreign Buyers, Family Homes Over Trophy Towers

These domestic housing headwinds (I feel like a Washington D.C. policy wonk whenever I use that term) are forcing the development community to focus on the lower end of “luxury” where demand remains very strong. It’s a tough situation for developers who want to tap this market since land is the part of the equation and sellers of land are generally unyielding.

Mark Twain – “Buy land, they’re not making it anymore.”

Without the demand for more moderate priced housing being fulfilled, housing prices outside the high end market are rising and in some cases, rapidly. Hence a national housing affordability crisis is in full swing.

Land of the dolls (Friday the 13th edition)

But then again, why go outside and enjoy your land when you have a home like this?

dollhouselistingphoto

Source: Terrible real estate agent photographs

Land of exciting things to do

From the Gothamist web site: Colbert Releases Glorious Tilt Shift Video Showcasing NYC The video that didn’t make the final cut of his show intro. It’s amazing.

Land ‘O Lakes

Housing butter sculpture gone wild. landolakessculpture

But I digress…

Land of Rentals

Not unlike the mismatch between the type of new development homes that are being built and the lower priced homes in high demand, we are seeing a similar pattern in the rental market. Today we published our Manhattan, Brooklyn & Queens rental report for Douglas Elliman but the top line theme could potentially apply to any housing market in the U.S.:

  • Rents continue to rise, with much of the growth skewed to the low and middle end
  • New construction of rental housing is skewed towards the high end

Here are a view salient points for each region within the report:

Manhattan

  • Rising prices, more strength at the lower end of the market
  • Tight credit and rising sales price kept more renters in rental market
  • Strong economy continued to drive prices higher
  • Median rental price increased year-over-year for the 21st consecutive month
  • Non-doorman rentals continued to see larger gains than doorman rentals
  • Luxury market rents showed smallest price gains
  • Vacancy rate edged higher despite falling use of concessions by landlords

Brooklyn

  • Median rental price reached the second highest level on record
  • 1-bedroom median and average rents set new records
  • Overall prices continued to rise from year ago period
  • Faster marketing times and fewer landlord concessions
  • Luxury market prices continued to slip
  • Growing resistance by tenants for renewals with increase in new rentals
  • Median Brooklyn rent was $410 less than median Manhattan rent

Queens

  • Price indicators were mixed as median declined and average rose
  • New development market share rose 6.9% comprising 32.7% of new rentals
  • Luxury rentals showed most price gains
  • 2-bedrooms and studios showed largest price gains
  • Median Queens rent was $413 less than Brooklyn and $823 less than Manhattan

And I’ve created a slew of charts using the report’s data with some of my favorites below. More charts here: Manhattan Brooklyn Queens

Click any chart to expand.

2015-10MBQ-MBspread 600

2015-10MBQ-Mprices 600

2015-10MBQ-BmedianYOY 600

2015-10MBQ-QBspread 600

2015-10MBQ-QmedianNewDevShare 600

Land of Appraiser Shortages

In one of my favorite sources of appraisal industry information, Valuation Review (subscription), they ask an appraisal industry veteran from a large firm: why is there an appraiser shortage?

Greg Stephens, chief appraiser, SVP compliance with Metro-West Appraisal Company, LLC provided these key reasons , among others:

– The diminution of appraisal fees within the residential mortgage lending industry creating a disincentive to either remain in the industry or gain initial entrance.
– The Federal Housing Administration (FHA) revision to their appraisal panel requirements accepting only certified appraisers on their rosters.
– Restrictive federal and state regulations with the evidence being indisputable that an unintended consequence of the Home Valuation Code of Conduct (HVCC) was the proliferation of AMCs, followed by an immediate diminution of fees paid to appraisers.

My takeaway – the disruption of the appraisal industry is based on appraisal management companies paying appraisers half the market rate. Period.

They keep the other half in the name of bank compliance with Dodd-Frank by essentially denying that cut rate appraisal fees have an impact on quality and reliability. Much of the appraisal talent has largely left the industry or moved into other areas outside of mortgage lending. Since 2009 the result has been crappy quality. This shift has become a self fulfilling prophecy for those seeking to automate valuation. And who offers automated valuation? Those very same AMCs that control 80% of the appraisal market for lender work and who coincidentally have analytics tools and lobbying power.

Ok I’ve buttered you up enough. Be sure to check out the reads I enjoyed this week (below) – there is a lot of stuff on the rental market and the housing affordability crisis.

If you need something rock solid in your life like a cold stick of margarine (particularly on Friday afternoons), sign up for my Housing Note here. And please share this with a friend or colleague. They’ll feel good, you’ll feel better and I’ll be estatic.

See you next week.

Jonathan Miller, CRP, CRE
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants

Reads I Enjoyed

My New Content, Research or Stuff