Matrix Blog

[Freddie Mac’s Weekly Primary Mortgage Market Survey for September 1st](http://www.freddiemac.com/dlink/html/PMMS/display/PMMSOutputYr.jsp) shows fixed rate mortgages dropping for the 3rd consecutive week. Bankrate.com shows that this trend has continued since the first week of August and [mortgage rates took a steep drop after Hurricane Katrina hit.](http://matrix.millersamuel.com/?p=100) The federal government [OFHEO released 2nd quarter housing stats](http://money.cnn.com/2005/09/01/real_estate/buying_selling/OFHEO_prices_up/) that showed a 13.4% increase in prices over the past year. [Granted I have some issues with OFHEO stats](http://matrix.millersamuel.com/?p=95), but they do show an important trend.

Then why do most appraisals we review show no time adjustments?

The answer is usually, “the underwriter wouldn’t accept the report with the adjustments included.” However, the sales price or refi estimated value was reached in the final report anyway. How? Other amenities were over or under adjusted to make the number, thats how.

A form of appraisal fraud and appraisal pressure

This a form of appraisal pressure or fraud that occurs so frequently that many underwriters and appraisers don’t even realize that this violates lending and licensing regulations. According to USPAP, the appraiser is [not supposed to present a report that is “misleading” to the reader.](http://commerce.appraisalfoundation.org/html/USPAP2005/std2.htm) Characterizing a rapidly rising real estate market as “flat” fills the definition of misleading.

Our firm receives this sort of pressure nearly every day.

The solution: do not remove your time adjustments if they are clearly supported by the market. Time adjustments are an underwriting issue, not a valuation issue. The appraiser is reporting an existing market condition. If the appraiser chooses to comply, then the appraisal must be made subject to a [“hypothetical condition” per USPAP.](http://commerce.appraisalfoundation.org/html/USPAP2005/std2.htm)

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

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

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

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

At the end of the day, the [homeowner just wants the job done](http://www.bankrate.com/brm/news/mtg/20000525.asp). Herein lies the problem.

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

See: [The beginning of the end, or how this mess got started](http://soapbox.millersamuel.com/?p=3)

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

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

As a self-proclaimed technology maven, I wonder if [technology is the answer](http://www.ils.com/ANOutsource.htm) to all our problems within the appraisal process? In many ways, it can dumb it down, causing the process to drift away from its original intention. The AMC process seems to be an automated paper handling compliance machine.

Another AMC took outsourcing abroad to perform appraisal reviews.

[How is it humanly possible to perform a review appraisal from another country](http://sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2004/02/06/BUGMD4Q9TR1.DTL) unless the report is nothing but a compliance document and not a basis of risk analysis?

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

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

Tags: Appraisal Management Companies, Soapbox Blog, Appraisal Process

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As seen in Valuation Review When are comps picture perfect? [Note: Subscription]

Call me old fashioned but we always take photos of the interior unless we are forbidden by the occupant…then we inform the client and note it in the report.

I am amazed how many times a real estate broker has mentioned to one of my staff, “You take photos? I have never seen an appraiser take photos before (as well as “You actually take measurements? I have never…”)” You get the idea 😉

The photos are more for our use – to review the property if a question comes up, to prove we were there, to protect us, etc.

Tags: Appraisal Management Companies, Soapbox Blog, Appraisal Process

Comments Off on Picture Perfect

The following eBay post for an appraiser apprentice position [Note: PDF] was found on Ann O’Rourke’s Appraisal Today‘s email blast.

Can the standards of the appraisal profession drop any lower? The inference here is that you become a form-filler with minimal effort. Amazing!

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

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The Illinois Coalition of Appraisal Professionals commissioned a study on identity theft and resulting article that has been widely posted on the internet on appraisal sites. Here is a copy [note: pdf]. The letter written by Brian Weaver, a practicing appraiser for over 25 years and worked as an investigator for the Office of Banks and Real Estate in Illinois. He is referring to a problem that is manifested by the state agencies that publish the license numbers of appraisers on the Internet and the appearance of license numbers on all appraisal reports.

This is an excerpt of a letter written by Chip Wagner, IFA, SCRP, ERC’s 2005 Appraisal Foundation Advisory Council Representative to the Worldwide Employee Relocation Council to bring attention to the RAC membership an issue that is affecting the Appraisal Community.

There is an alarming trend of the fraudulent use of appraiser’s license numbers and unscrupulous individuals stealing the name and license or certification number to use on fraudulent appraisal reports. As you can see from the [Brian Weaver] article, over $40 Million in forgery has been uncovered in Illinois, and it is expected that this might be only the tip of the iceberg.

Online appraisal directories, Department of State Web Sites, Appraisal Reports and printed appraiser directories all publish our license numbers. There is no need to disseminate this to the public. Posting categories would replace the need to post numbers since [honest] users of these directories only look to see the license number and often don’t know the classification.

• Certified General
• Certified Residential
• Licensed
• Trainee

When Chip brought this matter to my attention, my first reaction was “well the Department of State publishes our numbers online for all to see, and most states do the same thing.”

Chip’s response was:

Let me advise you, this is all changing based on the publicity that what is happening in my state is taking place. My state has access to this information password protected now. When I first saw this article on appraiser identity theft, I told my state appraisal board the same thing “this is available on the Appraisal SubCommittee’s website.”

I have been told by my state appraisal director and appraisers on the board that this will be changing because of what is happening in my state.

After thinking about this further, I realized this is a natural extension of identity theft from stolen credit cards and social security numbers. Today, the proliferation of Appraisal Management Companies have virtually eliminated the one on one relationships lenders had with their approved appraisers, in fact 10 years ago, a lender could tell when your signature was forged. Now its a non-issue, they have no idea what your signature looks like.

The first thing to do is remove your license numbers from your own web sites…

Tags: Appraisal Management Companies, Soapbox Blog, Identity Theft

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It amazes me how flawed the structure of the wholesale lending process is. Someday during an economic downturn or future lending crises, this will come out with the wash. Until then, its status quo.

How it began…

As banks floundered in the early 1990’s during the recession, the non-revenue departments were cut back, which included…you guessed it…appraisal departments. The order and review function, which requires administrative overhead, was shifted to mortgage brokers who would bear the staffing risk. Mortgage brokers are generally paid a commission of 1 point, or 1% of the mortgage. The appraisal fee, which generally starts at $300 to $500, is either paid in the borrower’s application fee or the absorbed by the mortgage broker.

In relatively short order, the wall between the sales function and underwriting essentially went away and so did the buffer between bank loan reps driven by a commission incentives and the appraiser, who is supposed to be assessing the collateral for the lending institution.

Large appraisal factories sprang up across the country hiring trainees who would simply fill out appraisal forms and make the deals. Without inhouse appraisal departments to review these reports, they were essentially accepted at face value. Many experienced firms either shut down or moved into other areas of valuation.

Why does this matter?

Lets count the ways.

1. The borrower is under the assumption that the licensed or certified appraiser is independently assessing the value.
2. Lending institutions have no idea what their collateral is really worth and the implicit risk to their portfolio.
3. These lending institutions are government insured.
4. Guess who pays the bill in the next banking crises?

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

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