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Posts Tagged ‘Jonathan Miller’

[Sounding Bored] Hiding Behind USPAP To Avoid Getting Sick

July 20, 2008 | 10:03 pm | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession. Righteous USPAP indignation runs rampant in the appraisal profession and I worry it is leading to our demise as an industry.

Take the case of Mike Lefebvre, a Realtor in Massachusetts, who also happens to have an appraisal background.

There are many appraisers who were originally real estate agents and in fact, I believe there are still states that require appraisers to have a real estate sales person’s license in order to get their appraiser license.

Mike has an interesting approach to getting a listing. He performs an appraisal on a potential listing rather than a broker market analysis (BMA) because it is more detailed and helps him properly price the property. He uses that appraisal as part of his marketing effort. In many ways, he is being more professional as an agent by providing a more thorough analysis for his clients than a BMA affords.

Since pitching a listing is not a federally related transaction and he discloses (and it is apparent) that he has a vested interest in the eventual transaction by the fact he is an agent paid on commission, I don’t see this being a problem or a violation of USPAP.

Of course, I would love another perspective on this.

However, I often see more seasoned appraisers make a habit of needlessly scaring clients, banks and agents by using USPAP as a grey fogging tool…almost like the way a consumer feels reading an insurance policy…it is something so confusing that it is not meant to be understood, except by appraisers.

And THAT, in my humble opinion, is one of the things that is killing the appraisal profession. USPAP was in place during the housing boom so it is apparent that this standard alone is not the panacea of the lending industry. Create so much confusion that you motivate the industry to find alternatives.

Others see it differently, and this email is the inspiration for this post.

Mike forwarded me an email sent by an appraiser. I am not familiar with him but he appears to be well-qualified as an appraiser in his market judging from his web site. I’ll even assume he is a good appraiser and a nice person.

The appraiser was “sickened by Mike’s performance of an appraisal on each of his listings to more accurately price the property and alludes to connecting him to bank fraud (the irony is that USPAP clearly forbids appraisers to mislead their readers, which this email is treading awfully close to that, no?):

From: [kept anonymous]
Date: June 6, 2008 10:07:42 PM EDT
To: mlefebvre
Subject: Re: Inquiry About 30 Jefferson Road, Franklin, MA – why would you bias yourself like this? Ever hear of USPAP?

You do understand that when you do an Appraisal you must adhere to USPAP including “I have no present or prospective interest in the property that is the subject of this report…..”

How can you do an Appraisal on a property you list, this is sickening to see.

Do you know what constitutes acceptable versus unacceptable business practices? This is required in all 50 States. Follow this link…

Giving a comp check without an Appraisal IS BANK FRAUD.

Ethics? Do you understand them? Follow this link to learn more about what an Appraiser is required to do and what not to do.

In addition to our Appraisal services we can also offer sessions for your office on how to be compliant with USPAP.

We “VALUE” your business! Specializing in honest and accurate results!

[deleted content to keep anonymous]

“Think about USPAP and how to follow it now, or you may get a long time to think about it in prison later.”

“People only think USPAP Requirements are stupid until they are caught and punished for not following them.”

I think having USPAP is a good thing, a necessary thing. The fact that the lending industry went to hell in a handbasket isn’t because every appraiser didn’t follow USPAP. The problem is much bigger than that.

We all need standards to live by and the public needs to have comfort that when they order an appraisal, they understand what they are being provided. If an appraiser has a potential conflict, it must be fully disclosed.

I also think this sort of threatening message is self-serving and shouldn’t be tolerated either. You don’t use USPAP as a weapon to create mass hysteria in the public domain as a way to generate business. That makes the profession look even worse than it already does.

Good grief.

Here’s Mike’s post on the subject.

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[Sounding Bored] Fighting The High Value, Getting Fired Over The Right Value

July 16, 2008 | 12:15 am | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession.

The following IndyMac story was forwarded to me by a Soapbox reader. It was originally posted by appraiser Vernon Martin on I don’t usually repost but the story detail is amazing – read here or on the – either way, it’s worth the read.

Written by Vernon Martin:

I worked at IndyMac as their chief commercial appraiser from October 2001 to the end of March 2002.

I first became acquainted with IndyMac through OTS appraisal examiner Darryl Washington, MAI. Darryl used to examine my appraisal department each year when at Home Savings of America, which was acquired by WAMU in 1998. During the summer of 2001, I had a chance encounter with him at a jazz concert. I asked him what he had been up to, and he told me that he had just completed the first examination of IndyMac Bank, which had just received its savings and loan charter only a year before. He said, “Vern, they could use a guy like you.”

Several weeks later I saw the chief commercial appraiser position for IndyMac Bank posted on I responded with a cover letter that started with “Darryl Washington of the OTS suggested that I contact you.” Apparently, that was the right way to start the letter. IMB’s chief credit officer called me soon, asking “do you know Darryl Washington?’ I said “Yes, he examined my department annually at Home Savings.” His next question was “Do you know how to deal with him?” I assured the chief credit officer that I was used to dealing with the OTS and Darryl and that I could get IMB into compliance with OTS appraisal regulations.

After 3 interviews, IMB wanted me to start right away, because the OTS was returning in November. I started on 10/15/01 and had a month to familiarize myself with their commercial lending practices until the OTS showed up.

At the end of my first week, there was an urgent need to field review an appraisal of a subdivision in the Sacramento area. I went up there on the weekend, but also took along some other recent appraisal reports from the Sacramento area. One of the other appraisal reports concerned me. A residential subdivision had been appraised as “80% complete”, but when I visited it, it had only been rough-graded, probably no more than 15% complete. When I returned to the office on Monday I asked who the construction inspector was for that region. I was told that there were two inspectors for the Sacramento area; one was CEO Mike Perry’s father and the other one was Mike Perry’s father-in-law. The loan officer on the deal was Mike Perry’s younger brother, Roger, who had recently been hired. His previous experience had been as a cop. Thereafter I heard of favoritism towards relatives of Mike Perry and “FOMs”, and the chief credit officer advised me to take special care of Mike Perry’s brother. (“FOM” was IndyMac jargon for “Friend of Mike”.)

I reported my Sacramento findings in a private memo to the chief credit officer, who then distributed it to the senior managers at the construction lending subsidiary known as the Construction Lending Corporation of America (CLCA). The senior credit officer from CLCA, the manager who most resembled Tony Soprano, was the one to call me. He asked “Are you sure you saw what you said you saw?” in a rather chilling manner. He said he had been on site with Roger Perry and had seen things differently. After that call, I asked the chief credit officer why CLCA’s senior credit officer would want me to recant my report. He told me that the senior credit officer received sales commissions for every loan made, which seemed to me like a blatant conflict of interest.

All appraisals were ordered by the loan officers from a list of approved appraisers maintained by LandAmerica. I was not allowed to order appraisals, but I recognized many names on the LandAmerica list as well known, reputable appraisers. What I began to observe, however, was that loan officers were learning which appraisers were more “flexible” than others. My areas of concern were extraordinary assumptions, lack of feasibility analysis, and false information given to appraisers.

As an example, I read an appraisal of a vacant, former Costco warehouse which had been purchased for $2 million several months before, but was appraised for $17 million based on a fabricated rent roll composed of tenants that had never signed a lease or a letter of intent. Only one tenant actually moved in. I told the loan officer that I could not accept the appraisal report, as it was hypothetical. He wanted me to approve it, any way, with the understanding that no funds would be disbursed until the prospective tenants could be verified. I told him that I wasn’t going to approve a hypothetical appraisal. The loan was funded, any way.

My only substantive encounter with CEO Mike Perry was in November 2001. I was summoned late to an impromptu meeting of senior executives in the board room. When I arrived, the meeting was already underway. The tone of the meeting was very different than senior executive meetings at other companies I had worked for. Mr. Perry, a man in his thirties, was spinning ideas and executives who were 10 or 20 years his senior were behaving like “yes men”, competing to agree with his ideas. There were lots of raised hands and enthusiastic participation. He seemed to be enjoying this, in an immature, megalomaniacal way.

Then he turned to me with an idea. He asked me if I, as the chief commercial appraiser, had the regulatory authority to change the discounted cash flow models in each subdivision appraisal, which might have the effect of changing appraised values. I said that I could possibly do it, but why? He smiled and said “Don’t housing prices always go up?” (Was he really too young to remember the early 1990s?)

I told him that it wasn’t a good idea, because we were already hiring competent appraisers who had more local knowledge than I had. Unless I could show that their analysis was flawed, it would be inappropriate for me to change the appraisals. That answer seemed to anger him. At the end of the meeting, the chief credit officer tried to introduce me to him, but he turned his back on me.

I later learned that Mike Perry was hired as CEO of IndyMac at the age of 30 when it was spun off by Countrywide. He had been an accountant at Countrywide and a protégé of Countrywide founders David Loeb and Angelo Mozilo.

When the OTS arrived mid-November, my review duties were handed over to LandAmerica. I was to spend full time responding to findings from OTS examiner Darryl Washington. In the ensuing month it became increasingly obvious that the main reason I was there was to refute OTS findings and serve as window dressing for an institution that scoffed at or was wholly ignorant of federal regulations. Many, if not most, of the senior executives had come over from Countrywide, which was an unregulated mortgage bank.

One of the craziest violations of OTS regulations was underwriting loans based on appraised values well above purchase prices. For example, a prominent Sacramento developer purchased a piece of land for $18 million, a price most reasonably supported by the comps, but it was appraised and underwritten at a value above $30 million, the rationale being that this developer added value to the property just by buying it. This does not satisfy the USPAP and federally accepted definition of market value, however. The appraisal firm was the same one used for the supposedly 80% complete subdivision.

I was present at several confrontational meetings between the OTS and FDIC examiners and CLCA executives. It seemed that IMB was intent on refuting every finding and using me towards that end. I was criticized for not arguing enough with the examiners.

After the examination was over, there was an unsolicited appraisal report waiting for me on my desk. A piece of land next to an airport had recently been purchased for $24,375,000 and was almost immediately appraised for more than $65 million based on the owner’s plans to build an airport parking lot. This was three months after September 11th, 2001 and average parking lot occupancy at this airport had declined from 73% to about the low fifties. The appraisal lacked a sales comparison approach and its feasibility analysis was based on pre-September 11th data. The feasibility analysis was done by the same consultant who caused the city of Los Angeles to lose millions on the parking garage at Hollywood and Highland. The appraisal was done by an unapproved appraiser who had previously caused my previous employer, Home Savings, to set up a $17 million loan loss reserve on a hotel he appraised for $450 million and the loan defaulted within a year. The report was delivered less than a week after it was ordered by the IMB loan officer, leading me to suspect that it had already been completed for someone else, most likely the borrower. I told CLCA executives that I could not accept the report and that I considered it to be biased. I tried to get the appraiser to change the report, but he immediately called the chief lending officer, who must have then instructed him to ignore my request.

Despite my stated objections to the appraisal report, the chief lending officer told the Loan Committee that I had ordered and approved the appraisal, and they funded a $30 million loan. Thereafter, there was sustained pressure on me to approve the report. I responded that I would have to write my own report, since the original appraiser would not make changes. This bought me time. Meanwhile, the airport, who had previously owned 80% of the parking spaces in the area, was suing the developer and erected a fence to keep people from walking from the parking lot to the terminals.

The chief lending officer also pressured me to accept another unsolicited appraisal of a Sacramento-area subdivision. This report was based on an “extraordinary assumption” that a road led to the subject property. When I went up to Sacramento to see the property, there was no road.

In January I went to Sparks, Nevada, to review an appraisal of the last phase of a condominium project. The first phase, with condos on the golf course, was a success, but the last phase was on the opposite side from the golf course and actually sloped below grade. The appraiser made an $8000 downward adjustment for each unit, and I questioned whether $8000 was adjusting enough. That provoked warnings from several executives, including the chief credit officer. The developer was buying the land from David Loeb, IndyMac’s Chairman of the Board (and co-founder of Countrywide), and I was warned that challenging this deal could get me fired. Soon after, the chief credit officer came to my office with a representative from human resources to announce that my initial 90-day probation would be extended for another 90 days, as CLCA executives had complained about my lack of cooperation with them. The HR rep had a look of horror on her face the whole time he delivered this message.

I finally finished my own airport parking lot appraisal report in late March, the same week that the Bush Administration laid off most of the OTS examiners. I don’t know which event precipitated my termination. My appraisal of the airport parking lot estimated the stabilized value at $37 million in year 2003 and the value upon completion as $31 million in 2002. These appraised values were considered insufficient to support the $30 million loan.

IMB gave me two weeks’ notice of my impending termination and offered me $25,000 severance pay if I turned over all documents and signed a non-disclosure agreement. I told them that state law required me to keep records of all of my appraisals and reviews, and that $25,000 was not enough. After a few days of seeing that I was not cooperating, I was summoned to a final meeting with the chief legal officer and “chief people officer”. A written statement indicated that I was being terminated for having a “communication problem”. I asked for examples of my communication problem, but none were presented. (I later recounted, during a deposition, that I was left alone with the chief legal officer for a few minutes of awkward silence. I then asked him, “Doesn’t it bother you that I am being fired for a communication problem without any evidence against me?” He said, “Not at all.” This cracked up my attorney.) After the meeting, I was escorted back to my office by a large security guard to collect my personal belongings, and then I was escorted out of the building, with my toothbrush in my left hand and my toothpaste in my right hand.

During these last days I contacted OTS about the abuses going on at IMB and said I had documentary evidence. They flew in to Burbank to meet me and they debriefed me for a couple of hours. They were upfront about how the flow of information had to be one way, from me to them, and not vice versa. I had to call my friends at IMB to find out how OTS was responding. The OTS paid a special visit to IMB and called for an internal audit to investigate my allegations. The first audit was considered a whitewash, and the OTS called for a re-audit. Interestingly enough, there was even a document produced that supposedly indicated my approval of the appraisal of the “80% complete subdivision”.

The second audit corroborated most of my allegations and the OTS called for certain personnel changes. The president and senior credit officer of CLCA were ousted; the chief lending officer had his loan approval privileges removed. Chairman of the Board David Loeb suddenly and coincidentally retired at the same time. He died 5 months later.

Interestingly enough, at about this same time, I read in the press of IMB receiving a “corporate governance” award from some organization, for having an impartial and effective board of directors. Meanwhile, CLCA executives selected my replacement, someone who they had already wanted since even before I started at IMB.

I had an excellent attorney. Besides suing for wrongful termination, he showed me that I could actually sue for discrimination. Many states, including California, have laws that prevent discrimination against employees who are upholding public policy, which was the very reason that got me fired. Other bank appraisers should take note of this. USPAP and OTS appraisal regulations are public policy.

In interrogatories sent to IndyMac during the litigation, they were once again asked to demonstrate evidence of my “communication problem”. The only evidence provided was a memo from me about a borrower “trying to deceive us” and a memo from a loan officer complaining that I actually called Union Pacific Railroad concerning one of his deals, a subdivision being built close to a railroad right-of-way. I was told by the loan officer that the track was no longer used, but Union Pacific disclosed to me that it was still being used once a day during the evening hours.

Interestingly enough, in the six months of unemployment and underemployment which followed my termination, I rented many videos, one of which was “The Insider”, the real-life story of Dr. Jeffrey Wygand, who blew the whistle on the tobacco industry to Sixty Minutes and was also fired, coincidentally, for having a “communication problem.”

Most of this information is already publicly disclosed in my lawsuit, filed 7/15/02 in Los Angeles Superior Court, Case Number BC277619, for anyone wanting further details. As for the results of that lawsuit, the only thing I can legally say is that “the matter has been resolved to the mutual satisfaction of both parties”.

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[Sounding Bored] Not All Of Us Are The Square Round Peg

July 15, 2008 | 9:57 am | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession. Righteous USPAP indignation runs rampant in the appraisal profession and I worry it is leading to our demise as an industry.

Update: “This commentary was NOT submitted by Adam Johnston as originally presented in the post on July 15, 2008. He is not the author of this commentary. I regret the error and any inconvenience it may have caused.” Jonathan Miller

Let’s put things into current affairs, this profession is changing, unfortunately. The federal government is overtaking the profession and we all know they will mess up the profession.

Allowing AMC’s to control the mortgage lending area will be the downfall of the independent appraiser. The AMC’s will feed their staff, which is primarily made up of appraisers that cannot compete in the profession or have no outside experiences to survive outside of mortgage work. I am trying to get out of the mortgage affairs and diversify as most of the mortgage review appraisers probably have never written an appraisal. These reviews are typically out sourced. Who are these reviewers? and who oversees the AMC’s and how they conduct their appraisal affairs?? NO ONE.

All the small appraisal shops and good appraisers are giving up. Just like the small hardware stores or small grocery stores are giving up to the larger, corporate owned Home Depot, Lowes or Cub.

Personally, this profession needs to go back to old way of doing business where all appraisers can complete with the AMC’s. This current mess is not totally an appraisal problem. Who allowed no doc refinances?, Who allowed interest only loans?, Who oversees predicator lending? Who governs the mortgage brokers? The mortgage brokers have ruined the mortgage profession as they have abused most all responsible lending practices, and the big banks buy these sub-prime loans. WAKE UP.

The big banks are controlling the AMC’s as they also have a vested interest in these companies to make additional profits off the consumer. Some of the big banks own and service some of these sub-prime lenders. Pay the appraiser a proper fee for their work and spend the additional costs on reviews of their work. If the appraiser provides poor appraisals, remove or suspend them from the panel.

As a former staff appraiser, I guarantee the staff appraiser gets more benefit than an independent. I have NEVER been asked by the clients I work for to inflate an appraisal to make a loan. There are still some of us doing a responsible job in appraisal work for my clients. Yet I am being lumped into being that all appraisers being controlled by the loan officer to get business. I don’t fit this image, so why do I need to suffer? A lot of this is due to poor state licensing and supervisor appraisers role by signing off on work they review. I’ll bet better than half of the distress home loans fall into this situation. This is where the true problem is.

The passing or consideration of the current HVCC policy will demise the appraisal profession. Is their no consultation with the working professionals in the appraisal business. The professional and responsible appraiser knows the real problem with the mortgage lending profession, yet we are never consulted as to our opinion. The future lending practices are being depicted upon the major lenders in the industry and the federal government.

From 2003 to 2006 shown times of excelled home values and the lending requirements were relaxed. Home and town home prices were rising faster than the appraiser could keep up with, especially in new construction. People were willing to pay for these new homes and builders responded by increasing their prices.

Mortgage brokers capitalized on this and now where are they?? Easy, file bankruptcy and start a new company and let the larger mortgage company they sold the loan to struggle to find a buyer for the sub prime loan.

Just my thoughts.

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[Sounding Bored] Appraiser Professionalism (aka: Where’s Mike?)

July 11, 2008 | 5:31 pm | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession. This week I am thankful I learned more about a new hire than the interview revealed.

We’re busy.

Our firm is seeing some of the highest volume we have experienced in our 21+ year history. I’m not bragging (although I’m very happy about it – getting away from primary reliance on mortgage related work a few years ago made all the difference).

Appraising is a feast and famine business and it’s tough to find good appraisers. We recently planned to hire two new appraisers: a trainee and someone with experience to handle the higher volume.

We found a sharp trainee fairly quickly but it took a while to find someone with experience. We ran into an appraiser a few months prior, who was laid off after the bank he worked for was purchased by another institution. He began to do fee work on his own but didn’t want to continue doing that.

I had run into him on a number of occasions and found him to be an affable guy who seemed to know what he was doing. We ask him to come to our office for two interviews over a two week period to speak with myself and my sister who is one our owners (so is my wife) and we brought in our senior appraiser to interview him as well.

We all gave a thumbs up and made him an offer (we pay salary, not a fee split) and he accepted the next day. A start date was set in the near future. We turned down further requests by others to interview.

The night before his start date he emailed to say he had to rush to visit his sick mother out of state who was in the hospital and he would get back to us. He expected to return the following week.

As the next week approached we sent him an email to touch base, see how things were going with his mother and ask whether he needed more time.

No response.

The new week started and we sent him another note.

No response.

That was about a month ago. Still no word. No phone call. No email.

In retrospect, we now assume there was never a “sick mother” and he was probably waiting for another incoming offer after we made ours.

This was the person that was going to represent our company in the field. I am really glad we were able to see the lack of professionalism that none of us saw in the interview. Even worse, he was issued a fine by the state licensing bureau, announced a few weeks after he accepted the position. That was news to us as well.

When someone is under duress, whether it is a sick relative, a pending fine, etc. their behavior at that moment is a test of true character.

We ended up finding a terrific appraiser with experience.

Apparently things happen for a reason.

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[Sounding Bored] Negotiating Appraisal Fees, Staring In The Headlights

June 4, 2008 | 9:32 pm | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession. I was particularly annoyed about getting pressure to drop my fee this week, so I turned on my headlights.

I was highly recommended by several sources to perform an appraisal in a sticky legal matter. We delivered an engagement letter. After a few days the client left a message saying the proposal looked good “but see what you can do about the fee” in a slightly sarcastic tone.

I winced when I heard the message because this was a complex matter involving litigation and court testimony and I quoted what I thought was a fair fee. Of course I may not have been in sync with expectations or this individual simply expected to negotiate.

There is nothing wrong with negotiating a fee up or down if the ultimate assignment, once defined, is not what was originally expected. However, I am particularly sensitive to the commoditizing of appraisal services (ie AMCs) that has occurred over the past decade.

…that we are just a bunch of form-fillers.

I tend to see our industry as a deer in headlights when negotiating fees and turn times.

In other words, as an industry we are way too happy to accommodate (I guess that correlates well with the credit crunch) the client whether it is fair or not.

Of course I am being very idealistic here but why not?

I don’t to be in the game of quoting a very high fee building in the expectation of negotiating downward. I quote what I am willing to work for. That seems to be more a professional approach to me. Avoiding being:

  • defensive.
  • condescending.
  • showing righteous indignation.

It sounds pretty basic but I am often amazed at how many of us (I ahve had my moments) have acted that way to a client.

We don’t need any more apologists for our worth as experts. Of course it ultimately is what the market will bear but why automatically negotiate?

Suggest that the client looks elsewhere if they are uncomfortable with the fee.

It has been my experience that the client doesn’t always go elsewhere if they were handled professionally in the past.

Incidentally, that particular client ended up calling back and hiring us for the assignment and expanded the engagement for a higher fee.

You get what you pay for.

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[Sounding Bored] A Case Of Misleading Identity

May 7, 2008 | 9:39 pm | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession. This week I find out someone was pretending to be me.

Since last summer, the work from retail banks slowed as the credit markets unraveled, yet our firm is doing better than we were a year ago and since the first of the year, even better. Why?

Divorce, litigation, estate and other legal support services are booming right now. Apparently money was the glue that held many relationships together.

A little economic hardship and voila! Appraisal services are in demand.

We were recently involved in a divorce case where my firm was hired as an expert for the apartment occupant. The other party knew we were hired and I assume when we were scheduled to inspect the apartment.

Apparently another appraiser scheduled and inspected the apartment before us, representing that they were from my firm, Miller Samuel. It was later confirmed that this appraiser was working for the adversary. That’s really an unprofessional (translation: a slimebag) move.

I have the name and can’t wait to meet this person at the next appraiser function. Because this is all second hand, I’ll reserve the right to file a complaint with the state and the appropriate appraisal organization until after I am able to confirm what happened.

Why do professionals insist on acting so unprofessionally? Are we our own worse enemy?

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[Sounding Bored] AMC Enabler Wreaking Havoc With Best Intentions

May 2, 2008 | 12:20 am | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession. This week I play a simple game of absolute havoc.

With the comment period of the Cuomo Fannie Mae agreement officially closed, it’s time to reflect on what it means to us. The word “havoc” is disaffectionately derived from the HVCC acronym for the Home Valuation Code of Conduct (Hat tip to Ann O’Rourke).

There has been a lot of anger originating from the appraisal profession, most of it warranted but some of it based on misinformation or misinterpretation. I think the Attorney General of New York, Andrew Cuomo and his staff were the first government entity to actually understand what appraisal pressure was, why it is bad and how if proliferated. For the first time someone started with the appraisal process and “followed the money.”

By forcing the GSEs not to purchase mortgages whose appraisals were ordered by mortgage brokers, they succeed in breaking the impact of self-dealing on property values.

I get pretty annoyed when mortgage brokers say they will go out of business without being able to order the appraisal and it will cost the consumer more. That thought is based on a premise that the appraisal result is influenced by the person ordering it who in turn is paid a commission. Please.

Dave Bigger of a la mode (who makes an awesome appraisal software product) was quite outspoken about this agreement several days before the close of the comment period.

In case you don’t know yet, the new regulations came out of a lawsuit brought by the New York Attorney General against Washington Mutual and eAppraiseIT, centered on coercion of appraisers.  In a settlement agreement spawned by the suit, the GSEs (Fannie Mae and Freddie Mac), and the Office of Federal Housing Enterprise Oversight (OFHEO) agreed to change national appraisal rules in exchange for the Attorney General’s office terminating its investigation of the GSEs. Unfortunately, while we believe the agreement has the best of intentions, the hastily written embedded regulations (called the “Home Valuation Code of Conduct”, or HVCC) do not solve the problem and in fact severely punish appraisers, and ultimately consumers.  If there ever was a case of the cure being worse than the disease, this is it.

He makes a great case with one significant flaw based on this comment:

The value of the client relationships you’ve nurtured, many times for decades, could disappear immediately under the HVCC as lenders are forced to shift their orders to AMCs.  You won’t even be able to speak to your current clients’ loan officers again if the HVCC is left as-is.

Here’s the problem with this argument: The mortgage lending system has no business allowing loan officers and appraisers to interact. This is old school and one of the reasons we are in this credit mess. Speaking to a loan officer is no different than speaking to a mortgage broker. It’s called collusion and has been in place so long, many of us don’t see it anymore.

Here’s the real problem with the HVCC concept and the deal in general: Appraisal Management Companies will be enabled by enforcement of this deal. This poses a significant threat to the appraisal industry for the wrong reasons yet I don’t see how this can be legislated out of the lending process.

Appraisal Management Companies survive on appraiser willing to work for fees that are typically half the market rate. Keeping costs low is certainly no crime, but it has been my experience that the appraisers who generally work for AMC companies don’t need to have much overhead because they don’t need to do any research. They fill out the form and arrive at the borrower’s estimate or the sales price. There is no penalty to the AMCs to reward this practice. I think the AMCs need to rep and warranty the mortgage or they have no skin in the game.

It has been my experience that employees in AMCs that interact with appraisers are very young and inexperienced (cheap) and are paid based on the average turn times and fees of appraisers under their control.

The AMCs are subject to pressure from their lending clients which is what brought Cuomo to take action in this matter (WaMu/eAppraisIT) just like appraisers are. There are no checks (no pun intended) and balances.

If mortgage brokers can’t order appraisals for mortgages, then the responsibility falls to the lenders again (which is not a bad thing since they are lending against the collateral being appraised). So who is the bank going to call to order hundreds of thousands of appraisals across the US next year? They have already severed most of their appraisal relationships by using AMCs or emphasizing wholesale lending channels for new business.

Banks will be forced to use AMCs to complete appraisal reports for their loans. Poor quality will replace poor reliability. We get to the same place as before but take a different path.

That means little good news for the good guys.

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[Sounding Bored] Appraiser Pressure Finally Reaches The National Stage

March 15, 2008 | 7:04 pm | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession. This time it’s on video.

I caught this on the CBS Evening News last night – about appraisal and mortgage fraud…worth watching.

See the full post on Matrix: [Blackmail & Hot Potato] Appraiser Edition

I was quoted in an article by Emir Efrati of the Wall Street Journal, who has done a great job following the appraisal situation as it unfolds, saying:

“In my opinion, 70% to 80% of appraisals that were done during the housing boom are probably not worth the paper they’re written on because the appraiserswere rewarded with more volume,” said Jonathan J. Miller, a New York appraiser and longtime critic of industry practices. He estimates that home values are overvalued nationwide by at least 10% because of inflated appraisals.

Glenn Beck of CNN read the quote in the WSJ and invited me on the show.

Here’s the clip.

A booker at Fox Business News read my quote in the WSJ above and asked me to speak on the show.

We discussed the agreement between Fannie Mae and New York State Attorney General Cuomo’s office covering appraisal pressure.

Here’s the clip.

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[The Hall Monitor] The Pendulum Swing From City to Suburb – is Swinging Back

February 28, 2008 | 12:01 am | Columns |

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues.

This week Todd suggests we park our cars on the lawn because you can’t fight progress. …Jonathan Miller

With all its faults, you’ve just got to love the internet, Google in particular! I wanted to know how many cars there were in the United States in the early 20th century as opposed to how many there are now and to juxtapose this with the changes in population over the same time period. A Google search brought me to an article published in the New York Times entitled “How Many Can Buy Cars?

“Everybody who drives an automobile, or has tried to find a vacant space in which to park one, and every pedestrian who is daily obliged to dodge automobiles, or to wait on the endless stream of them to pass, so that he may cross a busy street every one of these persons, or nearly everybody must have asked himself at some time:

What is going to happen when there are several times as many automobiles as there are now? How many automobiles are there going to be in this country, anyhow? Where are we going to put them all?”

The article that posed these questions was published in The Times on August 28, 1921, and the somewhat less than prescient sub-heading to the story read “Country’s Limits in the Use of Automobiles Not Far Off, According to Expert”. “Indeed it appears doubtful if there will ever be even twice as many cars in use as there are today. The point of saturation is probably only a few years ahead.”

The Times may, or may not, ultimately be vindicated with regard to their recent story suggesting an “improper” relationship between John McCain and a female lobbyist. But as to the question of the future of the automobile, it seems clear they missed the boat on that one back in 1921.

According to the article, there were nine million (9,000,000) cars on the road for a population of one hundred and five million (105,000,000) in 1920 – one car for every twelve people. The population has nearly tripled, to 300,000,000 people in the United States, but the number of cars has multiplied by a factor of twenty-five to 228,000,000, according to The World Fact Book. This breaks down to one car for every 1.3 people.

What got me thinking about cars and people was an article in the on-line version of The Atlantic, written by Christopher B. Leinberger entitled The Next Slum? The writer argues that “The subprime crisis is just the tip of the iceberg. Fundamental changes in American life may turn today’s McMansions into tomorrow’s tenements.”

He notes, “In most metropolitan areas, only 5 to 10 percent of the housing stock is located in walkable urban places. Yet recent consumer research by Jonathan Levine of the University of Michigan and Lawrence Frank of the University of British Columbia suggests that roughly one in three homeowners would prefer to live in these types of places. In one study, for instance, Levine and his colleagues asked more than 1,600 mostly suburban residents of the Atlanta and Boston metro areas to hypothetically trade off typical suburban amenities (such as large living spaces) against typical urban ones (like living within walking distance of retail districts). All in all, they found that only about a third of the people surveyed solidly preferred traditional suburban lifestyles, featuring large houses and lots of driving. Another third, roughly, had mixed feelings. The final third wanted to live in mixed-use, walkable urban areas-but most had no way to do so at an affordable price. Over time, as urban and faux-urban building continues, that will change.”

The automobile industry was a necessary precursor to the creation of the post WWII suburban landscape. And although The New York Times was wrong its 1921 predictions, they did pose questions which are today more relevant than ever: “What is going to happen when there are several times as many automobiles as there are now? How many automobiles are there going to be in this country, anyhow? Where are we going to put them all?” It is perhaps ironic that the very industry whose growth played a pivotal role in the success of the suburbs, at the expense of cities, will now be a driving force in the ultimate demise of many of them.

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[Sounding Bored] Apparently Credit Cards Are Not As Good As Cash

February 27, 2008 | 11:45 pm | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession. This week I charge at the latest credit problem.

Last fall, my appraisal firm was engaged for consulting services in a litigation by an attorney representing one of the parties in the action. A formal engagement letter with the terms was signed and returned to us. The retainer was paid by the client using their American Express card. Over the next few months, the services were rendered and there was constant dialog with the client. They provided access to the property as well as information and documentation.

We delivered the report and received feedback that our services were complete and the client was satisfied. We were then was asked to provide additional services by the client in the same matter and we submitted a new proposal.

About two weeks later we were contacted by American Express saying the cardholder questioned the initial charge from the past fall and the removed the amount (a substantial fee) from our AMEX account. Apparently credit card companies are only required to send via US Mail in order to provide an opportunity for the vendor to contest the complaint. A non-response indicates the vendor is not fighting the contested fee and the cardmember gets their money back.

We never got their mail notice, and therefore never responded (they are not required to send via certified or overnight mail) so our fee was removed from our AMEX account. We noticed the account debit when we got our monthly statement. The fee was significant and we had received no notice, so we called AMEX in a panic.

The AMEX people were very nice but my first contact gave me the clear impression that because the attorney had signed the engagement letter, and then asked his client to call in the fee using a credit card, so we were not protected.

I was taken aback because the client had interacted with us for months and had called in the card number to us. It smelled like fraud if we were to lose our compensation for our efforts this way.

In order to contest the action, I was told to send a letter to AMEX and they would decide whether the fee was reasonably taken from the cardmember. That sounded pretty ominous to me. It would take 2-3 weeks for us to get a decision.

About 2 weeks later we received a notice via US mail (glad we actually got it) that AMEX had returned our fee to the account. Game over, money returned.

This experience was pretty distasteful since 4 months had passed since we were originally engaged and paid.

Apparently credit cards are not as good as cash.


UPDATE: AMEX was contacted by the cardholder again who simply submitted the same documents and said they protest the charges. These were the same documents that we submitted already that prove that the cardholder was simply trying to get out of paying for services they had already authorized. AMEX called me and I explained again what the situation was. They agreed that this was unfair to us and indicated that the case was closed and we would retain our fee. What a nightmare.

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[Sounding Bored] Form-Fillers Anonymous: The Power Not To Check A Box

January 20, 2008 | 11:54 pm | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession. This week get doubly annoyed and also post this on Matrix.

Near the top of all the various appraisal forms designed by Fannie Mae, considered the standard by the residential mortgage industry, is the “neighborhood” section. It contains a series of check boxes that appraiser uses to identify the overall trend of the neighborhood where the subject property is located.

An appraiser in California is suing Washington Mutual Bank, the embattled mortgage lender who is under regulatory investigation by the Office of Thrift Supervision after the New York State Attorney General initiated a law suit against one of their primary appraisal vendors. The appraiser was supposedly blacklisted by WaMu for checking the “declining” box on her appraisal forms, because she observed price declines in the market she was covering.

The action is surprising to me since appraisers are usually the recipients of punishment. The appraiser is hired to render an opinion about the local housing market. Based on the lawsuit, this appraiser was not allowed to present her opinion without retribution. Kudos to her. The typical new type of appraiser born out of the housing boom, would not have checked that box and that makes me angry.

This was my comment to the Wall Street Journal about this last week.

Jonathan Miller, a New York appraiser, said pressure on appraisers not to check the “declining” box in their reports is widespread and that many appraisers submit to such demands. But “if you do that,” he says, “you’re not doing an appraisal anymore — you’re a form-filler.”

I always viewed these check boxes as an “on/off switch” and ethical appraisers that would check these boxes were placed at high risk to lose their retail banking clients because those clients had to sell the mortgage paper to investors. There was generally less concern about banking clients that held the reports in portfolio.

Fannie Mae released policy guidance last year that would cut back the allowed mortgage by 5% if this check box was selected. It is logical for Fannie Mae to implement this policy since it is an underwriting decision whether or not to lend or how much to lend in a market. The appraiser is merely the observer and the valuation expert, and the appraiser has nothing to do whatsoever with making underwriting decisions for the lender.

On the other end of the spectrum, I remember getting calls about not checking the “Increasing” box when the market began to rise in the late 1990s so as to be more conservative. Of course we would decline the instruction explain how we could not implement the request without a full disclosure and disclaimer. We found that most of the other appraisers on the approved panel of that same bank, would readily agree to the lender instructions without resistance.

Where was our profession’s backbone? Good grief.

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[Sounding Bored] Bless You: Ten Percenters Needed To Make Toxic Loans Work

January 20, 2008 | 11:51 pm | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession. This week get doubly annoyed and also post this on Matrix.

In Bloomberg News Appraisal Problem Opus by Sharon Lynch and Bob Ivry called Appraiser Exposes Toxic Debt Tie to Inflated Values

The article quotes Susan Wachter from Wharton Business School who states that mortgage appraisals are inflated by as much as 10%.

…exaggerate U.S. mortgage values by as much as 10 percent, or $135 billion, in 2006, according to Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School in Philadelphia. Such appraisals artificially inflated the value of collateral supporting mortgage-backed securities and are contributing to record foreclosures because borrowers end up owing more than their houses are worth.

The most important concept here is:

There has to be an appraiser who basically blesses the loan,” she said. “There are lenders who are deciding what terms to extend and then there are appraisers indicating it is appropriate or isn’t appropriate.”

When my appraisal firm reviewed appraisals done by other firms in my region of the years, I found +10% to be a reliable number and most often these appraisals done for mortgage brokers or appraisal management companies. The 10% factor was so consistent that we would refer to this caliber of appraisers as “Ten Percenters.”

We could see how easily appraisal reports could be tweaked by comp selection and adjustments made to result in the value needed to make the deal. The reports looked fine to people not familiar with the market. So now remove the local expertise from appraisal review process (which is what has been the ten year trend) and its a recipe for disaster.

Here’s what I said about the topic to Bloomberg.

Lenders and mortgage brokers routinely pressured appraisers to boost values, said Jonathan Miller, a New York property appraiser for more than two decades who writes a blog about the problem [Soapbox]. Protections established by the Washington-based Appraisal Foundation, a non-profit that sets industry qualifications and standards, came under attack in the 1990s as banks cut their appraisal departments to save money, Miller said. The system was further corrupted when lenders began moving mortgage applications to third-party brokers who only got paid if a loan closed, he said.

Market Mentality
“There just became less and less emphasis on quality,” Miller said. “You started to see more and more loan products that would keep payments low, and I see that as correlating with appraisal pressure because those products only work in a rising market.”

As the underwriting pendulum swings to the more conservative end of the spectrum, “done deals” are on the decline. Most housing markets are not rising and appraisals are under more scrutiny by lenders [picture a video of a light bulb turning on] than seen in prior years, which is making deals harder to put together.

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