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Posts Tagged ‘USPAP’

Banks Make Regulations Onerous By Over-Interpreting Them

March 8, 2017 | 11:52 am | Investigative |

Some people are their own worst enemy. And that old saying also applies to financial institutions.

With all the talk about revisiting, gutting or eliminating Dodd-Frank, a significant part of the problem with mortgage appraisal related lending actually exists within the bank risk management themselves. Their over-interpretation of what the regulations require gives outsiders the impression that appraiser related regulations or standards are more onerous than they actually are.

Fannie Mae Allows Trainee Inspections Without Their Supervisory Appraiser
One of the biggest issues today is the lack of mentoring by experienced appraisers because it is not financially feasible under current lending practice. Both banks and AMCs – who act as a bank’s agent – generally do not allow trainees to inspect a property without a licensed or certified appraiser alongside. So in an era where AMCs control as much as 90% of mortgage appraisal work, the lenders are requiring AMCs to require something the GSEs (the party buy their mortgage paper) do not require. This risk aversion is residual from housing bubble collapse. Mortgage lenders today, subjected to low rates and a very narrow rate spread, remain irrationally averse to risk.

However, their underwriting risk management is effectively destroying the future quality of appraisals that will be done on their collateral because the new wave of appraisers is essentially only book-smart without real world context (mentoring). Experienced appraisers can not afford to invest the time to inspect the property with the trainee (in addition to their own inspections) for the multi-year experience period before the appraiser is certified after already taking a 30% to 50% overnight pay cut from AMCs.

From the Fannie Mae Seller’s Guide Update – 2017-01 page 2.

Reporting “Material Failures” to State Boards
In reference to appraisal oversight, let’s consider how banks determine whether an appraiser is reported to their state licensing board.

Dodd-Frank says the following in 12 CFR 226.42(g)(1). Whereby a lender has to report an appraiser for…[bold, my emphasis]

(g) Mandatory reporting—(1) Reporting required. Any covered person that reasonably believes an appraiser has not complied with the Uniform Standards of Professional Appraisal Practice or ethical or professional requirements for appraisers under applicable state or federal statutes or regulations shall refer the matter to the appropriate state agency if the failure to comply is material. For purposes of this paragraph (g)(1), a failure to comply is material if it is likely to significantly affect the value assigned to the consumer’s principal dwelling.

When the CFPB was asked what they meant by a “material failure” – the following table shows the difference between material and non-material.  So how much is a material failure? A value off by 2%, 10% or 30%?

And by the way, the third option for reporting a material failure seems absurd although I suppose it has to be said – Who is dumb enough to admit that they accepted the assignment because they knew they would “make the deal” happen. The obvious lack of a definitive paper trail in such a situation makes this very hard to prove.

I’ve always had a problem with setting rigid rules in considering the concept of appraisal oversight. With valuation expertise, how does a state agency apply hard rules to value opinions, comp selection and adjustments, etc.? There needs to be a great deal of latitude for regulators and an “I’ll know it when I see it” approach should be allowed.

Separating gross negligence from negligence

Here is the rule.

“Performing an appraisal in a grossly negligent manner, in violation of a rule under USPAP.”

While subjective, it represents a very severe extreme to which an appraisal would be reported to a state board. The rule goes on to say…

“Accepting an appraisal assignment on the condition that the appraiser will report a value equal to or greater than the purchase price for the consumer’s principal dwelling, is in violation of a rule under USPAP.”

But big national mortgage companies today like Wells Fargo and others are reporting appraisals to state boards where the value is not supported. ie weak comps, unreasonable adjustments, etc. Reports with those issues may, in fact, be negligent but do not fall under the definition of gross negligence. Let’s not wreck an appraisers career because they missed some better comps. Once these reports are referred to the state, the state must investigate. It opens up the appraiser to more risk of unintended consequences. Think of a scenario where a cop pulls over a driver for a missing taillight and learns that the driver doesn’t have his wallet with him.

Gross negligence requires a much higher test than applying it to an appraiser who is just being stupid.

It is defined as:

Gross negligence is a conscious and voluntary disregard of the need to use reasonable care, which is likely to cause foreseeable grave injury or harm to persons, property, or both. It is conduct that is extreme when compared with ordinary Negligence, which is a mere failure to exercise reasonable care.

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[Vortex] Palumbo on USPAP: The Fool’s Gold of AMC Licensing

June 17, 2010 | 10:07 pm |


Guest Columnist:
Joe Palumbo, SRA

Palumbo On USPAP is a column written by a long time appraisal colleague and friend who is currently the Director of Valuation at Weichert Relocation Resources and a user of appraisal services. He spent seven years at Washington Mutual Bank where he was a First Vice President. Mr. Palumbo holds an SRA designation, is AQB certified and he is a State Certified residential appraiser licensed in New Jersey. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions. View his earlier handiwork on Soapbox and his interview on The Housing Helix.
-Jonathan Miller

The Fool’s Gold of AMC Licensing

Since I landed in the world of Relocation some three and a half years ago, I really did not pay much attention to what was happening in the trenches of the lending world. That changed when the concept of licensing appraisal management companies came about. My interest became more of an occupational study since these laws are so “broad-brush” and vague. As the manager an in-house appraisal arm of Relocation Management Company I was shocked and disappointed that that these laws cast a net on just about anyone who manages selects and retains appraisers for third party use. Clearly this type of legislation was created out of a knee-jerk reaction to one of the many “crisis-type” issues that came AT the appraisal community in 2008 and 2009. I am specifically referring to the attention to the “appraisal process” brought about by the ill-informed attorney general Mr. Cuomo of NY and the infamous HVCC. I agree with the basic the tenets of the HVCC and the AMC laws I just do not think there will be a net tangible positive affect and that the “real issues” are being conquered. AMC laws and HVCC are not the PANECEA. I WISH THERE WERE a panacea because some calm is needed. Being the realist and institutionally tenured manager of the appraisal process I just know reality of what happens VS what is supposed to happen.


For starters let me say that the relocation world has no direct OTS-like government oversight or appraisal requirements for the appraisals which are NOT intended for lending. The relocation industry is self- policing and we rely on what is set up by state licensing and our own quality control. Let me also say that while my department may perform some of the same functions that an AMC does, we do not TAKE ANY of the appraisers fee. We do select maintain, review AND USE appraisers as well as arbitrate valuation disputes. Also for the record I am not anti-appraisal management company.

Here is the issue: As pointed out by the OTS, last year FIRREA laws of 1989 already contain much of the language that the AMC Laws cite. States have also set up Appraisal Boards who are supposed to monitor fraud egregious issues and such. The problem with FIRREA and the State Boards is simple: money, resources and time. So along come laws that state it is unlawful to coerce an appraiser, unlawful not to pay them, unlawful to tell them which appraiser to use, unlawful to have people who select and review who are not “trained in real estate”, and so forth and so on. So the new laws are just restating the same of what we already had but we still lack an efficient mechanism to enforce. If the AMC laws are governed and enforced by the state boards who are short on cash and time then what makes AMC laws different? Currently 18 states have such laws on their books.

On top of the AMC laws many states are requiring AMC’s to be “registered”. This process is costly and requires plenty of paperwork. KUDOS to the Governor of Virginia, who signed his states law basically making it illegal to engage in the “appraisal nonsense” described above, but NOT requiring a registration process or fee. Also noted as being proactive is Arizona, which requires licensing and registration for AMC’s but which has a single line exemption for the relocation industry simply because: “we are not the problem” (the law reads the exemption for appraisals prepared for the purpose of employee relocation) .

Recently I was contacted by a state board attorney whose state passed AMC legislation in 2009; she stated “this law was not intended for your business model….because you use the appraisal with the client, whereas an AMC does not use…. it they get it…Q C it and pass it on”. It is great to see some realistic thinking for a change. The AMC- appraiser relationship is much like the HMO doctor relationship: mutual need mandated by external forces peppered with some mistrust. Don’t get me wrong there is a lot of merit to the underlying premise of HVCC and such I just do not think it is going to result in a changed world for the appraisal community. What the appraisers do not like about the AMC’s are the request for fast appraisals, some at a lower fee than they have seen in years, requests coming with numerous assignment conditions many of which are not realistic and unacceptable (3 comps within 3 months and 1 mile) the occasional “can you hit the number request” before the analysis gets done (comps checks)…among many others.

Many of the pressures ON AMC’s…yes I said ON AMC’S, are a result of what has transpired in the world: Increased competition, web-based valuation tools, fingertip internet real estate research, fraud, secondary market issues, and MISUNDERSTANDING of the appraisal process in general. I wonder what planet the “investors” live on that have guidelines they will not purchase loans in declining markets? I also believe that a lender than asks an appraiser to “remove a negative time adjustments” should be reported to the LVCC hot line” . Oh… that’s right there is none? Call your department of banking they say. Good luck. I had an appraiser the other day who did not read or adhere to the engagement letter I sent tell me “we have an AMC law here and you have to pay me regardless or you are breaking the law”. I stated, “great, I will take my chances since you signed the engagement letter but yet failed to meet the (simple) requirements stated in the letter, which is why I have called you three times ”. We’re not talking about value here we are talking about basic development and reporting issues that were not clear to me as user and client. Is this what the AMC laws are for?

Does anyone really think that the requirement of an AMC to fill out an application, pay a fee and require a few staff to take a 15-hour USPAP will stop the madness? Actually if the fees are an issue it could increase the cost of operating for the very folks that are presumable not paying a “fair rate”. Since the BIG 3 lenders (all using profitable AMC’s) have 60% of the market now via servicing or closing every US loan, I don’t see things changing until we see a UNIFIED industry, an industry that will unilaterally agree to push back on any conditions that are deemed to be unreasonable. It is very difficult to push back on three financial giants, but without a push, it will not happen. The other day a friend told me of a lender (his client) who is seeking to create a special list outside the AMC they use; their claim is poor service and product….betcha licensing that AMC would fix that! I also heard of a request coming from a AMC in a state that requires they be licensed and registered. The “caller” asked the appraiser if he could “hit the number”. He asked “isn’t that a violation of the HVCC and the AMC laws?”. The caller laughed…who is enforcing this stuff anyway..we do it all the time and we just send a text message to our appraisers telling them what they need”. There are approximately 97,000 appraisers in the US handling over 1 trillion dollars in mortgage money. Over 75% of the states require licensed appraisers for federally related transactions and 45% require for all appraisals. Imagine if ALL 97,000 decided to make change by just saying “no” on unreasonable compensation or assignment conditions. If we did not have state licensing there would be a clamor to get it. Remember what was stated twenty years ago? “State licensing will change everything” .

Maybe it didn’t because we didn’t MAKE it matter.

What we had already in FIRREA and state law is part of the mechanism to get us to the next level. The missing ingredient is unity. It does not mean abolishing the AMC’s or AMC laws either. Let’s look within and stop trying to reinvent the wheel with both the products and the process. We are miners of fool’s gold until we make real change happen from within, which while not easy is the only way for true meaningful change.

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[Commercial Grade] Remember the Marketing Period?

March 19, 2009 | 11:05 pm |


John Cicero, MAI provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, depending on what day of the week it is, one of the smartest guys I know.
…Jonathan Miller

Buried in all USPAP appraisal reports is a comment on the property’s exposure period and marketing period. Simply put, the exposure period is intended to reflect the time that the property hypothetically would have been exposed on the open market prior to the effective date of value. Alternatively, the marketing period is an estimate of the time that it would take for the property to sell after the date of value.

The requirements to add exposure and marketing periods to appraisals came about during the S & L crisis of 1989. Then, as now, there was a dearth of sale transactions and to a large extent the only sales taking place were under distressed conditions. The intent of these exposure/marketing time concepts was to put the value conclusion in context. A marketing period of up to 18 months says that in the appraiser’s opinion the property could sell for X dollars within the 18 months following the effective date of value. This would differentiate a property’s inherent value in a “temporarily impaired” market, and prevent banks from being required to write down loans to liquidation value.

While the exposure period/marketing time sections became part of the boilerplate over the past five years, in the current market it has taken on new meaning. When we interview brokers for our appraisals they often comment on how values are down 30%, 40%, 50%, etc. However, these discounts reflect what the broker believes that he/she could sell the property for if he had the listing today. A broker is not thinking about a 12 to 18 month marketing period. He/she wants to list the property and sell it in 3 to 6 months. To an appraiser this may represent a liquidation or disposition value; to the broker it is reality.

Like everything else in this market that has come full circle, the exposure/marketing period is once again an integral part of the appraisal. I think it’s time to dust off that section of the report and break it out from the rest of the boilerplate.

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[Commercial Grade] Update on the Update

March 9, 2009 | 3:17 pm |


John Cicero, MAI provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, depending on what day of the week it is, one of the smartest guys I know.
…Jonathan Miller

My firm is quite busy with “updates” these days. More and more lenders are being asked to extend or renew loans for projects, or their loans are ending up in “special assets” (or whatever term the bank uses for their loan workouts.) So we find ourselves more and more being asked to “just go back and update what we did a year or two ago”.

There seems to be an expectation amongst some lenders that since we had been out to the property within the past two years (or had previously reviewed plans for a proposed property) that we can just bang out a new appraisal in no time and at a nominal cost. They often fail to recognize that in order for the new valuation to be meaningful, the same appraisal process must be followed.

According to USPAP (Advisory Opinion 3):

regardless of the nomenclature used, when a client seeks a more current value or analysis of a property that was the subject of a prior assignment, this is not at extension of that prior assignment that was already completed-it is simply a new assignmentThe same USPAP requirements apply

Now, more than ever, focused market research is required for any appraisal. The most recent comps and/or, in the absence of empirical market data, broker interviews are critical. For new construction projects, it is imperative that the new plans (or project that was eventually constructed) are the same as what was originally submitted.

That is not to say that having some familiarity with the project won’t expedite the process, and in many cases my fee for the “new assignment” of a prior appraisal will be 25% or more below the original fee. Just as often, however, I find that because I know the complexity of the project, a discount off the original fee is not warranted.

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[Palumbo On USPAP] SR 1-5 (b) Analyze that Prior Sale. please??

February 9, 2009 | 12:08 am |


Palumbo On USPAP is written by Joe Palumbo, SRA, a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions on Soapbox.
…Jonathan Miller

If there is one thing that is NOT debatable about USPAP, it is that everyone knows (and agrees) that sales that occur 3 years or less from the effective date of the appraisal need some “attention and addressing”. That is the easy part. Now for the hard part: SR 1-5 (b) indicates that such sales need to be “analyzed”. At a minimum, that translates to “making sense out of the prior sale with whatever information is available in the normal course of business” and beyond if you seek a higher standard of quality.

Analyze like many other words used in USPAP is not defined but is taken as the “normally used context in the English language. ANALYZE: to study or determine the nature and relationship of the parts of by analysis. synonyms analyze, dissect, break down mean to divide a complex whole into its parts or elements. analyze suggests separating or distinguishing the component parts of something (as a substance, a process, a situation) so as to discover its true nature or inner relationships. dissect suggests a searching analysis by laying bare parts or pieces for individual scrutiny . break down implies a reducing to simpler parts or divisions . analyze. (2009). In Merriam-Webster Online Dictionary. Retrieved February 5, 2009

I realize appraisers are always under the gun when it comes to the search for critical info. Sometimes information conflicts with fact, is available in bits and pieces, does not make sense, is sometimes wrong, and sometimes even raises more questions.

When all is said and EVEN beyond the course of normal business when extra efforts are made there is very little to be found. In those cases where a effort has been made, narrative commentary would likely suffice for the reader to ensure the report contains sufficient information (2-2 ( b)) for the users to understand the report.

Problem is most times appraisers do a great job of STATING sale prices and dates and doing little if anything to “dissect” these sales (if the do, they do not tell me in the report).

There is a whole advisory opinion (AO-1) on what the language can be used as it relates to the normal course of business and prior sale information. In keeping with my previous articles mantra (thou shall not be boring), I will not recite the AO or even aggregate. Maybe there is nothing to say on a prior sale maybe there is? In today’s environment one would be prudent to investigate concessions (they are giving away vacations and 4-wheelers with homes these days people). Some sales have limited exposure to the market and may not be arm’s length some sales take MONTHS to close and some are not even in line with “market prices” (my wife to me for $1).

Here is the point: an appraisal is like a story and the reader (often a client) is seeking to connect the dots. In relocation appraisal both past and future price trends are part of the analysis; in a market value (mortgage appraisal) the historical trend is inherent in the (dated) sales if they exist. When you present your conclusion, and the analysis unfolds, there should be some consistency with the market trends, or the story you told. If Mr. X paid $100,000 10 months ago and you have indicated the market has been stable for the past 12 months and conclude $80,000 I need to understand more about that $100,000to make a business decision. And by the way.NO, I am not asking for two appraisals (someone accused me of that once) just the info THIS one is supposed to have. Sadly the last discussion I had that spurned this blog article (we get two appraisals on every file) went this way. Client: “Hi Mr. Appraiser #1 & Appraiser #2 , I see in your report the subject sold 2 years ago. You have stated the price and sale date (thank you) but have not analyzed that sale”. Appraiser #1 response: “I can not comment on value without doing an appraisal per USPAP”. Appraiser #2 response: “I did not do the appraisal on the home 2 years ago so I can not comment”. Just for the record, these appraisals were “ok sans this issue” and the appraisers are long-time partners that we have worked successfully with for several years, so please refrain from the “your using the wrong guys” thought. This problem is PERVASIVE in the appraisal industry. I have personally experienced this dozens of times.

Here is the wrap. This home sold new 2 years ago and was the builder’s last model prior to a subsequent price decline for such model. It contracted and closed new in less than one month and included a laundry list of “extras” that increased the purchase price substantially. The sale included a concession and a copy of the (major lender’s) appraisal the we received (later) once the owner screamed of his “recent purchase” revealed no way was the sale price market at that time (all 3-bedroom comps, 1-bedroom home). That’s a whole other story but isn’t that how we got here?? Now the appraisers would not have the appraisal but my simple research from 1000 miles away got me the other information. Second disclaimer: 3-year sale analysis is ONLY a requirement for Market Value Appraisals and a relocation appraisal is not market value. Still though, the report did not contain sufficient information (2-2 (b)) and the prior sale issue is just plain common sense and a prudent practice in all appraisals.

So again I askhelp out an old friend, leave the macro paragraph about the future uncertainty of the bailout, economy and the stimulus effect (blah, blah, blah) out and give me a few sentences on that prior sale..just a few quality sentences..please?

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[Sounding Bored] Interview With Jim MacCrate: proposed Interagency Appraisal and Evaluation Guidelines

January 10, 2009 | 4:14 pm | | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession. There have been more changes made to the profession in the past several years than in the entire history of the profession, and most of the changes have not resulted in a more credible service. Still, I’d like to hope that the latest financial services sector turmoil will bring a clean slate approach to better regulatory oversight (devoid of insanity).

On November 19, 2008, to little fan fare, a joint agency request for comments on proposed Interagency Appraisal and Evaluation Guidelines was made. Comments are due by January 20, 2009.

I called on Jim MacCrate to get his thoughts on this initial foray by the federal government to fix what is broken in the appraisal industry. Jim is a highly respected appraiser and teacher in the valuation community and who holds the MAI, CRE and ASA designations. He also contributes to this blog in his widely read “Straight from MacCrate” column.

Like many things in my life, I was delayed in posting his commentary to Soapbox.

I asked Jim to run down the document as presented and I throw in a few observations of my own:


First, the government has acted in haste with outlining the causes of the collapse in the credit markets. I believe, based on my experience, it was poor underwriting standards and lack of enforcement by the FEDS, state governing agencies, accounting firms and others who were responsible for sound underwriting practices. This was a repeat of the 1970’s but it will be far worse.

The OCC regulations and the regulations from the other duplicate agencies had similar guidelines after the bust of the seventies and eighties. Why were they ever changed?

Licensing weakened the quality of reports nationwide. It established minimum qualifications, not experience and expertise.

Jonathan I agree. Appraisal quality diminished with licensing because it was used as a placebo for competence.


Professional organizations, whether it be appraisers or lawyers or accountants, can not self regulate. That was a joke of the nineties and in to the 2000 error.

Jonathan I remember in 2005 when the Mortgage Bankers Association said there was no real issue with appraisal pressure and the solution was to have appraisers simply do a better job at self-regulation. Of course now 60% of mortgage brokers are gone.


My understanding is that the employees of the regulatory agencies have very little experience in valuation. For example, there is only one MAI at the Federal Reserve. Economists do not understand what we do. See article from the FED on the value of an acre of land in NYC in 2006.

Real estate lending was always a credit decision first. You look to the collateral when the credit fails.

Jonathan Exactly.


Personal guarantees are meaningless. AVMs are part of the problem. Economists and statisticians believe in them. The databases are screwed up. They are reportedly using BPOs and that further weakens the reliability. Brokers have a conflict of interest. See Wall Street for Support. Of course no conflicts of interest between Goldman, AIG and others.



You know ethics, honesty, etc. are more important than independence. It is this generation that has done anything for a buck and failed to consider the consequences.

Jonathan Absolutely, but if the appraisal industry can not work without being pressured to “make the number” as has been past practice, then honesty and ethics fade away as those individuals are driven out of business. How can I compete with someone who is fast, cheap and always comes in with the exact number needed to make the deal?

Selection of Persons Who May Perform Appraisals and Evaluations


There is no comment on years of experience. That is caused by the licensing. Back in the seventies (and there were problems too) appraisers were selected because they had the MAI or SRA. Those standards were way above today’s. States do not have the money, knowledge or resources to enforce compliance [with state licensing]. Folks who order appraisers should be knowledgeable and qualified to do the appraisal; otherwise how do they know who to hire?

Jonathan I agree with you – Take Appraisal Management Companies: We are often dealing with kids just out of high school who have no real estate valuation experience, let alone understand the problems with valuation. And revenue collected from state licensing boards for oversight is often diverted to other areas of the government. The problem with “pure” enforcement is that it becomes an argument of semantics because valuation is an opinion. Fraud aside, how legally viable is it for a state agency to reprimand an appraiser who estimated the value of a property as $500,000 when the state employees think its $475,000, especially when there is limited market data? It’s tough to say anything a certain percentage below or above the state value is unethical. And what if the state is wrong? It’s not a realistic solution.

Minimum Appraisal Standards


The Appraisal Foundation weakened its standards with the latest version and previous version. Economic principles drive valuations. Three approaches to value are the support to a supportable, defensible estimate of value. You knock off one leg of a three legged stool and what happens. The stool falls over.

The comment on AVMs should be stronger.

The Scope of Work is correct. It is up to the agencies and the financial institutions to determine the scope of work; not an appraiser. Risks are determined by the financial institutions who then should determine the scope of work required to protect the financial institution if the credit fails. The collateral is the default to protect from losses.

Tract Developments with Unsold Units

The appraiser should include and analyze the developer’s projections. The appraiser can not work in a vacuum. They need the information to properly analyze these types of projects. See what was written in the 1990’s by Prittenger and others for the OTS. Why are we reinventing the wheel? We spent tax payers dollars on this issue in the 1990’s and late 1980’s.

What happened to a market analysis? That led to failures in the 1970’s, 1980’s and now with REITs. I guess supply and demand are not important criteria that determine pricing.

market analysis should be performed by state-certified or licensed appraisers in accordance with requirements set forth in the appraisal regulation..

experience is the key. A license does not make you qualified.

Transactions That Require Evaluations

All transaction should be evaluated to prevent fraud.

the reputation and qualifications of the person(s) who perform evaluations are the key.

Reviewing Appraisals and Evaluations

Who is doing the review for the financial institution? A check is needed. They cut costs and relied on unqualified appraisers to the work. Knowledgeable folks in the appraisal process must do the review. I know it’s a pain but it is a safeguard that the system had and it was eliminated by many financial institutions. A loan officer has a conflict of interest because how they may be paid or compensated.

USPAP sets minimum standards. The financial institution must set the standards that exceed USPAP and they must be enforced at all levels, including the CEOs who tell lending officers oh, it is not necessary this time around..



They will not do it. That is a joke. It is up to the regulatory agencies to sample the loan documentaion and if they see a problem, they should make a referral.

I think the first part indicates that the authors do not have experience or knowledge of the past or what has been written by the OCC, OTS, FDIC, etc. in their regulations. The real culprit was greed by CEOS and Wall Street who had no interest in the future but only current earnings now. The MBS market allowed lenders to off load loans without recourse by the investors in the final packages put together by the likes of Goldman Sachs, etc. who indirectly got bailed out by lending and supporting AIG.

This document does not address what has caused the problem and that is to hold those at the top, lending officers, accountants, etc. accountable financially and responsible over the life of a loan.

The Addenda


Item 2 Page 41- In today’s day and age with bankruptcies increasing appraisals are needed. Abundance of caution you need all the tools to be used to protect against defaults. In the current environment there is no certainty of repayment. Personal guarantees, etc do not exist once an individual or company falls on hard times. During audits at old PW the staff was directed not to consider personal guarantees at all.

Item 5 Page 43 same comments. Taxpayer funds are at risk. Fraud occurs at all levels. Appraisals should be required even on loans $500,000.

Item 8 Page 47 “These transactions should have been originated according to secondary market standards and have a history of performance.” Standards were not enforced so that’s a dumb statement. How does one know in the current environment without proper due diligence which would include a thorough review of all appraisals.

Item 10 Page 49 Freddie and Fannie made mistakes. Why should these transactions be exempt? Do not exempt them and it becomes a check of the system and does not cost the taxpayers a dime. There was fraud in the appraisal and lending process that Freddie and Fannie did not catch. Now it can passed on to others?

Item 13- Page 50 Same as above. Why? It is a check on the system. Fraud has occurred in the same organization transacting business with subsidiaries.

Page 52- AVM’s – The databases are not perfect. Statistics are not always correct – look at what the FEDS have done relying on statistic modeling. You know what is wrong with AVMs.

Now, good I see a definition of market value again and some other terms.


There ya go sorry I can’t spend more time right because no one is bailing me out and our retirement accounts. I guess I am small and can fail at no cost to society.

Jonathan Thanks Jim!

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[Sounding Bored] Mortgage Broker/Appraiser Relationship Still At Odds

January 10, 2009 | 2:24 pm | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession. The more things change, the more they stay the same, mainly because no one outside our profession seems to understand what we do and their ramifications.

With all the credit upheaval, you would think that the relationship between the appraisal community and the mortgage brokerage community has changed (it will change on May 9th 2009).

Name one law, rule or regulation that has focused on appraisal pressure in place right now…

Nothing has changed. Perhaps the sharp drop in wholesale lending has had the effect of reducing the instances of it, but the pressure is still baked in. Here’s a recent experience:

One of my appraisers shared with me this phone call recap:

I just had a long conversation with a XXXXXX of XXXXX Mortgage. She has a client who owns an apartment at [omitted] who is interested in refinancing. He believes his apartment is worth around $XX million. I spoke to him yesterday and gave him some information about the appraisal process. His mortgage broker, XXXXXX, called today requesting a value range for the apartment. Our office politely indicated we could not give a range explaining that it is considered an appraisal. XXXXXX of XXXXX Mortgage would not accept this answer by XXXXX[our employee name] (after being on the phone with her for seven minutes) and she forwarded the call to me. I repeated our position and XXXXXX of XXXXX Mortgage still would not accept this answer. She needed a number from us before processing the order with her client. I tried to explain to her that this is unethical and that we can’t shoot for a value based on the loan application. She eventually threatened that we would not be receiving a number of other orders from the same building based on our not giving her a value. She also made a similar threat to XXXXX[our employee name]; basically saying we risk losing other work from XXXX Mortgage.

After receiving this information from my appraiser, I left a voicemail to XXXXXX of XXXXX Mortgage requesting a returned call and sent the mortgage broker an email with the following message:

I just received a disturbing recap of a conversation you just had with two of my staff.

Doesn’t it seem unprofessional to withhold work from an appraiser because they will not violate their license by issuing a pre-determined value? This is one of the reasons we are in a credit crunch.

Before I file a complaint with the New York State Banking Department, I would appreciate a call or contact from you for an explanation.

Perhaps you are having a bad day? Or perhaps this was simply a misunderstanding? Hopefully I hear from you no later than Friday.

To the mortgage broker’s credit, I got a call back in about 10 minutes To the effect of – complete misunderstanding. repeatedly extended apologies. Client was asking for a range. She had a horrible cold, maybe that was how she misunderstood. Has zero issues with us. Very, very sorry.

We got an appraisal assignment from them the next day. This firm gives us a few assignments per year. The assignment was cancelled 24 hours later.

I know this sounds like a heck of a way to interact with a “client”, but if we are pressured to break the law and/or be punished financially, whether or not the person is aware of what is going on now, then they can’t be my client.

It makes me wonder when things will actually change for our profession.

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[Palumbo On USPAP] 2010-11 USPAPright around the corner ASB issues second exposure draft 12/12/08; now’s your chance

January 10, 2009 | 1:51 pm |


Palumbo On USPAP is written by Joe Palumbo, SRA, a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions on Soapbox.
…Jonathan Miller

I doubt anyone is really thinking about USPAP right now but it is near that time again. Many see USPAP as an impediment and while I understand that sentiment, I disagree and see it as “knowledge is power” issue. It seems to me the USPAP clock ticks a bit faster than the average wall clock. I likely feel this way due to the fact that it takes me weeks to go through the new materials with my highlighter, red pen, margin comments and post-it notes. After 16-18 months and several classes my crumpled “finalized” USPAP is close to becoming obsolete even with few pending changes, as the pages numbers alone are SURE to change. I imagine this becomes magnified for those not using the doctrine in the manner I do.

In December of 2007, the Appraisal Standards Board requested comments from users of appraisal services, appraisers, regulators, educators and others how USPAP can be improved for better understanding, in both the short and long term. Nearly 2,000 responses have germinated in to the current draft for some changes to the 2010-2011 USPAP. Anyone wishing to make comment on the draft must do so by 1/16/09. More information is available at The ASB does a nice job of summarizing the proposed changes using a “strikeout” method for text deletions, underline for new text as well as a rationale for each change. And once the new version is published for those who like cliff notes, the new USPAP docs always contain a general summary of changes in the as to give a running head start on what has changed from the last edition.

After the huge changes we experienced a few years back with the removal of the Departure Rule and last years deletion of the Supplemental Standards Rule, I would categorize this year’s changes as “tepid” in comparison to previous years but important. The major categories are of change are noted below:

  • Definition of Signature
  • Definition of Jurisdictional Exception and the JURISDICTIONAL EXCEPTION RULE
  • STANDARD 3, Appraisal Review, Development and Reporting

In the interest of time (and boredom) since no one wants to read about USPAP much less sit through a class, I will not interpret or comment on these changes with the exception of Standard 3, the one I provided comments on back I December. Briefly also of note in this draft are amendments to the Competency Rule including the explicit labeling of “being competent” and “acquiring competency” as well the timing if these two “states” as prior to “agreeing to perform” rather than prior to accepting the assignment, which if you really think about it is subtle but important timing issue in “preserving the public trust”, which is the goal of USPAP.

The crux of the Standard 3 issue surround the issues of development VS reporting requirements and in the words of the Board:

“Revisions are proposed to organize and clarify the requirements that apply to a reviewer providing his or her own opinion of value, review opinion, or consulting conclusion related to the work that is the subject of the appraisal review assignment”.

While there are some much need clarifications and improved language here I still feel the “Appraisal Review” is a misunderstood product/process for those users of appraisal services. Simply put, the current and proposed definitions of an “appraisal review” speak to the QUALITY of another appraiser’s work. While the Standard does allow for a revised scope or dual Scope, to produce a alternate value conclusion the “shelf product” here is NOT a value opinion. In my experiences in the lending world, relocation, private practice and now USPAP and other real-estate related instruction the majority of requests are NOT for a “true” qualitative reviews, and when those requests were made they were only met later with a stark question, “what about the value?” It is all about education but I will be darned if that burden should pressed on the appraisers as it is some of the time. Explaining Scope of Work and the effort and (liability) involved is not a discussion to be had in the trenches of daily business. I can honestly say that I copied and pasted Standard 3 as it exists or as revised it would be clearly understood. The term “appraisal review”, much like “recertification of value” have evolved over the years to mean certain things with certain expectations and that presents problems. We need simple “direct reference able” language and concepts.

Generally I feel the ASB has done a good job of late, refining and trimming USPAP. Here I think they need a simple but drastic change: Let’s create a new Standard RULE say 3-1 (and bump the rest down) for the “Qualitative Review” which basically becomes and “appraisal assessment”. This service would NEVER EVER, EVER, have an alternate opinion. That would allow one to clean up/restructure the rest of Standard 3 to be specifically designed and directed at the development and reporting aspects of the review with the alternate conclusion. Users would immediately see the language of the assessment WITH the (my) proposed wording

“an appraisal assessment never contains an alternate value conclusion.users seeking a product of that type should seek an “appraisal review”.(see Standard 3-2).’s your comment, help out an old friend or suggest something of your own: remember USPAP is yours not theirs.

Be heardtick tick.. tick.

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[Palumbo On USPAP] USPAP, No, You’re Misleading Me.

October 23, 2008 | 11:36 pm |


Palumbo On USPAP is written by Joe Palumbo, SRA, a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP].

…Jonathan Miller

Although I am supposed to be managing a process, it is quite often that I “get my hands dirty” and dive in.

Reviewing appraisals and conversing with appraisers keeps me close to the issues of the market as well as helping me get a handle on the realities and challenges of dealing with a nationwide professional vendor panel. Most of the time this is a pleasure and very reassuring: I get to observe new markets, some of which are NOT declining, yes that is correct, not a typo, and I also have discussions with highly skilled appraisers who enlighten me on their markets via articulate thorough (appraisal) analysis so my risk is mitigated as best it can be. To those TRUE business partners I say thanks and I look forward to the next challenge for us to work on TOGETHER.

Unfortunately, like always here are some bad apples. Those who accept appraisal assignments with a sense of entitlement, who also tend to fail miserably in communicating let alone solve the appraisal problem. And just so we are clear here we are NOT talking about questioning someone’s “value”. In the relocation business it is standard protocol to obtain two or three appraisals and then query each appraiser based on what was observed as it relates to facts about the subject, market conditions, trends, common comparables used etc. The summary of responses is recorded so that the “intended user”, an employing corporation, can (try) to make sense of this highly subjective process. A lot of the questions we (in-house staff) ask we already know the answers to and how they impact the analysis (if at all) but we ask anyway so the client and employee can gain some reassurances on some real estate related misconceptions and such. We are not a management company and we pay market fees and allow for ample completion time. All we ask in return is thorough credible appraisals in a timely manner and endurance of the back-end process.

The specifics of my “bad experience” involve my query of an appraiser’s room count as it related to what was reported by the two others. Seems this gentleman included both an above ground laundry and utility room as part of the “room count”, where HIS local peers did not. Item of note here is the both realtors did NOT exaggerate the room count via this method of counting. When I pointed that out and merely suggested that he “clarify, explain why, or possibly modify his room count”, I was met with a terse one line response “per USPAP to change the room that would be misleading”. The terse response to that one question was followed by a petulant response to the several other items noted in contrast to the other reports. Since this is not my first day on the job, nor the first such role I have had as a manager of the appraisal process, I promptly finalized the summary of my findings internally so as to “pull up the anchor” and move on. CLEARLY this is not even a USPAP I figured I would have some fun with this guy. This kind of response to this kind of issue makes me wonder what some people are thinking and why there is such a sense of entitlement. I wrote back: “thank you sir for your response, I appreciate it. No worries on the room count issue, but I just want to clarify one thing: Acting unprofessional and petulant and providing a response like this the worse USPAP crime going: YOU”RE MISLEADING ME into thinking you belong in the appraisal profession!! Maybe you have done the best appraisal I will ever read, and the valuation conclusion is rock-solid but that gets lost in dialogues like this”.

Don’t get me wrong, I know everyone has a bad day every now and then. Unfortunately unlike my last appraisal management gig where fee panels can cover 90% of the (pre-determined) lending area, I have no idea where the next “move” will be. We qualify and engage within a small window and trust tremendously in those we engage. 2008 has revealed this type of response and attitude more than one would like to see. I get it: is very tough out there right now. Just remember no matter what business you are in that angry and unprofessional does not work. Angry sends a message beyond what you think and begs the question of empathy VS apathy. Also. when you quote USPAP be carefulthere may be a hidden meaning to what you quote.

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[Fee Simplistic] Gunfight At The Appraisal Corral: IndyMac VS. Borrower

September 23, 2008 | 12:07 am |

Fee Simplistic is a regular post by Martin Tessler, whom after 30 years of commercial fee appraiser-related experience, gets to the bottom of real issues by seeing the both the trees and the forest. He has never been accused of being a man of few words and his commentary can’t be inspired on a specific day of the week.

…Jonathan Miller

My inclination in most of my Fee Simplistic blogs is to resort to satire in targeting the inconsistencies, foibles and malpractices that have proliferated in real estate lending including appraising. The recent demise of IndyMac Bancorp Inc., however, forces me to turn serious and throw the forum open to soliciting views and opinions on a particular appraisal incident that was only a minor blip in the bank’s implosion but looms large in appraisal management and, most of all, integrity for those of us who still hold to it.

Prior to the bank’s takeover by the FDIC it had been calling on borrowers to make up the difference if a gap existed between market value and the loan-to-value ratio established at inception. A particular incident involved a lawsuit filed by a builder in Los Angeles County Superior Court in April claiming that IndyMac did not act in good faith when it tried to call in a loan where personal guarantees were involved in a 900 acre Joshua Ranch tract in the Antelope Valley north of LA. The background was as follows:

  • In May 2007 the property was valued at $82 million by the bank, and
  • In December 2007 the property value was appraised at $17 million-an 80% decline- with the appraisal estimating that an 18 year absorption period would be needed to sell 539 houses on the tract
  • The builder claimed that IndyMac just wanted out of the loan because of their precarious position and thus wanted the borrower to pay off the difference between the $17 million appraised value and the $27 million loan balance.

Ignoring the bank/builder argument on loan payoff what struck me was the severity of the free-fall in appraised value over a 7 month period assuming the appraisal was arms-length and FIRREA compliant with no lender influence or pressure. It, however, and raised the following questions:

1. Did the bank use the same appraiser in December as in May? If not, did the last appraisal employ any assumptions that were substantially different than the earlier appraisal?
2. Assuming the same appraiser, did the market tank that severely in 7 months or did the first appraisal miss the market dynamics as the sub-prime and loan delinquency downturn was already underway prior to May; did the bank review the earlier appraisal to note any discrepancies between the previous and current market conditions or any major changes in assumptions that would have generated such a major decline in value?
3. Assuming the same firm again for both appraisals did they indicate where and why the market had changed in such drastic fashion from their previous appraisal? It has been a long standing policy in assignments that I have directed that reference be made to any previous appraisal completed within a year prior to the valuation date.
4. If a new appraiser was selected, was it because the original appraiser could “not hit the number” that IndyMac needed to declare a call on the loan?
5. Did IndyMac’s appraisal group compare any of the facts or assumptions between the two reports to support the drastic change in value or were ethical considerations thrown to the wind not to mention FIRREA and USPAP?

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[Palumbo On USPAP] Common Sense Not Perfection: Can You Block Tackle And Pass?

July 21, 2008 | 1:25 pm |


Palumbo On USPAP is written by Joe Palumbo, SRA, a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP].

…Jonathan Miller

Appraisal is far from a perfect science. My favorite line in USPAP is one I wish more appraisers and users of appraisal services would take note of. The comment to Standard 1-1 (c) reads:

Perfection is impossible to attain and competence does not require perfection.

Over the past 12-18 months I have heard the current real estate climate described many different ways: depression-like, recession-like, anemic, soft and turbulent just to name a few. Suffice it to say that the national market is generally much less favorable than it was several years ago when the fraternity party atmosphere prevailed. Credit flowed like wine and all involved were happily attending the party. Buyers stuffed as much home as the could into “creative financing”, sellers cashed out or traded up and investors risk was mitigated by the rapid appreciation that even in a short time period paid dividends and made just about every deal worthwhile. The “you can’t go wrong in real estate” cliché’ became the staple notion.

One thing is for certain: today the market is clearly different.

For practitioners such as brokers agents and appraisers the normal market indicators are more important than ever. If these indicators are ignored or misread the likelihood of accuracy will fade. The good news is that what it takes to read and interpret the “good” market is also the same for the “bad” market: supply and demand, absorption, the principal of substitution and good old common sense. Unfortunately it seems as though some appraisers and realtors have forgotten about the basics. Existing supply of homes in relation to demand and in-turn local absorption rates are the foundation for existing market conditions. Coupled with price trending, absorption rates are the backbone of a good “micro analysis”, but it does not stop there. The principle of substitution is fundamental in determining what options exist for buyers in your market. Historical data (closed sales) is relevant to confirm trends and extract adjustments, but the recent and more current indicators of active and pending sale data is where the gold is.

It seems to me that this is not so much a real estate principle as it is common sense The reason is simple: why would a buyer pay your estimated ANTICIPATED SALE PRICE for the subject property when a less expensive alternative exists? Maybe you’re in a sub-market that does not yield a lot of very “truly” comparable listings, still if these are the only alternatives the market sees than it is all relative. Although ERC guidelines do not call for “adjustment” of competing properties, it can be a sound practice as a high benchmark “check” and some relocation companies have asked for such. The trend of requiring and adjusting listings is also becoming more common place in the lending environment.

Clearly the times have changed. As they say though, “the more things change the more they stay the same”.

At Weichert Relocation Resources Inc, we require that the competing listings be adjusted. For the most part our appraiser panel is diligent and understanding in that exercise. I have been personally involved in cases where it is evident that this very basic concept is misunderstood. On those few occasions when I have questioned appraisers whose final value is well above all adjusted listings, I have received responses that concern me very much. “They are just listings” I am told or “they have not sold so they mean nothing”.

They mean nothing? Actually, they mean something: that you, the appraisal professional do not clearly understand the principle of substitution.

Believe it or not football can be like real estate. No matter how complex the situation is winning a game can come down to the execution of the very basics: blocking tackling and passing.

I had a mentor who once told me “don’t be smarter than the market, let it tell you what is happening”. I have tremendous confidence in the appraisal profession. I see hundreds of appraisals via my current job responsibilities and speak with hundreds of students giving classes. Sometimes you have to offer something other than pearls of wisdom to make an impression so I will offer no such thing here. Just a plea to my fellow appraisal professionals: get back to the basics in real estate appraisal: the principle of substitution, your block tackle and pass concept.

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[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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