Huge Changes May be Coming for Lenders and Appraisers

RE:Huge Changes May be Coming for Lenders and Appraisers

Olen Soifer — Tue, 08 Apr 2008 11:00:00 GMT

I put the majority of the blame for the present mortgage crisis on greedy real estate agents, the lenders themselves (for making loan programs available that were, on the face, shaky and encouraged buyers to lie about income, etc) and, finally, on the borrowers...because many knew damned well that they could not afford the loan they were getting. But, because they thought they had an "out" in a rising market, it did not matter. Many honest appraisers have been black-listed because they came up with honest values that were lower than requested. Putting the choice of appraisers in the hands of the lenders creates a duplicate of the horrible VA appraisal system. I have never seen more incompetance than in that specific group of appraisers...sorry if I have offended those VA appraisers who are competant experts. The solution, in my opinion, is to make it illegal to disclose the proposed mortgage amount or sale price to the appraiser. After all, what a person wants to borrow should have no affect on the real market value. Without that preliminary information, the appraisers would have to determine value on the market data only. It is simple, really!

RE:Huge Changes May be Coming for Lenders and Appraisers

Chris matthews — Tue, 01 Apr 2008 11:00:00 GMT

HVCC - The NY Attorney General in his own words "BELIEVES" a private investigation of Fannie Mae has discovered wide spread inflated appraisal values. The source of the inflated values are corrupt appraisers and mortgage brokers. The last time I checked mortgage brokers don't apply their signature as the primary or review appraiser. If the investigation found fraudulent appraisals why aren't the offenders being prosecuted? If the investigation found mortgage broker bribery why aren't the offenders being prosecuted? Isn't the NY Attorney General responsible for prosecuting criminals. What every happened to the phrase "innocent until proven guilty". The new code will allow the so-called corrupt appraiser and so-called corrupt mortgage broker to continue doing "indirect" business. Sounds like the NY Attorney General is more interested in making a name for himself than carrying out the duties of his office "PROSECUTION". With every new crisis in America elected and appointed officials broad stoke the public with new feel good codes / laws. I for one say enforce existing law. If an industry has wide spread corruption what better way to rid the bad element than prosecution. The back room closed door process in which this agreement has been struck is further suspicious. Apply the smell test. STINKS! Contact congress and oversight committees. I trust if nothing else the arrogance of congress will play a role in shutting down this one man show. The consequences will have far reaching negative consumer impact.

RE:Huge Changes May be Coming for Lenders and Appraisers

New Jersey Shore Banker — Sat, 01 Mar 2008 13:00:00 GMT

I'd rather see the root of these problems eliminatedthe "relationship" that some Realtors have with mortgage co's. Desk rentals? please...Marketing agreements?? Try "Pay me and I'll give you business" which is the bottom line here. I work a bank that participates in CRA lending. In one local RE office, the broker, his partner, and their relatives who either lived or purchased in this town qualified for substantial discounts on their own mortgages thru our CRA program. Then along came Countrywide with a "Marketing agreement" and the broker begins referring exclusively all new business to them..ignoring the fact that buyers could obtain lower cost financing thru us. (a few agents in the office follow the high road and refer to outside lenders with CRA). One particular buyer I spoke to was not qualified due to lack of income & credit issues. He did get a loan though thru the RE Brokers "preferred lender" Countrywide, and within two years was foreclosed on byyou guessed it! Countrywide. So whose interests were being served here? the Realtor sez "get my guy qualified" and no one else will do the loan, Countrywide shoves it thru u/w and everybody's a winner!! Except the poor guy who's credit is worse now than it was when I spoke to him two years ago. Was this an appraiser's fault??? No-the contract was created by a willing buyer & seller and supported by recent sales data. Get the realtors out of bed with their "desk rental" mortgage broker. Let the free market function instead of sending unsuspecting buyers to the highest bidder. Heck they're already getting 6% of the transaction..far more than any mortgage brokers or appraisers.

RE:Huge Changes May be Coming for Lenders and Appraisers

Kurt — Sat, 01 Mar 2008 13:00:00 GMT

Fee Appraisers already know who the "bad" appraisers are. Appraisers already have their work reviewed by other appraisers in the current course of business. If the licensing agency in each state just followed up on the complaints, the bad appraisers would have lost their licenses long ago. Bigger, fatter regulation has never worked and won't work here. Focus on the problem appraisers and take their licenses away. Do normal QC on the rest and the problem is solved.

RE:Huge Changes May be Coming for Lenders and Appraisers

Annonymous — Sat, 01 Mar 2008 13:00:00 GMT

Please let us be rational about all of this. Every segment of the industry is at fault. Poorly trained appraisers with no morals or ethics, lenders flushed with greed, buyers that thought tomorrow would never come...in the form of re-set interest rates. What is not being told to anyone at any level, is that 50% (FIFTY PER CENT) or more of first mortgage appraisals done in this country over the last 3 years have been done by Automated Valuation Models....no appraiser involved at all. AVMs are convoluted mathmatical BS reports based on data that would NEVER fly with an appraiser using that data and those adjustments. BUT because the lender could charge $350 to $400 for a $20 document, they all LOVED it!!!!!! And Fannie and Freddie led that charge. Why do we not hear ONE COMMENT about these fraudulent estimates of value being discussed????? Can you say the lenders want to protect that profit center for when we DO get out of this mess?? Billions of dollars have been swindled from borrowers who paid for a full appraisal and got NOTHING. Yes there are appraisers who need to come under a full microscope and get everything they deserve. However, it is time for the truth, the whole truth, and nothing but the truth. Lenders, Banks, Brokers, Agents also need to be examined as well. They steered, they cajoled, they prodded, they explored....til they found the lender, appraiser, and attorney needed to make the deals work.

RE:Huge Changes May be Coming for Lenders and Appraisers

Dennis — Fri, 29 Feb 2008 13:00:00 GMT

Ignorance prevails in our consumers. All appraisals have been reviewed by the lenders for several years now. A friendly appraisal would be scrutinized and the value adjusted downward if the lender disagrees. I have seen a number of appraisers get dropped from lender approved lists for only two disagreements with the lender (not fraud or inflated values). However, Washington Mutual is in trouble now due to their in house inflated appraisals back east. Lender ordered appraisals should be the safest route but they proved me wrong on that point.

RE:Huge Changes May be Coming for Lenders and Appraisers

Andrew Snyder — Fri, 29 Feb 2008 13:00:00 GMT

I agree with Troy about many Realtors also being equally guilty. As I blogged yesterday, greed is THE motivating factor. I'll admit, I benefitted from the soaring valuations and access to easy money when I sold my home in 2005. I proposed what I thought was a fair price (based on my own look at comps) but my Realtor was eager to push the price an additional 25k and sure enough - she was able to get an appraisal for that exact amount of money (wow - she must be good...). Although I am a Land Surveyor, I used to be involved with home inspections as well and lenders would ask to tweak reports as to not blow the deal - the main reason I discontinued providing the service. Again, as I mentioned yesterday, rid the system of those opportunities for greed to flourish... 1) regulate the lending standards so that they are in keeping with sound economical practices, 2) limit the banks to offerring loan packages that support that policy, 3) do not allow the "partnering" or "controlled business agreements" that allow people/businesses to get in bed with one another, 4) do not allow any agents to tack on additional fees to an Appraiser's fee or a Surveyor's fee as "processing" or "handling" fees - causing brokers and title agents to pressure those of us offerring these services to decrease our fees (in the hopes of sustaining repeat business) just so they can pad the closing costs, 5) ensure that anyone involved in any aspect of the industry is properly trained and/or licensed, 6) require any borrowers to pay for ALL ancillary services - not only if the deal closes, 7) let small businesses do what they do best - after all, it is small business and fair competitive business practices that is best for our economy! I have been in Land Surveying for 22 years with the majority of my work involving existing home sales and in that time I have yet to really see anything done - either on a local or federal level - to rid the system of coruption... it requires a comprehensive look at all aspects of the system - no bandaids or piecemeal approaches. It is a damned shame because there are a great many ethical and professional businesses out there that are damaged by the bad apples... I am very pleased to see so many bloggers providing their opinions, but I would much rather see some more informed possible solutions from those of you who know the intricacies of the overall system.

RE:Huge Changes May be Coming for Lenders and Appraisers

Roger — Fri, 29 Feb 2008 13:00:00 GMT

Anything less than an appraisal clearinghouse like VA will not work. Otherwise, lenders will find loopholes. Hurray!! Hope it happens. No more mortgage brokers with their pet appraisers. No more appraisal management companies with their "preferred or proven" appraisers. Hard to believe it could happen. Necessity is the mother of invention I guess.

RE:Huge Changes May be Coming for Lenders and Appraisers

Anonymous — Fri, 29 Feb 2008 13:00:00 GMT

This is a complex issue. Ethics courses are not taught to appraisers. No one wants to pay an appraiser for the 8-16 hours to do a fully USPAP compliant report with real verification of data. Often the appraisers E&O insurance is used instead of good underwriting practices. In the rush to get more licensed appraisers (that is, to get shorter turnaround times), many appraisers were taught to put in the 3 highest sales prices reported (without checking for non-market conditions, nor incentives, nor using the procedures that quality appraisers use). The lenders and their underwriters often put ridiculous demands on appraisers, asking for data that does not exist, or asking the appraiser to hide information by using the wrong checkbox or changing the wording in the report or even deleting that the appraiser saw a building, junk yard, or toxic chemical pit on the property or in proximity. (Take the picture the OTHER way.) There is direct, overt, subtle, implied, and imagined pressure on the appraisers. The appraisers aren't stupid. If the loan officer calls them up, berates them and say "Now I just have to get another appraiser to 'do it right.' I'm never hiring YOU again!!!," even over something minor (like missing the needed value by a few thousand), they won't make that mistake again if "feeding their family" is more important than total honesty. The bottom line is that what ever rules they (the feds, the GSE, the lenders, etc.) put into place, sharp persons WILL figure out a way to get around them, find unethical business partners, and induce others to imagine that the business practices they are then engaging in are not unethical. It WILL be figured out by skullduggery, by accident, or by trial and error. Then it will be applied by people who stand to gain. FNMA used to have an approved appraiser list, but it got "too expensive." They know NOW, which zip codes have the most fruad, the most foreclosures, which loan brokers and appraisers are most problematic. A recent problem (now going away because they are becoming unemployed) is the appraisers and loan staff who have had NO or bad training get little feedback (besides the pressure to do whatever makes the loan go through), so they don't know that they made a mistake, a series of mistakes, are flat out doing-it- wrong, or their work can't be used because it is somewhere in the range of in error to fraudulent. Instead the honest lenders and the lenders who are angry over having too many deals killed just put the appraiser on the blacklist. The blacklist has a combination of good and bad appraisers on it, especially if it is mindlessly combined in the following mergers, buyouts, and data sharing. There is plenty of blame to go around here and most of it lies in the area of greed. People were making giant bucks for doing it the quick and dirty way (and appraisers were making small bucks for their part, compared to what the lender, loan broker, loan company, and their stockholders were making). Of course there is a long tradition of blaming appraisers. "Oh, the appraiser delayed it, came in too low, screwed up, doesn't know what he's doing." So instead of trying to fix things correctly paying for good quality work, demanding mentoring instead of some $1,200 correspondence school and fudged experience (for both appraiser and lending personell), paying for the risk of not having a good, qualified, experienced staff, licensing everyone in the process and regulating even those who are unlicensed you all (we all) are going to see similar problems at the beginning and end of every boom. Bigger boom? Bigger bust. (The most profitable litigation will be when people are still around and still have money.) Big bust? Everyone moves to where they can feed their family, setting up the shortage of qualified staff for the next boom.

RE:Huge Changes May be Coming for Lenders and Appraisers

anonymous — Fri, 29 Feb 2008 13:00:00 GMT

WOW - active blogs on this one. Now, I am a 22 year appraisal veteran. Weren't we all told that LICENSING would fix all these dirty, filthy no good appraisers....... So instead nothing changes but more fees, state and federal operations and the lowly appraiser is left to fend for themselves. 1. first and foremost, we need laws to ensure we get paid. I spend too much time chasing bad checks, deadbeat or bankrupt lenders for my fee. 2. agreeing TOTALLY with another anonymous post, this will make the biggest AMC of ALL FNMA, they will use the federal appraiser registry ( which appraisers pay for ), to establish a list, appraisers are DONE working directly with brokers. Before this is done, we will have federal licensing for ALL mortgage loan officers ( with personal fraud liability ), brokers will be out and if they survive, they will not order, speak with or touch and appraiser or appraisal ( see current regs in OCC & OTS which are law now ), FNMA will pimp out appraisers to work for 60% of the fee, the remaining will go to "maintaining" the program. The onlky people left doing loans will be the big banks. Now, if you like total separation, fine, but who gets the work, work is banned by FNMA, does an appraiser with 6 months of experience rotate with a guys 25 years in this. Frankly, this is a mess of epic proportions. This industry is a modern version of a buggy whip maker, we are done. There are suggestions on capitol Hill to not have an appraisal at all but have each borrower pay into a federal insurance fund $ 350.00 ish for every loan made. Who thinks its a good idea for FNMA to do anymore that they already do, they just lost nearly 4 billion in 3 months, but hey, THEY ARE OUR SAVIOR. Someone prior is correct, Andrew of NY wants to be president someday, so lets make alot of proposals that sound good and make more work for less money for a group so scorned over the years it amazingly stupid that we still do it. I am not here to overly defend and or critisize my industry or banking brokers. But, the loans we were doing for the people who were borrowing on the places they wer buying at the prices they were paying WAS SO STUPID! It had to end, now just like in the Savings and Loan problen, we need to blame someone and set up' a complicated system. Once this is done, FNMA and Freddie will be a direct lending and the appraisers of the work will dance for them at low fees like court jesters. Further, do not forget the 1/1/2008 law changes for appraisers making it way harder to get in. Now who as an appraiser wants to get in now and or stay, we all need to find something else to do to augment income and if the government and GSE's get a hold of all of this, we will need to replace our appraisal income. I do not know a happy appraiser anywhere and this horse crap is only going to make it worse. FNMA will be the new "huggy Bear" of AMC's. It is only a matter of time.

RE:Huge Changes May be Coming for Lenders and Appraisers

Anonymous — Fri, 29 Feb 2008 13:00:00 GMT

First to comment on the topic: This is downright silly and will add significant and cumbersome regulation to an already ailing real estate market. What is the problem with having a stringent appraisal review process for parties that are buying the paper (as due diligence for their investment?!), along with holding appraisers accountable (perhaps by mandatory E&O/bond coverage) for fradulent values. Appraisers comments that they receive no business unless they create fraudulent appraisals, is akin to saying a mortgage originator gets no business unless he/she fraudulently helps borrowers qualify for loans that they don't qualify forits just shifting blame and accountability. Hold the vendor accountable for their product and establish standards and penalties if said product is not within acceptable boundaries established by investors and meeting to URAR guidelines.

RE:Huge Changes May be Coming for Lenders and Appraisers

Tracie — Fri, 29 Feb 2008 13:00:00 GMT

Banks have been trying for YEARS to get into the Real Estate Business, and they've been trying for years to get rid of Mortgage Brokers. I firmly believe that this "Credit Crunch" was planned. I don't think what has resulted was planned. I think that the banks got together, knew that the rates were going up on all these sub prime loans, and decided, together, that they would take away the programs that these people could qualify for, so that the banks could earn more money with the rise in rates. I don't think that the Banks figured that people would walk away from the houses. This "Credit Crunch" is of thier own making, and it's thier way of getting into Real Estate, and getting rid of Mortgage Brokers. Banks, in the near future will be the only place to go to buy a house. They WILL get rid of all the Real Estate Agents, Appraisers, and Mortgage Brokers.

RE:Huge Changes May be Coming for Lenders and Appraisers

Anonymous — Fri, 29 Feb 2008 13:00:00 GMT

There are already laws on the books that stipulate that a regulated financial institution is required to directly engage the appraiser. These regs include instructions that are intended to isolate the engagement of the appraiser from any employee who is involved with the origination of the loan. Unfortunately, that regulation also includes the loophole that allows the lender to use appraisals engaged by outside mortgage brokers, which basically guts the intent of the regulation itself. Also, that regulation does not apply to mortgage lenders (like Countrywide and Ameriquest) that are not regulated by the federal banking regulators. Eliminate the mortgage broker exemption, bring all mortgage lenders under the same regulatory oversight that the banks answer to, and then enforce the damn law. It's a lot easier to keep track of and regulate the limited number of direct lenders than it is to try to regulate the mortgage brokers and their dialing-for-dollars telemarketers. The use of ANY appraisal management companies only provides these lenders and their mortgage brokers with a veneer of respectability. It is a layer of plausible deniability that they use to avoid responsibility for dealing with appraisers they don't know. The problem with the national clearinghouse is that not every appraiser who is on an approved list for a given geographic area is technically competent to appraise every property in that area that their license will allow them to appraise. Some appraisers are better than others, some are worse. The federal banking regs already hold the lenders accountable for the appraisals they use. It's not fair to a lender to hold them accountable under the law for the selection of the appraiser and the review of the appraisal without also giving them the discretion to make those choices. Regulate ALL the lenders and then enforce those regulations with an iron fist. Once we get the abuses down so that some lenders aren't unfairly profiting over others, the forces of the market will kick in and make it worth everyone's while to play it straight. Backing away from holding these lenders responsible for their decisions is the very worst thing we can do.

RE:Huge Changes May be Coming for Lenders and Appraisers

Anthony — Fri, 29 Feb 2008 13:00:00 GMT

I would like to reply to a comment from Gigi. One simple question...... you mentioned "Discusting "Broker" that choose the loan program for you, did that same "Discusting Broker" sign docs for you at the closing as well???? Resposibilty starts at home! A huge part of this mortgage mess is all the victims crying foul. When your buying the biggest item of your life you need to make an educated decision not point the blame. Ignorance is never a good defense.

RE:Huge Changes May be Coming for Lenders and Appraisers

Jeff — Fri, 29 Feb 2008 13:00:00 GMT

As a mortgage broker, I understand what is happening with all the late payments, defaults, and foreclosures. Every party involved needs to take some of the blame, including the homeowner. There already are rules against myself and any other broker/loan officer putting a value needed on an appraisal order form. On top of that, every appraiser knows what they are and are not permitted to do. It's very unfair for brokers to take all the blame on every issue surrounding every foreclosure in America.