For all you mortgage execs in your 60s and 70s, who want to feel young again, you should join the YMPA:Young Mortgage Professionals Association. Nope, this is not a paid ad. And youngsters should definitely check it out. YMPA was founded almost a year ago and is growing fast, grass roots style: it already has chapters in San Diego, Arizona, Connecticut, and Massachusetts. Its mission is to help position young professionals for a long term, successful career in the mortgage industry. Blow up the e-mail of Shannon Moore if you have questions. (Hey, that's hipster talk!) At the other end of the age scale, Wells Fargo's John Stumpf "retired." I knew it was for real when Wikipedia updated to reflect "former" CEO. Of course the promotion of insider Tim Sloan drew immediate political fire.
In many areas of the nation appraisal turn times, quality, and a reported lack of appraisers, continue to be an issue - and could be for quite some time.
According to the latest STRATMOR Spotlight survey on the Appraisal Process and Turn Times, appraisal turn times since TRID came into effect in October of last year have increased 5.7 days for purchase loans and 6.3 for refinances. These increases represent increases of 81% and 79% respectively over pre-TRID turn-times. Whether these increases are due to TRID or the increased volumes in 2016 coupled with shortages of qualified appraisers is unclear. Whatever the root cause, lenders are now adding additional days in process to an already tight closing timeline. The survey also includes data on changes in appraisal fees, the timing of fee collection, the use of AMCs vs. APs and appraisal QC.
For those new to residential lending, or older folks who have forgotten, it is good to know the recent history of the appraisal business, and how the regime to become an appraiser came about. Similar to how Dodd-Frank came about several years ago due to the "credit crisis," and then spawned the CFPB to help carry out its mission, something similar happened in the 1980s. Back then we had the savings & loan crisis, which led Congress to create the Financial Institutions Reform, Recovery, and Enforcement Act. Through Title XI FIRREA spawned The Appraisal Foundation (TAF), and its work is carried out by the Appraisal Subcommittee (ASC).
And if you aren't tired of acronyms, the TAF has two boards: the Appraisal Standards Board (ASB) and the Appraisal Qualifications Board (AQB). The ASB sets the standards for acceptable appraisal practices and the AQB sets the qualifications for licensed and certified appraisers. Both boards are made up of appraisers. But wait - there's more! Each of the 50 states regulates its own appraisers, using guidance provided by the ASB and AQB. And, as John Councilman put it in a recent article, "appraisers believe that their profession should be...similar to CPAs, engineers, and the like. These professions require a degree and stiff examinations."
So if you want to point fingers at onerous requirements to be an appraiser, point at the AQB. One needs a four-year degree, passing an exam, and an internship of 2,500-3,000 hours. (If you like numbers, 3,000 divided by 40 hours per week is 75 weeks - without a vacation.) And as this commentary has mentioned numerous times, no appraiser wants to train a future competitor, be liable for their work, and then have the new appraiser undercut their price. And as regulations and complexity has increased, the number of appraisers has declined.
But wait - there's more! We have HVCC - which Fannie and Freddie must use - which prohibits anyone in the origination side from ordering, selecting, or speaking to an appraiser. So many lenders moved to the AMC model. And who oversees the whole HVCC process? The CFPB. Most appraisers work for AMCs in order to maintain a steady flow of business. But interestingly, the price of an appraisal has gone from $250-350, in the "old days," to costing the borrower around $500 with the AMC involved in the process. And so it seems that many experienced appraisers are, as Mr. Councilman put it, "either retiring or doing work for entities other than AMCs. The result is what we are seeing at an alarming rate, excessive turn times and borrowers being ripped off to get an appraisal in a reasonable amount of time."
And so we find those in the industry talking lowering or changing the barriers to entry, changing the AMC model, changing the regulations, requiring lenders to use appraisal-related trainees, beefing up automated valuation models (AVMs), increasing the use of technology, and so on. Speaking of "technology," there always seems to be a new software program, drone application, app, or digital replacement to a human in the offing. Replacing an actual appraiser has been discussed for many years, but has not happened. Certainly technology has streamlined operations for AMCs - likely eliminating some support staff positions. There is still a need for human intelligence and human eyes.
This commentary has discussed the declining number of appraisers. There are reportedly less than 80,000, and it is not currently heading higher. The number has declined, per the Appraisal Institute, by 20% between 2007 and 2015. What if it drops another 20% in the next 10 years? Like real estate agents, loan officers, and whoever, the average age of an appraiser is supposedly in their 50s. Will those retiring be replaced by Millennials? Good question. What kid comes out of 17 years of school, wanting to be an apprentice for another year, and taking more tests? And what appraiser wants to be liable for their work, taking the time to review it in addition to doing their own?
There are recommendations out there. For example, here's a set from the American Society of Appraisers. And what about just using AVMs or broker price opinions (BPOs)? A BPO isn't as detailed and is based on the licensed real estate broker's inspection of the subject property and recent listings and sales near the subject property. Licensed real estate brokers provide an opinion of value to homeowners for a variety of purposes. Examples include determining a listing price for selling a home, establishing the value of a home for an estate or other legal matters, and determining the current value of a home for insurance purposes. BPOs cost less than residential real estate appraisals and may be obtained faster.
But any investor in mortgages, and the lender itself, wants to make sure the value is there. Mortgage lenders issue home loans based on a home's current value. They rely on residential real estate appraisals for gathering and interpreting information used for valuation of the subject property. A real estate appraisal is more complex than a BPO and includes information from public records along with diagrams and photos provided by the appraiser, who inspects the interior and exterior of the property. An appraisal includes three comparable properties used for demonstrating values in the immediate area and for supporting the valuation of the subject property. They contain notes about a property's age, architectural features, condition and necessary repairs.
BPOs come in either "drive by" or "interior" flavors - both self-explanatory. Few in the industry, and especially in the secondary markets, believe that BPOs provide accurate enough information to derive an LTV. There are often conflicts of interest, they are unregulated and the agent performing a BPO isn't liable for any mistakes, and no lender is going to rep & warrant the value of a BPO to a government agency or investor.
A residential real estate appraisal includes specific descriptions of the property and its surrounding area. Neighborhood amenities, current and planned development, legal proceedings, and other factors potentially impacting the value of the property are noted in the appraisal and factored into the property's appraised value. An appraiser researches public records and recent home sales for preparing an appraisal. The detailed narrative and research required typically result in higher costs for appraisals as compared to BPOs. And at this point any entity in the secondary markets wants to ensure that the loan-to-value is correct. The loan amount is well documented and objective. The value is less so.
AVMs are software that queries property and market data, analyzes comparable property and market information to assign a value or range of values to a property. Heck, any home owner can go to HouseLogic or Trulia, neither of which has ever stepped into a house, and obtain an AVM for their house, their ex-girlfriend's, or Kevin Bacon's. Lenders and real estate agents know, however, that AVMs can be unreliable (they use only pubic information), and they don't include a property's specific traits (kitchen remodel, near a bus route).
Realtors raised concerns earlier this year when the Federal Housing Administration's "Single Family Housing Policy Handbook" included new requirements for appraisers to operate and physically observe appliances on a property during the completion of an appraisal. This inspector-type role far exceeded previously understood appraiser duties and had the potential to make appraisals longer and costlier for consumers. In response to those concerns, HUD announced updates to its SF Handbook that clarifies this requirement. According to the new guidance, appraisers must simply note that certain appliances contributing to the market value of the property are physically present.
"The National Association of Realtors expressed appreciation to FHA for its clarification in the following statement from President Tom Salomone: 'Appraisers have a lot on their plate, and their work is important to ensuring buyers, sellers, lenders and everyone else involved in a transaction has a credible source to turn to when determining the value of a property. Requiring appraisers to perform duties that are better left to a home inspector only slows the process while potentially adding unnecessary costs. FHA did appraisers and consumers a big favor by clarifying appraiser duties and specifically listing the appliances to which this new guidance applies. While there are still improvements to be made, FHA's announcement provides our Realtor members with additional certainty as they continue playing a critical role in the home buying and selling process.'"
Looking at the bond market, just in case you haven't noticed, rates have been gradually moving higher. There isn't much turmoil overseas, which typically drives investors to buy our securities, pushing prices higher and rates lower. The Treasury is auctioning off billions of notes and bonds this week, which, in theory, could push prices lower and rates higher. The stock market seems to think that the U.S. economy is faring well, which could lead to slightly higher rates. Pick your reason, the 10-year ended Wednesday at 1.78% although it touched 1.80% during the day, but agency MBS prices barely moved.
Yesterday everyone read the minutes from the September FOMC meeting. There was nothing new. MBS investors noticed that the language was identical to the previous statement regarding the reinvestment of "principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities."
This morning we've had Initial Jobless Claims (246k, a 4 decade low), import/export prices for September (+.1%, +.3%, respectively. Coming up this afternoon, Eastern Time, will be the $12 billion reopened 30-year bond auction along with a couple Fed speakers. (At this point no one is paying the Fed speakers too much attention - which will change as we move closer to the next meeting.) To start the day we find the 10-year at 1.75% and agency MBS prices better by .125 versus Wednesday's close.
Jobs and Announcements
On the compliance front, Newbold Advisors, LLC is assisting its clients to prepare for the upcoming HMDA reporting revision with a free webinar. It is important to recognize that the revised regulation impacts not only data but multiple business processes and systems as well. To help, Newbold has introduced its "HMDA Impact Assessment and Planning" program. The program includes an assessment of data collection and reporting business processes, and evaluation of the new reportable data elements for quality and fair lending trends, and creates a customized project plan that aligns with the required implementation milestones. This program provides a jumpstart for implementing a significant industry change. You can access Newbold's free Webinar about the upcoming changes and Newbold's program here.For more information or to set up a call to discuss these important changes further, please contact Kathy Keller.
Accenture Credit Services (ACS) is seeking a Mortgage Fulfillment Executive, Sr. Manager, in Charlotte, NC. ACS is a full-service provider of residential mortgage fulfillment and transformation services. "We team with clients to deliver high performance operating environments that bring improvements in quality, cost, service and delivery. By leveraging our deep domain expertise, software and large-scale process outsourcing flexibility, Accenture helps lenders and servicers industrialize their operations to meet current and anticipated challenges, address new regulations and improve profitability. Watch the video to see how ACS has delivered high performance, since launching in August 2011, and defined a new mortgage industry standard for efficiency and service. Providing digital technology, mobile solutions, e-closing and e-signatures, real-time business intelligence and predictive analytics, ACS is transforming the mortgage experience of the future. We invite you to learn more about the role and apply on-line here."