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Some Very Interesting comments from Jonathan Miller’s Housing Notes
May 8, 2015
Earlier this week I came across a brilliant tweet – that when applied in the context of housing, spoke for a lot of the gimmicky click-bait research that comprises a large swath of housing market news coverage.
The present is a lagging indicator.
— Pedro da Costa (@pdacosta) May 3, 2015
While I plan to use that quote extensively, my favorite remains one by Mark Twain (supposedly). It is especially useful when making comparisons to the the boom, bubble, bust cycle of the prior decade.
History doesn’t repeat itself, but it does rhyme.
I prefer my adapted version:
History doesn’t repeat itself, but sometimes it rhymes.
So much of what we read or think about housing is backward looking or a provides a current view based on a prior event that had a completely different set of circumstance and worst of all, a lack of context. Sound bites relied on by market participants and media often have limited applicability to specific situations and perspectives.
Link to the full Housing Notes issue:
My comment: I love Jonathan Millers writing, speaking etc. The only appraiser I know who is widely quoted, and interviewed, in the media!!
Handbook Implementation Date Extended 90-days to Give Lenders More Time to Operationalize
On April 30, 2015, the Federal Housing Administration (FHA) announced that it has extended the effective date for the policies contained within its new Single Family Housing Policy Handbook (SF Handbook; HUD Handbook 4000.1) from June 15, 2015 to September 14, 2015.
FHA recognizes that there currently are a number of competing initiatives occurring simultaneously in the mortgage industry that may be challenging mortgagee and other industry partner resources. For this reason, FHA is extending the SF Handbook effective date by 90 days with the expectation that this additional time will enable mortgagees and others to be fully compliant with the new effective date.
Link to new handbook 4000.1http://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdf
The bulk of the appraisal section starts on pdf page 441 and runs through pdf page 507.
My comment: We love to procrastinate ;> For appraisers, this means there will be opportunities for webinars and seminars. Also, written explanations. The June issue of the paid Appraisal Today newsletter will have an article on the changes written by Doug Smith, SRA, Montana appraiser. Doug has been writing for the paid newsletter for many years. To subscribe, click on the ad below.
Yes, you can start using the new criteria now. Some people like to get ready ahead of time ;>
On average, how long does it take you to complete a 1004 interior inspection appraisal report including inspection time (excluding driving time)?
Another Very Interesting poll from www.appraisalport.com
My comment: I have been hearing about scope creep causing increased appraisal report writeup times but now there is some data. Significantly increased, and still increasing from pre-AMC days. My non-lender report writing time has not changed from since before HVCC. Appraisalport is a lender portal, so I guess there are some appraisers that write fast and others that write slow. Or, maybe it depends on your clients. AMCs tend to combine requirements of multiple lenders into very long lists of requirements.
On average, how many “interior inspection” appraisals reported on a 1004 do you normally produce in a week?
My comments: Starting with a conforming tract home close to your office, the time increases, depending on driving time, use of an assistant and client requirements.
Another “good one” by Dave Towne, Washington appraiser and commentator
Something’s been gnawing at my craw ever since January when FNMA’s wonderful CU was unleased to the world. And before that, which still continues, is the AQM process they still use to judge the work of appraisers.
No one else has written about this, or even mentioned it, so I will: It has to do with the word “Comp” which is used liberally by FNMA.
What exactly is a “Comp?”
In FNMA’s world, it’s any property that they obtain, either by their vast AVM process which examines millions of property transactions, or properties that have been extracted from appraisal reports submitted by appraisers……..yes, your work. In their fuzzy logic, it’s a “Comp” considered for your report if they say it is. It is not!
A true “Comp” is a property viewed and/or analyzed by a real living, breathing, mirror fogging appraiser who compares that sold property against the subject property in terms of multiple features, characteristics and amenities. It is not determined by an AVM or algorithm within the vast bowels of FNMA. Until the property has such analysis done by an appraiser, it is merely a SALE……it is not a “Comp.”
This FNMA lie really became evident to me on 4/20/15 when FNMA released a news release about how CU has been integrated into their on-line Desktop Underwriter software mortgage lenders use, which you can read here: http://www.fanniemae.com/portal/about-us/media/corporate-news/2015/6239.html?p=Media&s=News+Releases&from=RSS
Within that news release is this quotation from a VP at a mortgage lender: “The collateral information that CU provides is invaluable and simply staggering,” said Breck Tyler, Executive Vice President, Trustmark Mortgage Services. “CU has aided in providing important comparable data that was previously unavailable or very difficult to get. CU messages in DU will help streamline appraisal review and make the underwriting of an appraisal a much more informed process.”
Then, FNMA released info directed to Correspondent Lenders who intend to use the CU process in UCDP, but don’t intend to sell the loan to FNMA: https://www.fanniemae.com/content/fact_sheet/collateral-underwriter-non-seller-implementation-guide.pdf
That has this statement: “Fannie Mae does not instruct or suggest to lenders that they ask appraisers to address all or any of the up to 20 comparables that are provided by CU for most appraisals.”
I want to repeat what I said above…in case you missed the point: A PROPERTY IS NOT A “COMP” UNLESS YOU DETERMINE IT IS AND INCLUDE IT IN AN APPRAISAL REPORT. Otherwise it’s just a ‘sale.’
If you’re an appraiser who liberally uses the word “Comp” in place of a ‘property sale’ I would ask that you be more careful. If you receive info from a lender, AMC or anyone else who asks you to look at the “Comp” they have provided, correct them and use the words “sale property” until you have determined that it truly is a “Comp.”
I’m also asking members of appraisal organizations and associations to communicate your concern about this lie perpetrated by FNMA directly with them, and ask FNMA to change the word “Comp” used in their CU Reports, news releases, instructional materials, etc. to ‘Property Sales’ so that there is no misunderstanding about the significance of this issue.
If organizations and associations won’t do that on behalf of appraisers, then we might as well kiss the profession of residential real property appraising goodbye. Because if a list of ‘sales’ are considered “Comps” then an actual human appraiser won’t be needed to provide supportable property analysis and market value reports.
My comment: I have been aware of the difference between a sale and a “comp” for a very long time. I try not to mix them up. It is very important when communicating with lenders and real estate agents, who should already know the difference. I am glad that Dave Towne points out this very big difference.
I have not found it to be an issue with non-lender clients, where I use “comparable sales” which is a much clearer term to use, since few are familiar with the term “comp”.
AMCs have been around for a long time. The first AMC, LSI, started in the 1960s. Before HVCC, their market share was an estimated 10-15% of lender residential appraisals. There were relatively few AMCs. Now, there are an estimated over 400-500 AMCs.
I have been writing about AMCs in my paid Appraisal Today newsletter since soon after my first issue in June 1992. In the mid-1990s, when lender business crashed in many areas, some appraisers signed up for AMCs to get work. In those pre-Internet days, often specific forms software and transmission methods were required. Fees were lower than for direct lender work but were stable. There were no broadcast orders, shopping for low fees, or Scope Creep. When business picked up, few appraisers continued to work for them. In my area, there were a few larger appraisal companies who did all the work for specific AMCs.
Then HVCC came and most lenders shifted to AMCs to handle their appraisals. Now AMC market share is estimated at over 80%. Fees varied widely. Residential appraisal fees became sensitive to supply and demand. When business was slow, fees went down. When demand for appraisals is high, such as now, fees went up as many appraisers would not work for low fees. Many appraisers, like other business persons, were afraid to turn down work, even with low fees.
Lenders have always wanted fast turn times, to be more competitive and close their loans. Thus, AMCs push for faster turn times.
When working for direct lenders (and mortgage brokers prior to HVCC) appraisers could establish a reputation for accurate and good quality appraisals with their clients. This is still true today with those clients. However, this is not possible with AMCs who have multiple lender clients and ordering that is not done locally and is done by clerks not appraisers.
The greatest change is in the increasing Scope Creep, which has resulted in longer and longer appraisal reports and replying to many questions about appraisals. Unfortunately, much of the additional information does not affect value or make the appraisals more reliable.
Another significant factor is the widespread use of automated review software, including CU, which means that fewer and fewer licensed appraisers are used for reviews.
Even if you don’t work for AMCs, direct lenders are more “picky” but nothing like AMC requirements. Probably because they only manage appraisals for that lender.
Why has this happened? AMCs work for lenders. Lenders tell the AMCs what they want. I suspect that AMCs with multiple clients combine requests from different lenders into one very long engagement letter/list of requirements.
Everyone I have spoken with, from the lender side, says the recent mortgage crash caused lenders to be more concerned about residential appraisals. The previous crash in the late 1980s, the S&L failures, was caused by commercial property loans. There were some changes made to commercial appraisal requirements, but were minor compared with the changes in residential appraisal requirements post-HVCC.
Mortgage lending is a boom and bust business, starting with Fannie and Freddie in the 1970s. They purchased loans from lenders and made refinancing much easier. When interest rates are low, there are lots of loans. When rates are up, loans decline.
Mortgage lending is also boom and bust regarding risk of defaults. Prior to 2008, since the Great Depression, there had never been property value declines that affected the entire country. Statisticians working for lenders, investors, etc. only looked at their data from the past and did not worry about a national meltdown. So, none predicted it. This is, of course, the minus of using statistical data from the past.
What will happen in the future? We will return to the “typical” days of getting mortgage loans with loosened credit requirements. More and more homeowners will not be “underwater” and will be able to refinance. Will residential appraisal “requirements” loosen? No one knows as we have never had so many requirements that keep increasing. Lenders control the requirements. Until they decide that they are causing too many appraisers to quit, want to speed up their loan approval processes, etc. nothing will change. Residential AMC appraisal fees will continue to be cyclical, depending on supply and demand, similar to commercial appraisal fees as long as AMCs are managing appraisals. The less AMCs pay to appraisers, the higher their profits. Maybe lenders will step in and tell AMCs what they must pay their appraisers.
What about direct lenders? There is some scope creep, but not much as compared with AMCs. They don’t shop for the lowest fee. My advice to appraisers is to work for direct lenders whenever possible. Many appraisers with over 20 years of experience still get most of their work from them. When business is slow, they accept AMC work. Another option is to work for AMCs that work for one, or a few, lenders. Then the requirements will not be from a lot of different lenders.
NOW IS THE VERY BEST TIME TO LOOK FOR NEW NON-AMC CLIENTS. WHEN EVERYONE IS BUSY AND TURNING DOWN WORK!! I HAVE SPECIAL REPORTS, LOTS OF MARKETING TIPS FOR NON-AMC LENDER WORK AND ARTICLES ON NON-LENDER WORK IN MY PAID APPRAISAL TODAY NEWSLETTER. www.appaisaltoday.com
A disgruntled man who lost his home to foreclosure did it!! The CU system is completely shut down. No details were available on when, or if, it will be fixed. The un-named man was not available for comment as he is reportedly hiding out in a remote cabin in the woods in a very rural upper Michigan or Canadian location.
He, his wife, and 4 children are now living in a Tiny House on his brother in law’s rural property in Michigan. They lost their suburban 4 bedroom home they had owned for over 20 years to foreclosure. The family has an outhouse, a hand pumped well and wood heat. A small solar power array is used for a computer and Internet connection with a few hours of electricity daily.
Who is in an uproar about this?
– Not appraisers who don’t like a system that evaluates their appraisals but they don’t know the criteria.
– Not underwriters who are required to learn a new system and do manual reviews of appraisals before sending warnings to appraisers.
– Not loan officers whose deals are taking longer to close. Not borrowers who have to wait longer to get their loans approved.
– Not law enforcement, who don’t think he is a terrorist or a nut holed up with a lot of guns.
FYI, it is April 1 today. You know what that means ;>
The key to any statistical analysis is DATA, DATA, DATA!!
Single family real estate data is not very reliable or consistent, and not enough is available in many areas, as we all know.
CU is the most significant attempt to get more useful data by requiring appraisers do use specific coding and criteria. However, real estate is local, local, local. Even the number of bedrooms varies a lot as there are different criteria for determining what is a bedroom, even in the same city. Three appraisers measuring the same house will probably not have the same square footage, as I learned doing relocation appraisals.
With CU, this is becoming more obvious as there are sometimes wide variations in how appraisers code factors. For example, why do condition ratings vary? How accurate is MLS? Is public records accurate? What is the best source?
Now that regression software is popular with appraisers for getting adjustments, I have been thinking about why it is often not very reliable. To understand even simple regression requires knowledge.
My first statistics class was in 1963. The first time I used multiple regression was in graduate business school in 1979, when I did a mini-thesis on factors in REIT stock volatility using SPSS.I used a remote university mainframe that kept blowing up and erasing my data. There were no data issues. Doing multiple regression analysis on real estate housing data was not possible. Way too much lack of usable data.
Since I started my Appraisal Today newsletter in 1992, I have been writing about AVMs. The less data that is available, the less reliable the value.
As we all know, AVMs work well in a conforming home in a large tract of similar homes, built in the past 10 years. After that, the accuracy and reliability goes down fast. Just check what Zillow’s Zestimate against your appraised value.
House for sale set to explode when light switch is turned on
Investigators in two Massachusetts cities were seeking the renters of a house for sale that was intricately wired to explode and cause “significant destruction” if someone had simply flipped a light switch, police said Tuesday night.
“It took some work to put it in there,” said Wells, who described the mechanism as involving wires meticulously snaking through several rooms from a gallon container of an incendiary substance, which was “secreted inside the house,” to a particular light switch.
“We believe the intention was that if someone had flipped the light switch on where it ended, the device would have exploded,” he said.
My comment: Wow!! Be careful out there… especially with disgruntled tenants on a sale!!
Thanks to Douglas R. Doudna for posting this online!!