About this blog

This blog has excerpts from my FREE appraiser email newsletter, sent out almost every week since June, 1994. I started with 6 subscribers on Compuserve. Now it is up to almost 14,000 subscribers!! To subscribe to the free email newsletters and get them them when they first come out,, go to www.appraisaltoday.com and sign up in the big Yellow Box!!

I have been publishing a paid Appraisal Today monthly newsletter since June, 1992 with in-depth articles on topics important to appraisers. Click below for more info!!

Why have AMCs changed so much since HVCC?

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

 

Appraisal Today newsletter

Newz Flash: Fannie Mae’s Collateral Underwriter Hacked!!!

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 ;>

Appraisal Today newsletter

Statistics and Appraisal Data

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.

Appraisal Today newsletter

House for sale set to explode when light switch is turned on

House for sale set to explode when light switch is turned on

Excerpts:

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!!

http://www.nbcnews.com/news/us-news/massachusetts-house-sale-was-rigged-explode-police-say-n329601

Appraisal Today newsletter

New FHA 4000.1 handbook – effective 6/15/15

New FHA 4000.1 handbook tidbits –

Publish Date: 03/18/2015 | Effective Date: 06/15/2015

The bulk of the appraisal section starts on pdf page 441 and runs through pdf page 507.

Here are a few tidbits posted online from appraisers who spent the weekend reading it ;>

– The Appraiser must obtain all of the following from the Mortgagee before beginning an appraisal: Any other legal documents contained in the loan file…

– Page 454 on Photos. Front and angle shots of the comps. Hallways on 2-4 units

– Handbook replaces all previous documents, including most Mortgagee Letters.

– Page 447 ii, methamphetamine (meth) contamination

– Page 441: The Appraiser must treat room additions and garage conversions as part of the GLA of the dwelling, provided that the addition or conversion space: …

– Provide 3 year prior sales history for the comps

Will this mean increased time for FHA appraisals? Depends on how much you are doing now. Remember the old VC sheets? They were a hassle!!

My comment: It is not effective until 6/15/15. There will be some webinars, online articles, etc. before that date. I will let you know.

Link to new handbook 4000.1

http://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdf

For more details from FHA, see last week’s Appraisal Today email newsletter, in the archives, at:

http://archive.constantcontact.com/fs124/1101648677253/archive/1120449851537.html

For more details from FHA, see last week’s Appraisal Today email newsletter, in the archives, at:

http://archive.constantcontact.com/fs124/1101648677253/archive/1120449851537.html  

Appraisal Today newsletter

Collateral Underwriter and price per sq.ft. adjustments

Fannie is using this to show that appraisers have been using adjustments that are too low, resulting in less reliable values. They are often low “legacy” adjustments. Also, GLA adjustment is one of the few factors that work well in regression.

I suggest using replacement cost new less depreciation. For replacement cost you can use local builders or cost service such as Marshall & Swift, whichever is more accurate in you area. Then take off depreciation. The result is depreciated cost. Divide by GLA. The result is depreciated cost per sq.ft.

Fannie uses price divided by sq.ft. which does not consider land value or depreciation, information which Fannie does not have available.

For example, builders cost on a property is $100 per sq.ft. Your estimated physical depreciation is 30%. Obviously, $25 per sq.ft. adjustment is not correct. There may be functional or external depreciation, which you can include. Be sure to include how you determined your GLA adjustment in your appraisal.

Market based GLA adjustments are better, such as matched paired sales but the method above will work as a guideline.

Why are adjustments low? To comply with the 15/25% adjustment guideline, which Fannie has removed. It was never a requirement. Fannie has never had a 10% per line adjustment guideline. Of course lenders and AMCs can still require the use of the 15/25% adjustment which could be a big problem for appraisers which can result in less reliable values. I never considered the 15/25 guideline in any of my appraisals, but I never worked for lenders or AMCs who required that appraisals conform to it.

Check out the graphs on GLA and 15%/25% adjustments in the FAQ document below. I included 4 of them in this month’s paid Appraisal Today newsletter.

Get the facts about what Fannie is saying, not just rumor and speculation. Subscribe to the paid Appraisal Today!!

https://www.fanniemae.com/content/announcement/ll1502.pdf

Appraisal Today newsletter

Collateral Underwriter warning messages and Every Increasing Scope Creep from all sources

My latest opinions and observations, as of today

Fannie does not want appraisers to receive warning messages unless a “human” has reviewed the appraisal report. They want to reassure real estate agents mostly that appraisals will not be delayed. Of course, I have no idea how many underwriters have the time to read the 30+ page report. Maybe they can search the report for what they are looking. I am sure this is/will be slowing down loans.

But, I keep thinking that even if appraisers received a few CU warning messages, it is a small, small percent of all the stips from all the review software that AMCs use. No one seems to notice that appraisals take longer the more stips that appraisers receive. Particularly, when all the stips are not sent at the same time. No one seems to notice this, or care about it, except appraisers!!

These non-CU stips are mostly from arbitrary “rules” which CU does not use. Such as: picky UAD stips, “add 2 more comps”, or please review the list of “comps” from the real estate agent or borrower. Some are still using the 15%/25% adjustment rule.

Appraisal Today newsletter

CU – subject vs. comp data. I want the subject data!!

Fannie says that typically there are around 7 UAD records per property. However, most of them must be from appraisers who used it as a comp. Why should we be compared with appraisers who used the property as a comp?

I want access to CU property data from appraisers who did an appraisal on the subject property, not from appraisers who used it as a comp. I want CU to use this data to compare my appraisal data with “peers”. Comp data is not very reliable as it usually comes from MLS and public records. Fannie says that MLS and public records are not as reliable as data from the appraiser who appraised the property for the sale.
Maybe the appraiser had seen the interior of the comp recently, but this is very unlikely. Also, I go on the MLS tour/caravan almost ever week, but I don’t spend a lot of time at each open house. Well..I do spend more time if there is good food ;> MLS photos are subject to interpretation as they are done for sales purposes. I make brief notes on the flyers and file them in binders, going back to 1990.

Appraisal Today newsletter

Follow

Get every new post delivered to your Inbox.

Join 1,379 other followers

%d bloggers like this: