Another great article from the Illinois appraisal regulator
Excerpts:
The argument to promote evaluations as an alternative to appraisals was driven by rural lenders who feared a shortage of appraisers might slow down closings. That was it. That was the main beef. A simple supply and demand issue for banks in the boonies… twenty years ago! An evaluation was regarded as “a generally simpler assessment
of real estate market value.”
Evaluations versus Appraisals (2012) —
The most recent incarnation of the Interagency Appraisal and Evaluation Guidelines emerged in December of 2010. Section XIII provides the suggested content of a evaluation…“a generally simpler assessment of real estate market value.
(BPOs cannot be used for evaluations.) A valuation method that does not provide a property’s market value or sufficient information and analysis to support the value conclusion is not acceptable as an evaluation. For example, a valuation method that
provides a sales or list price, such as a broker price opinion, cannot be used as an evaluation because, among other things, it does not provide a property’s market value.
If you want to know what the feds meant by “a simpler assessment”, go ask them. I’d love to hear that explanation myself.
Many AMCs, while eager to take on the evaluation function, fail to understand who is ultimately responsible for the entire program. (Their clients, the lenders)
Banks cannot hand‐off liability to AMCs like a hot potato just because they can’t be bothered managing their own evaluation program. If an AMC makes a mess of the bank’s
evaluation program, the responsibility of the failure falls squarely back on the bank.
Turning an evaluation into an USPAP compliant appraisal takes far less effort than trying to cobble together a cadre of competent and reliable evaluators to provide something that by state statute,must fall short of an appraisal.
My comment: This is an issue that has been around since the early 1990s. What does an evaluation mean? Cheap and fast. Banks want them. AMCs would love to provide them. I have no idea who would do them and what they look like. I have no idea how a licensed appraiser would do them as they must be USPAP compliant.
Seems easier to me just to do an appraisal. Maybe a shorter appraisal that is not 30 pages long with 9 comps and pages and pages of explanations!! Now that is a very practical idea. Just go back to the past pre-HVCC and incredible scope creep since then.
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When you come right down to it, isn’t a 1004 pretty much the evaluation the article is talking about? How can you attentuate an appraisal any further unless it is with a Zao prepared drive by or a CVR? It seems the time consuming processes of market analysis, verifying information and thorough reporting have taken a back seat to fast turn times, cuts in appraisal costs and the use of preprinted fill-in-the-blank forms reviewed by people who have no idea what an appraisal is. (I guess it is people who come up with scope creeps).
So blame the idea on the rural banks, but the underlying problem is that the lenders in the secondary market unequivocally refuse to let some appraiser, or for that matter anyone else, hold up what they have decided to lend. They could care less about the economy or the borrowers or the collateral. They have learned that what works is to compete furiously for who among them does the cheapest, fastest lending. Those lenders make extremely big bucks on high volume turn over. And I must remind myself that making money is the objective.
Basing a loan on collateral value is a conservative idea that is struggling to remain viable. When was the last time you heard a bank advertise conservative loan policies that give real weight to collateral value? Conservative lending practices are something that banks who keep a meaningful stake in the outcome agree with. But where are the banks, rural or otherwise, that will tie up their money for 30 years?
This cheap and fast argument will repeat unitl we reform a system in a frenzy to get long term mortgage money by selling derivities of mortgage backed securites and then ultimately hedging whatever risk remains by betting that the loan will default. Smarter folks than I came up with all of this, but they seem to have forgotten the “tragedy of the commons”, or maybe they intended it’s reinactment.
I have absolutely no idea where else to get long term mortgage money, but when I figure it out I will know I have also found respect for what appraisers are supposed to be doing.
For now, it’s de javu cheaper/faster.