Modernizing Appraisals: A Regulatory Review and the Future of the Industry
I watched this very interesting live 2-hour session Wednesday, November 16, 2016 – Subcommittee on Housing and Insurance (Committee on Financial Services) Hearing.
I usually check email, etc. when listening to something like this. Not this time. I tried doing one email and lost a few comments. I feverishly scribbled 16 pages of notes.
Here are a few tidbits:
- Very large room with speakers (and some other people in the back) and the Congress members on the other side. Empty seats in the middle.
- The Usual Representation: Appraisal Institute, ASC, AF, NAHB, a group helping people with foreclosures, and Joan Trice. Each with their own agenda except for Joan Trice, the author of the (in) famous appraisal regulatory graphic that I put in last week’s newsletter.
- The Big Issue – appraiser shortage affecting consumers – takes longer to close – FHA switch to certified, low fees, long training, lenders not allowing trainees to sign, etc.
- Lots of anti-AVM comments from congress persons mostly Federal vs. state regulations. Too many appraiser regulators.
- Each group had an agenda from its organization, of course, except Joan Trice.
- Big shortage of appraisers in rural areas. Congress person said there were no appraisers available in his county with a population of 25,000 to 35,000.
- No mention of Trump’s plan to dump Dodd-Frank. Way too uncertain and controversial, I guess. No questions from the other people in the room.
I will write up my full report and analysis in the December issue of Appraisal Today, including a few humorous quips, which are buried in my notes somewhere. The Big Gorilla, Fannie Mae and its CU, was not speaking to answer the AVM and data questions
Would You Cook in One of These Wacky Kitchens?
Take a break and check out these weird kitchens, including links for more info. FYI, the Flintstone house was listed but never sold and is not on Airbnb. Spend a night there!!
Drones in appraisal
There are many advantages to using a drone for appraisal practice. The main one is the ability to access hard-to-reach places. Areas considered previously unobservable such as rooflines, air conditioning units, gutters, and more, can now be seen using the correct equipment. Not only can these items be observed, but areas of interest can be identified for additional inspection. This can be specifically useful for large acreage tracts where easements and prior improvements can be shown via photographs or video. This allows appraisers to observe and document a property in real-time on the date of inspection and will undoubtedly change the way many properties are viewed going forward.
Well written and worth reading:
My comment: I definitely could have used drones when doing homes on steep hillsides. Google earth is great, but is not current, and sometimes you need another angle or another view. The last time I saw a roof inspection, a drone was used instead of climbing up on a very steep roof with lots of hills and valleys.
What’s next now that Republicans control the Presidency and Congress?
The short answer, at least as of now, is that no one really knows. One thing that’s almost certain: change is about to happen.
Clues to what might happen could be found in the Republican Party platform, which included several significant potential changes to the country’s housing finance system.
“We must scale back the federal role in the housing market, promote responsibility on the part of borrowers and lenders and avoid future taxpayer bailouts,” the Republican platform states.
My comment: I have no idea what will happen but I love speculating (and writing) about it. My favorite comment is fron Ryan Lindquist’s blog: “I’ve been asked a couple of times this week how a Trump presidency has impacted real estate so far. My answer is simple. Imagine asking a newlywed couple after one week of marriage to tell us how their marriage is going. It’s only been a week though. We probably need more time to really know how married life is going to unfold. The same holds true with Trump’s impact on real estate. We haven’t had enough time to see waves in the market yet, and nobody really knows how his policies will affect housing.”
In the paid Appraisal Today
State Appraisal Boards: Appraiser Discipline and E&O Insurance By Peter Christensen
Per Liability Insurance Administrators, about 45% of their inquiries from appraisers are about state board complaints.
For most appraisers, your greatest risk is your state regulator, who can take away your license or publicly discipline you.
Here are two of the issues discussed in this article:
- Should I report the filing of a complaint against me with the state to my E&O insurance provider?
- What if my E&O provider non-renews me or raises my rate?
To read the full article with lots more details and practical advice, plus 2+ years of previous issues, subscribe to the paid Appraisal Today
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Freddie Mac Planning Appraisal-Free Mortgages
Boston Herald 11-15-16
Freddie Mac’s “decision to veer away from fundamental risk management practices appears to harken back to the loan production-driven days in the years leading up to the 2007-2008 financial crisis” – abuses that “turned out to be disastrous for the entire economy,” (Appraisal Institute) wrote.
Though “a large percentage of loans do require an appraisal,” he (Jay Farmer, Quicken loans) said, others could be safely underwritten with a combination of strong previous valuation data on the property, possibly combined with a “walk-through” inspection.
Where’s this all headed? We’ll begin to know in a few months. But don’t expect appraisers to suddenly disappear. The best of them add essential value to the process of telling a lender or investor what a house is truly worth, based on up-to-the-minute market information and a hands-on physical inspection – services no computer can perform, at least not yet.
My comment: The inaccurate polls from the recent election shows the risk of using Big Data only, without human experts.
Property Values: Blue and Red States Divided on More than Just Politics
How big is the divide between residential real estate property values in red states (Republican) vs. blue states (Democrat)? We recently reviewed three decades of residential real estate data, comparing red states to blue states as projected for this election.
Eighty percent of $6 trillion in property value creation went to blue states.
Since the last election in 2012, real estate has recovered from the deep recession, but the recovery was highly uneven. Of the $6 trillion in property value creation in the U.S. housing market, 80 percent went to blue states.
Seventy-seven percent of real estate value and wealth in the U.S. is in blue states.
Of the $27 trillion total residential real estate values in the U.S., more than $20 trillion is in blue states, and less than $7 trillion is in red states.
Read the full article, including the graphic illustrations
My comment: I have no idea what this means in the “big picture”, but it is very interesting ;>
Poll: How do you appraise ADUs – Accessory Dwelling Units
Thanks to Rachel Massey for this great poll!!
Click here to take the survey:
If you’re not sure about ADUs, including what they are, go to Ryan Lundquist’s blog, the best discussion I have ever seen at
HOW TO USE THE NUMBERS BELOW. Appraisals are ordered after the loan application. These numbers tell you the future for the next few weeks. For more information on how they are compiled, go to www.mbaa.org
Note: I publish a graph of this data every month in my printed newsletter, Appraisal Today. For more information or get a FREE sample issue go to https://www.appraisaltoday.com/products.htm or send an email to firstname.lastname@example.org . Or call 800-839-0227, MTW 8AM to noon, Pacific time
WASHINGTON, D.C. (November 16, 2016) – Mortgage applications decreased 9.2 percent from one week earlier
according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 11, 2016.
The Market Composite Index, a measure of mortgage loan application volume, decreased 9.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 10 percent compared with the previous week. The Refinance Index decreased 11 percent from the previous week to its lowest level since March 2016. The seasonally adjusted Purchase Index decreased 6 percent from one week earlier to its lowest level since January 2016. The unadjusted Purchase Index decreased 10 percent compared with the previous week and was 3 percent higher than the same week one year ago.
“Following the election, mortgage rates saw their biggest week over week increase since the taper tantrum in June 2013, and reached their highest level since January of this year,” said David H. Stevens, CMB, President and CEO of the Mortgage Bankers Association. “Investor expectations of faster growth and higher inflation are driving the jump up in rates, and rates have now increased for five of the past six weeks, spurring a commensurate drop in refinance activity.”
The refinance share of mortgage activity decreased to 61.9 percent of total applications from 62.3 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 4.7 percent of total applications.
The FHA share of total applications increased to 12.2 percent from 11.6 percent the week prior. The VA share of total applications increased to 12.6 percent from 12.3 percent the week prior. The USDA share of total applications decreased to 0.6 percent from 0.7 percent the week prior.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to its highest level since January 2016, 3.95 percent, from 3.77 percent, with points increasing to 0.39 from 0.38 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate increased from last week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) increased to its highest level since January 2016, 3.89 percent, from 3.75 percent, with points decreasing to 0.26 from 0.27 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to its highest level since April 2016, 3.73 percent, from 3.61 percent, with points decreasing to 0.28 from 0.35 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 15-year fixed-rate mortgages increased to its highest level since March 2016, 3.15 percent, from 3.03 percent, with points decreasing to 0.29 from 0.38 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 5/1 ARMs increased to its highest level since March 2016, 3.11 percent, from 2.92 percent, with points decreasing to 0.42 from 0.47 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The survey covers over 75 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100.