Urban, Suburban, Rural?
By Tim Andersen, MAI
Excerpt: QUESTION: Can you help me to understand the differences between urban, suburban, and rural? Where I live and work, everything is essentially one big megalopolis for 30 miles in every direction. Therefore, in my reports, I tend to refer to everything as suburban. A reviewer called me on this, but I can’t figure out why. Please set me straight.
ANSWER: At one time, a location was urban if there were high-rise office buildings and no houses close by, suburban if there were merely low-rise office buildings and many houses nearby, and rural if there were no office buildings and lots of farms, ranches, and vacant land close by. However, that was back in the day, so we need new definitions….
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My comment: This is a tricky issue. This post has some good tips. Tim is a regular contributor to the paid Appraisal Today with much longer articles, focusing on USPAP, lender appraising, state board complaints, etc. He reviews lots of lender form appraisals and wants to help appraisers write better reports. More info at https://theappraisersadvocate.com/
10-20 UPDATE: For lots of Covid analysis and news, go to my new covidscienceblog.com
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FIRREA Under Attack!
Excerpt: Congresswoman Maxine Waters and Congressman William Lacy Clay request a formal study/investigation into Title XI (FIRREA) and the recent dilution of its intent by the Federal Agencies. The letter to Gene Dodaro, Comptroller General, Government Accountability Office, addresses threshold increases, regulatory exemptions, appraisal waivers, the North Dakota appraiser certification waiver and evaluations in lieu of an appraisal. It is clear the Chairwoman of the House Financial Services Committee and Subcommittee Chairman on Housing, Community Development and Insurance see the issues surrounding the recent events.
To read the press release and appraiser comments, click here
My comment: finally someone in Congress is noticing what is happening and complaining to the GAO!!
Thriving in a Post-FIRREA World
by James Baumberger, MNAA
Excerpt: We real estate appraisers are remarkable professionals. The potent combination of our education, experience, integrity, market knowledge, and analytical judgment is unparalleled. Not to dampen the dreams of those who believe artificial intelligence (AI) and computational analytics will soon render appraisers obsolete and unnecessary, but I do not believe that movie is “coming to a theatre near you”nytime in the near future.
However, I do believe the tools of advanced technology will be found in the toolbox of appraisers who have adapted to thrive in a post-FIRREA world…
The FFIEC now estimates that 90-91 percent of residential mortgage lending transactions do not require an appraisal based upon regulations. Now you understand why I say the joke was on us, and why I say we are now practicing our profession in a post-FIRREA world.
Is this the end for residential real estate appraisers? Must we fade into the dust bin of history as blacksmiths and typesetters before us? Not at all, and our future can still be very successful, but the rules of engagement have definitely changed for us. In a post-FIRREA world, clients must want to employ appraisers.
To read more, click here
My comment: I don’t see residential lender appraisals being completely eliminated. There are way too many 2-4 unit properties that don’t fit into AI analysis. Plus high LTV loans and lower borrower credit ratings. Plus, of course, Fannie investors want full appraisals. Otherwise residential appraisals would not have been needed much after FIRREA passed in 1989 with a deminimus of $250,000.
Boom: Mortgage lending just had its biggest quarter in 14 years
Originations climb to highest level since 2005
Excerpt: According to the New York Fed, there were more than $750 billion in new mortgages originated in the last three months of 2019, more than in any quarter since the fourth quarter of 2005.
It’s a stark reversal from the first quarter of 2019, when there were only $344 billion in mortgage originations. That figure was the lowest dollar amount of mortgage originations in any quarter since the third quarter of 2014.
Fast forward just a few months and originations, which the Fed measures as appearances of new mortgage balances on consumer credit reports, hit $752 million in the fourth quarter.
According to the New York Fed, much of the growth over the third quarter, when there were $528 billion in originations, was due to a “large increase” in mortgage refinances.
To read more, click here
My comment: In the past I could always tell when local appraisers who do lender work were busy: inquiries for non-lender work are not returned or take a while to be returned. Now, even though originations are very strong, they are returning the calls within a few hours. By the time I call back, the appraisals are already ordered. Why? Fewer full appraisals are being done. Maybe more appraisers are accepting non-lender work instead of low fee AMC appraisals? Possibly both factos.
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Disability – Your Greatest Risk
Excerpt: Many appraisers worry about the risk of getting sued on an appraisal, but one of your greatest risks is becoming disabled and unable to work. To appraise at your full capacity, you have to be able to walk, hear, and see.
If disabled, you may be able to continue working, but at reduced capacity. Or, you may not be able to do field work but you can do desktop appraisals and reviews. But, you will probably not be able to work at all for a period of time.
Since appraisers spend a lot of time driving, getting in an auto accident is a much higher risk than for people working in an office. Other risks include getting injured during an inspection, plus the risks we all have of a serious medical problem.
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30 of the World’s Most Spectacular Spirals
Take a Stress Reducing Break from Appraising!!
Excerpt: Some of the planet’s most captivating coils are more than just design eye candy. The Treetop Tower of Rüge, for instance, lets you explore a forest canopy. The puquios of Peru, on the other hand, were once part of a sophisticated, ancient hydraulic system. Still others, such as the Great Salt Lake’s Spiral Jetty, well, that’s eye candy for those dedicated enough to get to it. From the symbols carved into a Neolithic tomb in Ireland to a dazzling staircase in a lavish 16th-century mansion, here are 30 wondrous whorls sure to set your head spinning.
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My comment: Amazing!! Homes, churches, etc. etc. No mention of FIRRA, waivers, data analysis, etc.
Legacy appraisal vs. data science approach
What is the one single big difference?
The traditional appraisal process is accepted. The Data Science viewpoint is new. (John Tukey predicted the impact of computer power on data analysis as an empirical science – in 1962.)
Traditional appraisal has a proven legacy: It focuses on property analysis – leading to a personal opinion “worthy of belief”. Pick some comps, compare with three or less ‘approaches’, and reconcile/explain the discrepancies in words.
The Data Science viewpoint focuses first on the overall data. In turn, Evidence Based Valuation (EBV)© focuses first on the market analysis.
To read more, click here
My comment: as FinTech is trying to take over mortgage lending, appraisers need to know more about data analysis.
Add Histograms to Your Appraisal Tool Kit
By Joe Lynch
Excerpt: … (at a recent appraisal event) I discussed ways to explain markets in residential real estate appraisals and focused on using …. Four appraisers out of 50 in the room reported using histograms. The histogram is a great tool for analyzing residential real estate markets that all appraisers should use.
This next histogram examines the frequency of sale price in the market area. The most frequent sale price is in the $240,000 to $280,000 range with $360,000 to $400,000 the second most frequent range. A home in contract at $375,000 is fairly typical. A contract price of $700,000 is very unusual and is indicative of a non-conforming home.
To read more, click here
My comment: Is George Dell’s Data Science too much for you now? A good way to get started is using histograms. Joe Lynch uses R-Studio, a popular, more advanced, statistical program, but they can be easily done using Excel.
Note: I publish a graph of this data every month in my paid monthly 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 7AM to noon, Pacific time.
Mortgage applications increased 1.1 percent from one week earlier
WASHINGTON, D.C. (February 12, 2020) – Mortgage applications increased 1.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 7, 2020.
The Market Composite Index, a measure of mortgage loan application volume, increased 1.1 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 3 percent compared with the previous week. The Refinance Index increased 5 percent from the previous week and was 207 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 6 percent from one week earlier. The unadjusted Purchase Index increased 0.3 percent compared with the previous week and was 16 percent higher than the same week one year ago.
“The mortgage market continues to be active in early 2020, as applications increased for the third straight week. Rates also rose, but still remained close to their lowest levels since October 2016,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The refinance index climbed to its highest level since June 2013, and refinance loan sizes also increased as a result of an active jumbo lending market.”
Added Kan, “Last month was the strongest January for purchase applications since 2009, which is perhaps a sign that mild weather brought out prospective buyers earlier than normal. Despite a decline last week, purchase activity was still up almost 16 percent from a year ago.”
The refinance share of mortgage activity increased to 65.5 percent of total applications from 64.5 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.2 percent of total applications.
The FHA share of total applications increased to 9.7 percent from 9.6 percent the week prior. The VA share of total applications decreased to 10.1 percent from 10.2 percent the week prior. The USDA share of total applications remained unchanged from 0.4 percent the week prior.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 3.72 percent from 3.71 percent, with points remaining unchanged at 0.28 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate remained unchanged from last week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $510,400) increased to 3.75 percent from 3.70 percent, with points decreasing to 0.17 from 0.19 (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 3.84 percent from 3.80 percent, with points remaining unchanged at 0.26 (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 3.20 percent from 3.19 percent, with points increasing to 0.27 from 0.23 (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 decreased to 3.21 percent from 3.23 percent, with points decreasing to 0.13 from 0.15 (including the origination fee) for 80 percent LTV loans. The effective rate decreased 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.
Ann O’Rourke, MAI, SRA, MBA
Appraiser and Publisher Appraisal Today
2033 Clement Ave. Suite 105, Alameda, CA 94501