Newz: Freddie Mac Insights, HUD Bias charges against Appraiser, Lender and AMC, ROV Guidance
July 26, 2024
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What’s in This Newsletter (in Order, Scroll Down)
- Judicial Appraiser Panels
- Appraisal Insights With Freddie Mac
- HUD Charges Appraiser, Appraisal Management Company, and Lender with Race Discrimination
- Agencies Finalize Interagency Guidance on Reconsiderations of Value for Residential Real Estate Valuations
- ‘Twisters’ Begs the Question: Can You Truly Tornado-Proof a Home? A Reality Check
- Southernmost House in Continental U.S. Is for Sale in Key West (It’s Next to the Buoy) for $18.5 million
- Mortgage applications decreased 2.2 percent from one week earlier
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Appraisal Insights With Freddie Mac
by Scott Reuter, Freddie Mac
One of the goals at Freddie Mac is to help lead the way toward a more transparent and equitable housing finance process. Across our many priorities, we’re committed to offering trends, best practices and insight to the industry. As strategies continue to develop and evolve, we believe it’s important to engage and communicate with stakeholders, so here are three key items we believe appraisers should keep top of mind in 2024.
1. More Objective Appraisals
An important component to transparency is ensuring that appraisal reports for loans sold to Freddie Mac are free of subjective or potentially biased language…
2. Market Conditions Analysis
Market conditions analysis is the backbone of an appraisal. It’s a necessary step in developing credible reports. This analysis is the study of market area conditions and the changes in price levels over time…
It’s important to note from a development perspective that market conditions must be analyzed on every appraisal assignment. Market adjustments should not be viewed as a filler adjustment. Market conditions adjustments are technically among the first modifications that should be made, before accounting for physical differences. Taking shortcuts here diminishes the reliability of the adjustments that follow and the overall credibility of the appraisal report.
3. Quality vs. Condition
While most appraisers demonstrate a solid understanding of the quality and condition ratings, Freddie Mac still sees inconsistencies in the way these are reported. As might be expected, most of the issues for reported condition fall between the definitional lines of C3 to C4 and C4 to C5.
Also, there seems to be a notion by some appraisers that a C3 condition is equal to “average.” Please be mindful that a C3 home is described as generally well-maintained and showing minimal physical depreciation from regular wear and tear. In contrast, a C4 condition applies to a home that’s adequately maintained, has slight deferred maintenance and minor physical wear and tear, and may need cosmetic or minor repairs.
The author, Scott Reuter is single-family chief appraisal officer for Freddie Mac. He is a certified general appraiser with more than 30 years of experience in valuation, appraisal and collateral risk management concerns.
To read more, Click Here
My comments: Well written and practical. Worth reading, with good tips and links for all the topics. If you do residential lender appraisals, read this article.
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HUD Charges Appraiser, Appraisal Management Company, and Lender with Race Discrimination
Excerpts from Press Release: HUD’s Charge against the appraiser, Maksym Mykhailyna; appraisal company, Maverick Appraisal Group; appraisal management company, Solidifi U.S. Inc.; and lender, Rocket Mortgage, LLC, alleges that the appraiser issued a discriminatory appraisal that undervalued a Black homeowner’s property on the basis of her race. The Charge further alleges that, when the homeowner complained to Rocket Mortgage, Rocket Mortgage would only proceed with her refinance loan application based on the appraised value that she alleged was discriminatory.
Other recent appraisals of the same property had steadily increased in value, yet this appraisal resulted in a dramatic drop, despite the Denver market experiencing substantial growth in home values at that time.
To reach that low number, the appraisal was rife with inaccuracies and unsupportable methodological choices (such as relying on comparable properties in neighborhoods with greater Black populations and excluding potential comparable properties in neighborhoods with greater white populations) that not only artificially lowered the appraised value but deviated from Mr. Mykhailyna’s own methodology and findings about the relevant neighborhood in appraising similar, nearby properties with White owners.
Both Solidifi and Rocket Mortgage reviewed the appraisal report but failed to correct it despite several red flags. When the homeowner complained to Rocket Mortgage, she was told she could only proceed with her loan application based on the appraisal that she alleged was discriminatory; ultimately, her application was denied.
To read the HUD press release, Click Here
To read the 7–page document, Click Here
To read Peter Christensen’s brief comments on this case Click Here
To download other bias documents from Peter, Click Here
Comments by Denis Desaix, MAI, SRA in National Appraisers Forum Google Group, July 15, 2024
So far, HUD has not opened the floodgates on these discrimination cases. I suspect for two reasons:
1. Most have been unfounded.
2. They were hoping to find a case that was rock solid (once they score a notch in the belt, it provides leverage to negotiate future cases). This may be the rock solid case.
In reading the allegations, I can hypothesize that the issues are lack of competency and appropriate diligence as well as inadequate communication in the report rather than racism. But, in a case where one can reasonably argue that racism explains why the process penalized the property (valued it lower than it otherwise would be) and the ones who were harmed are a protected class, racism/discrimination as a cause is on the table.
Most damning is the indication that the appraiser has valued properties in the same neighborhood but for those who were white-owned, the appraiser went to the higher value areas vs. where he went for this particular property. Not said is if they were all 2-4 properties.
Also, in this case, the borrower complained to the lender but the lender apparently did not raise those issues with the appraiser. It is hard to say if the complaint did get to the appraiser, if that would have made a difference. However, for complaint purposes, it doesn’t matter; the original report, signed, is the one the lender relied upon and that is the one the appraiser is going to have to live with.
For typical assignments, I see more errors in 2-4 appraisals than I do in any other kind of property type, including vacant residential land (proposed construction requiring an as is and prospective value are not “typical” in my book of definitions). It is shocking that many appraisers appraise a multi-unit rental property with the same adjustment process as they might for a one-unit, owner-occupied unit. And when asked to provide their reasoning of selecting a GRM, how many cannot provide one (they simply average the comps’ GRM… which are sometimes based on incorrect or missing rents).
We don’t know the full story. But I’ll take the complaint’s word at what it summarizes as the factual allegations are, indeed, factual. The defense against such allegations is to prove they are not factual, or to provide a reason why, if they are factual, the interpretation of the analysis is wrong (i.e., the reason I didn’t adjust positively for the basement area is because I have market evidence that such amenities are not valued at this time, blah, blah, blah). Without that, one is toast when it comes to a discrimination charge.
The defense of, “I’m not a racist, I’m just incompetent” might be factually true, but one would have to then prove that they are an equal-opportunity incompetent by showing other appraisals completed for white-owners had the same kind of flaws and errors. In the complaint, it only says that other appraisals done for white-owned properties in the subject’s neighborhood went to superior-value areas of the market and the appraisal for the black-owned property went to inferior-value areas when similar sales with higher values were near and more proximate:
“Mr. Mykhailyna only used comparables to the east of the Subject Property, even though he had found closer duplexes with relevant similarities to the west that had higher sales prices.”
My comments on Denis’ comments: This in included as an alternative appraiser view of the case. I have known Denis for many years. He is an excellent writer who is very good at explaining issues. Reprinted with permission. Published in National Appraisers Forum, the only appraiser social media I follow and have been reading it every day for many years.
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Threatened with a Lawsuit?
By Claudia Gaglione, Esq.
Excerpts: At some point in your appraisal career, someone will probably accuse you of making an error in an appraisal report. Perhaps you will receive a nasty phone call from a property owner, or an attorney may send you a threatening letter. What should you do?
OPTION #1: Ignore the call or letter
Maybe they just reached out to you to see if you would respond and if you
don’t respond maybe they will go away and leave you alone. It’s possible, but
unlikely, especially if whoever is complaining hired an attorney..
OPTION #2: Handle the situation on your own
Maybe you think you didn’t do anything wrong, but you don’t want them
going to the State Board and you’re afraid that if you report the threat to your
insurance, your premium will go up…so you think you might as well just take care of it yourself…
OPTION #3: Contact your E and O insurer for advice and guidance
Neither Option #1 nor Option #2 is a good approach to take in this situation.
If someone is serious enough about their claim that they engaged an attorney, they probably are not just going to forget about you…
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Agencies Finalize Interagency Guidance on Reconsiderations of Value for Residential Real Estate Valuations
July 18, 2024
Excerpts from the Letter: The guidance Describes the risks of deficient residential real estate collateral valuations that remain uncorrected.
Highlights how financial institutions may create or enhance existing ROV processes that are consistent with safety and soundness standards, comply with applicable laws and regulations (including nondiscrimination requirements), preserve appraiser independence, and remain responsive to consumers.
Provides examples of policies, procedures, control systems, and complaint resolution processes that may help financial institutions identify, address, and mitigate risks of deficient valuations, including those that may have involved discrimination.
Describes actions that financial institutions may take to resolve valuation deficiencies, including resolving the deficiencies with the appraiser or preparer of the valuation report; requesting a review of the valuation by an independent, qualified, and competent state certified or licensed appraiser; or obtaining a second appraisal or evaluation.
Reminds financial institutions that the use of third parties in the appraisal review process does not diminish their responsibility to oversee those activities in the same manner as if they were conducted by the institution itself.
To read the short Letter, Click Here
To read the full 35-page document, with some interesting excerpts from public comments, including appraisers, Click Here
My comments: If you are a residential lender appraiser read the Letter and the full document. ROVs have been a mess. Hopefully this will help. I have never done one, so can’t speak from experience. But, I very seldom had lenders ask me questions, except telling me I forgot the value or had a typo on the address!
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‘Twisters’ Begs the Question: Can You Truly Tornado-Proof a Home? A Reality Check
Excerpts: Tornadoes are favorite movie fodder—from “Wizard of Oz” to the latest summer hit “Twisters” — but for homeowners who live in tornado-prone areas, there’s nothing entertaining about them.
According to the National Weather Service, the U.S. experiences around 1,000 tornadoes each year—and that number is on the rise. The past four years have been the most tornado-heavy on record, and in May 2024, there were 125 tornadoes recorded over a one-week period in the U.S.
Climate change is largely responsible for the uptick in events, says Anne Cope, who studies tornadoes and is the chief engineer for the nonprofit Insurance Institute for Business & Home Safety.
The explosion in home construction in tornado-prone areas has increased the possibility of damage: Since homes are now closer together than ever before, there’s a greater likelihood that debris and detritus from one home can cause damage to another.
Kansas, Oklahoma, South Dakota, Iowa, Nebraska, and parts of Texas make up what’s known as Tornado Alley, an area of the Midwest that has historically had the most tornado activity. Not surprisingly, they are among the states with the highest insurance premiums in the country.
But tornadoes have been known to occur in every part of the country, including New York City, where a 2010 tornado caused more than $65 million in damages. Nationwide, tornadoes caused $708 million in damages in 2022.
So what should homeowners know about tornadoes, and how can they protect themselves—and their homes—in the event a real-life twister hits?
While you can’t truly “tornado-proof” a house, one big way that homeowners can protect their property is to understand local building codes. Many tornado-prone areas have particular guidelines on how houses should be built, and they offer provisions on how to retrofit an existing home to better withstand tornadoes.
“Reinforced concrete and steel are strong and durable and provide better resistance to high winds and flying debris,” says ServiceMaster Restore’s Duncanson, vice president of training and development…
To read more, Click Here
My comments: This is a very interesting article. Worth reading. I grew up in Oklahoma’s “Tornado Alley” and moved to California in the 1960s. When there was a tornado alert we all went into our very small “root cellar”. Until I read this article, I knew nothing about staying safe.
I still have not decided which is worse: Tornadoes that occur regularly and can be forecast, or “The Big One” (earthquake) where I live in the San Francisco Bay Area. We hope for a 5 minute warning… someday :<
I will watch the new Twister movie.
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Southernmost House in Continental U.S. Is for Sale in Key West (It’s Next to the Buoy) for $18.5 million
Excerpts: 5 bedrooms, 5.5 baths, 4,008 sq.ft., 0.4 acre lot, Built in 1958
The home that sits where the Atlantic Ocean meets the Gulf of Mexico in Key West, FL, is for sale for the first time in 30 years.
The southernmost house in the continental United States sits right next to the “Southernmost Point” buoy, where the Atlantic Ocean meets the Gulf of Mexico, a landmark that draws crowds of tourists. A plaque on the outside wall of the property denotes its status as indeed the southernmost home.
Outside, the pool overlooks the open water and the pool deck has a colorful mosaic noting “North America begins here.”
“My favorite part of the house is the location and the views from the back porch and pool area,” Gvili says. “It’s the best view of the Gulf and the Atlantic.”
The property could use some work and the seawall needs a partial restoration, the listing notes.
The Army Corps of Engineers has green-lit the construction of a dock on the property. The approval letter conveys with the sale.
The home is licensed to be used as a nightly rental (the current owners have used it as their primary residence, however), and it’s located in a commercially zoned area. The buyer could turn the place into a museum or something else.
To read more, Click Here
To read the listing with a virtual tour and 87 photos, Click Here
My comments: Driving from Miami to Key West on the Overseas Highway is one of the most scenic drives in the world and a true bucket list adventure.
Many years ago I drove to Key West from Orlando along the relatively narrow road that was just above the water. As a long time sailor, I loved the drive and spent about a week in Key West. Fascinating. Watched the sunset every day, of course
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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, Click Here.
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 go to www.appraisaltoday.com/order Or call 510-865-8041, MTW, 7 AM to noon, Pacific time.
My comments: Rates are going up and down. Many appraisers are not busy. Some are busy, usually with non-lender appraisals.
Mortgage applications decreased 2.2 percent from one week earlier
WASHINGTON, D.C. (July 24, 2024) — Mortgage applications decreased 2.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending July 19, 2024.
The Market Composite Index, a measure of mortgage loan application volume, decreased 2.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 2 percent compared with the previous week. The Refinance Index increased 0.3 percent from the previous week and was 38 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index decreased 4 percent compared with the previous week and was 15 percent lower than the same week one year ago.
“Mortgage rates continued to ease, with the 30-year fixed rate dipping to 6.82 percent, the lowest level since February 2024,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Refinance applications were up, driven by conventional and FHA application activity, as some borrowers took the opportunity to act. Furthermore, the conventional refi index was at its highest level since September 2022.”
Added Kan, “Purchase applications decreased as ongoing affordability challenges persist with rates at their current levels and with home-price appreciation still strong in many markets.”
The refinance share of mortgage activity increased to 39.7 percent of total applications from 38.8 percent the previous week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 5.8 percent of total applications.
The FHA share of total applications decreased to 13.4 percent from 13.5 percent the week prior. The VA share of total applications decreased to 14.8 percent from 15.2 percent the week prior. The USDA share of total applications remained unchanged at 0.4 percent from the week prior.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.82 percent from 6.87 percent, with points increasing to 0.59 from 0.57 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate decreased from last week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $766,550) increased to 7.09 percent from 7.07 percent, with points decreasing to 0.54 from 0.57 (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 decreased to 6.71 percent from 6.75 percent, with points increasing to 0.86 from 0.81 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 6.21 percent from 6.49 percent, with points increasing to 0.51 from 0.50 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
The average contract interest rate for 5/1 ARMs decreased to 6.19 percent from 6.33 percent, with points decreasing to 0.52 from 0.58 (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.
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Ann O’Rourke, MAI, SRA, MBA
Appraiser and Publisher Appraisal Today
1826 Clement Ave. Suite 203 Alameda, CA 94501
Phone: 510-865-8041
Email: ann@appraisaltoday.com
Online: www.appraisaltoday.com
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