Blog

By William K. Black

Excerpts:

On July 9, 2013 I participated in a radio interview with a lobbyist for the 100 largest financial firms.  The San Francisco radio program host asked me what question I would ask the lobbyist and I said that any discussion should begin with allowing him to state his view of what caused the crisis.  In the course of his explanation, he bemoaned the fact that there was no warning about the crisis.

I found this ironic because I had just published that morning an article about how the appraisal profession warned us that the senior officers controlling the mortgage lending firms were engaged in pervasive “accounting control fraud.”

Note that the appraisers’ petition began in 2000 and was public.  When the regulators and prosecutors did nothing in response to the appraisers’ warning the appraisers delivered it to government officials to ensure that no one could say they were not warned.  What tends to be forgotten is that the mortgage industry’s leaders did nothing to restrain the fraud epidemic and a great deal to expand it.  A finance industry representative claiming in 2013 that no one warned the industry of the coming crisis when the warnings began no later than 2000 epitomizes the industry’s death of accountability, integrity, and candor.

My comment: Worth reading. Appraisers got what they wanted – freedom from mortgage broker pressure. But, at a huge cost – low fees and incredible scope creep. Fees are up now, but will go down when lending slows down. Maybe lenders will figure out that scope creep doesn’t help anyone and slows down appraisal production.

http://www.creditwritedowns.com/2013/07/housing-appraisers-warnings-fraud-crisis.html

First American Professional Real Estate Services Releases Automated Value Model For Commercial Properties

Press release excerpt:
First American Professional Real Estate Services, Inc., a leading provider of real estate transaction-based products and services through its Evaluations group, announced today the release of the Indexed Value Report (IVR), an automated valuation model (AVM) for commercial properties.

Used in portfolio management, loan extensions and new originations by commercial lenders and others, the new IVR model incorporates current commercial property sales data from assessors’ offices, covering more than 3,200 counties in the United States.

In an independent reliability test conducted by three professors from Minnesota’s St. Cloud University on 19,000 commercial properties sold within the last year, the IVR estimated that values for these commercial property sales across the U.S. represented an average of 87 percent of the purchase price and a median value of 103 percent of the purchase price. This is considered to represent reliable indications of value from an AVM. Additional information about the new IVR can be found by visiting www.firstamces.com .

My comment: Over the past  20 years, every so often I heard about one of these. None of them were successfully implemented and sold. Of course, the problem, as with residential AVMs, is data. Costar was rumored to be looking at one some time ago. I can’t imagine using assessor’s office information that is publicly available for a commercial AVM. Income and expenses are critical to determining values for many commercial properties.

Click here for the full press release:
http://www.firstam.com/news/2013/65278.html

Click here for more detail on the product and a link to a sample report
http://www.firstamprs.com/products_services/survey_site_coordination/commercial_evaluation_services

A Florida Bankruptcy court said Chase was not liable for appraisal fees not paid by Evaluation Solutions, which is in bankruptcy.

There has been a lot of online discussion about this. I don’t understand the legal issues.

Fortunately, Scot DiBiasio of the Appraisal Institute posted a succinct comment on the Appraisal Buzz email forum. Here is his revised version – succinct and easy to understand.

“This decision is from one Judge in a single U.S. Bankruptcy Court District – the Middle District of Florida.  Another Judge in the same, or different, Court could very easily rule a different way on a different case. And, it remains to be seen whether or not the valuation companies that objected to the Settlement Agreement in this case will appeal to the U.S. District Court or to a Bankruptcy Appellate Panel, where the outcome could change.”

Here’s a link to the recent WorkingRE article on the topic:
http://www.workingre.com/workingre/Bankruptcy-Court-Absolves-Chase-of-All-Liability-page.html

My comment: I like to use California data as trainees were licensed, giving a much better picture that asc.gov, which does not include trainees, only licensed and certified. The number of residential appraisers has always gone way up and down, dependent on mortgage lending volumes. Lenders will start allowing trainees when the number of appraisers get too low. About half the residential trainees/appraisers lose their jobs in the downturns. Nothing new. Commercial appraising has always been much steadier as there was reliable, steady work.

This was posted 5/25 by George Hatch on the very active http://appraisersforum.com 

I’ve been keeping track of the number of licensees in my state (California) for a long time now. As of this morning this is what it looks like:

– The low point in numbers was in 2001-2002, but the percentage comparisons are made against 2000.
– The number of fully licensed/certified residential appraisers last bottomed out at less that 6,000 heads before nearly doubling by 2008.
– The number of CGs have steadily declined each year during the entire time frame except that we had a one-time bump (~170 heads) in 2007 prior to the increase in qualifications criteria.
– Even though the number of fully licensed/certified residential appraisers is 23% lower than the 2008 peak it’s still 36% higher than it was 10 years ago.
– The number of CGs has dropped to within 19 heads of the previous low spot in 2003, and remains 17% lower than the 2000 number. I would imagine this year we’ll lose enough more heads to result in the new low.
– If any of you residential appraisers (in CA) are actually giving serious consideration to restarting your puppy mill operations just remember that the CA market is still grossly overserved relative to the number of appraisers prior to 2005. You’ll be cutting your own throats – again – the next time the markets bust.

By Ann O’Rourke

I recently spoke with a savvy appraiser who is turning down all purchases. Too much hassle and way too much pressure.

In many markets, including mine, there are many multiple offers way over list on almost all sales. In my market, appreciation is increasing on an almost daily basis.

I call multiple offer bids “auctions”. The eventual sales price may, or may not, be market value – the most probable sales price. We had them here in the 2000s boom.

I spoke last week with a local Alameda resident who asked me about appraising her house for a home equity loan. She had read about non-local appraisers coming in way too low. I explained that appraisers are licensed and subject to laws. Also, borrowers could not choose the appraiser. I also explained about the crazy local market. I asked her about the equity in her home. It was a low LTV, so I told her that the value she “needed” was much lower than prices today. I also told her that an appraiser may not be used – an AVM may be used. If an appraiser is used, it may be a “driveby” appraisal where the appraiser did not come inside.

I go on the local broker tours almost every week. I had not been to one for a few weeks and went out yesterday. WoW – what a change!! Prices are increasing at a faster rate – easily up to 4% or more per month.

If I was doing lender appraisals today, I would not accept purchase appraisals either. I hate being a deal killer and subject to pressure. Plus, it is very, very difficult determining current values now.