FHA to require valuing green improvements?

Another great commentary from Dave Towne, the appraiser who keeps up on what is happening!! His comments are below this summary of a letter sent by the Appraisal Institute.

Excerpts from AI comments, contained in their Letter about the proposed letter:

Appraisal Institute Lauds FHA for Green Valuation Proposal
The Appraisal Institute and the American Society of Farm Managers and Rural Appraisers on Sept. 2 lauded the Federal Housing Administration’s proposal to allow appraisers to utilize residual techniques – such as cost and income approaches – to analyze market reaction to green and energy-efficiency improvements in the absence of comparable sales.

Under the draft handbook, appraisers would be required to analyze and report the local market acceptance of special energy-related building components and equipment, including solar energy components, high-energy efficiency housing features and components such as geothermal systems and wind powered components. The draft explains that in the absence of sufficient data to perform a paired sales analysis, the appraiser must consider the cost or income approach to calculate an appropriate adjustment.

AI article
http://www.myappraisalinstitute.org/ano/DisplayArticle/PastIssue/Default.aspx?volume=15&numbr=17/18&id=22399

Direct link to original FHA document:
http://portal.hud.gov/hudportal/documents/huddoc?id=SFH_POLI_APPR_PROP.pdf  See page 68. Dated August 27, 2014.

NOTE: this is proposed, not final. If you read the full document, I could not tell what is existing and what is proposed. The comment period has closed.

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Dave Towne’s email comments, sent to those who subscribe to his emails.

On the surface, this appears to be fair … primarily for the property owner/borrower who has applied for a FHA mortgage loan guarantee.

This appraiser agrees that appraisers who do these kind of assignments must have the appropriate competency, training and experience.  Appraisers are going to have to take specialized ‘green home’ appraising CE courses as one aspect of increasing their knowledge.

But the back end unintended consequence of this proposal is how much in additional fee will the appraiser be allowed to charge for providing an ‘approach’ documentation that is Not Required to be completed by USPAP?  The ‘requirement’ to include a CA or IA becomes an additional assignment condition, added to an already more complicated FHA Scope of Work for FHA assignments.

Secondly, these ‘approaches’ rely on accurate documentation for various component costs and analysis of the income stream resulting from the use of various ‘energy efficient attachments’ to the dwelling … something the average home owner/purchaser/borrower may not have access to or knowledge of.  Yet this proposed REQUIREMENT places the appraiser squarely in the middle of the bulls eye.

Third, adding this level of detail extends the time requirement for report completion.  For these kinds of assignments, a cheap fee and the desire of a “48 hour turn time” after inspection probably won’t be realistic.  Everybody connected to this kind of assignment is going to have to realize that the appraiser will need to be properly compensated and is going to need many more hours or days between assignment acceptance and report submittal … and they are just going to have to live with that reality.  (Appraisers are also going to have to learn to say ‘NO’ and negotiate fees and DD’s when it is appropriate.)

If this just becomes another layer-upon-layer of Scope Creep with no ability to recoup time spent with an appropriate additional fee for the REQUIRED added reporting documentation, then FHA may find itself hurting for appraisers willing to commit to this kind of assignment.  (Re-read the sentence above.)

Dave Towne, AGA, MAA
towneappraisals@clearwire.net
www.towneappraisals.com

My comments: I have never seen any adjustment indicated in my market for energy saving residential improvements except maybe once for a new infill completely “green” home. Of course, I live in the “mild climate” San Francisco Bay Area ;> This has been going on for a long time, without requiring dollar adjustments. The old Fannie Mae URARs had grid adjustment lines for energy efficient improvements.

 

Appraisal Today newsletter

How to stem appraiser "low tide"

By Alan Hummel, Chief Appraiser Forsythe Appraisal

Excerpt:

The topic may seem peculiar at a time when mortgage originations are down from the heyday of the early 2000s, but if the issue isn’t addressed now, a shortage of qualified residential appraisers could have a dampening effect on the mortgage market at precisely the moment when it is trying to regain its past vibrancy.

The decline in the numbers of appraisers entering the profession can be attributed to many factors including (but not limited to): qualifications and licensing requirements, the economics involved in training, and unwillingness on the part of some financial institutions to allow trainee appraisers to perform services. The most significant obstacle for many trainee appraisers is completing the 2,500 hours of required experience to achieve Certified Residential status, after the education component has been completed.

My comment: The only answer is for lenders to allow trainees to “sign on their own”.Hummel proposes a training program. But, I don’t see this happening on a large scale.  Since Fannie and Freddie started loan securitization in the 1970s, the volume of appraisals needed has been very, very cyclical. Before licensing, most appraisers were employees of lenders. Lenders solved the problem by hiring armies of trainees during boom times and then laying them off when volume dropped. Few appraisers are employees of lenders now. Fee appraisers have been expected to train new appraisers. Lenders paid them a salary and experienced salaried appraisers were the supervisors. But, fee appraisers are not set up for it – no time, minimal supervisor training, little economic incentive, etc.

Read the full article at:
http://www.housingwire.com/articles/31233-how-to-stem-appraiser-low-tide

Appraisal Today newsletter

Fannie looking at adjustment

From AppraisalPort’s monthly newsletter

Author: Steve Costello, who attended the recent Valuation Expo
Excerpts:

“Fannie Mae’s Murphy stated that over the past year, the GSE had been focusing on “quality” and “condition” ratings of comps used in multiple appraisals by the same appraiser and found many cases where the appraiser has changed the quality and/or condition ratings on the same comparable from appraisal to appraisal.  Now, based on the examination of the Uniform Appraisal Dataset (UAD) data, Fannie Mae’s focus for the next 12 months will be on adjustments.  The data indicates that many appraisers are not using proper methodology to make their adjustments.  Murphy stated that some appraisers are still using the old standard $20-$40 per square foot adjustment on properties that are easily valued at $500-$650 per square foot.”

“Murphy explained that Fannie Mae is planning to re-evaluate appraisers based on their adjustments and the GSE will expect appraisers to comment on all adjustments if necessary. And, ‘it will be necessary,’ he said, adding that Fannie has seen a lot of under adjusting. To be safe, appraisers should document their logic and reasoning for making any specific adjustments.”

My comment: The easiest adjustment is time. Fannie got that done by requiring 1004MC. The next easiest adjustment is sq.ft. – very easy and reliable using statistics. Of course, as we all know, unless you are appraising a conforming tract home, it is very, very difficult to “prove” all your adjustments. If you know the local market makes adjustments, they should to considered in your appraisal. State regulators are looking for support for adjustments. I am seriously thinking about not using dollar adjustments for 1-4 unit appraisals. Many years ago there was a Fannie form that just required plus and minus adjustments.

I seldom make any dollar adjustments on my apartment and commercial appraisals except for time adjustments, which are easy to support. I find it very strange that residential appraisals have such a high standard. I guess it is due to the lenders telling appraisers what they have to do. I am so glad I don’t do any residential lender appraisals any more. I never like them telling me how to do my appraisals.

I don’t know how Fannie will evaluate adjustments. I make many of my adjustments on a qualitative basis as I work in an area where most homes were built prior to 1920 and are very dissimilar. I know what my market wants, and doesn’t want. If I am not sure, I ask local real estate agents. Of course, they seldom know the dollar amount.

I wonder how well “bracketing” will work for adjustment support?

click here to read the full newsletter
http://www.appraisalport.com/news_events/newsletter.aspx?id=683bbe16-bc37-4573-a436-6a680b2882e0

Appraisal Today newsletter

Mortgage forecast – loans predicted to drop 30% in 2014

Mortgage forecast – loans predicted to drop 30% in 2014
Mortgage Bankers Association, September 2013

Commentary (9/24/13)

Excerpt:
We expect housing starts and home sales to continue to
increase, as home prices continue their recovery. Rising rates have already caused refinance activity to drop significantly, but home buyers who are able to and need to purchase a home will likely adjust accordingly in the current rate environment to complete their purchase. The Fed’s delay in tapering asset purchases has pushed rates down slightly, but we expect
that this is just a pause and rates should continue to increase in the coming months.

Our forecast is for mortgage originations to total $1.6 trillion in 2013, with $989 billion in refinances and $616 billion in purchases. Originations will drop to $1.1 trillion in 2014 as refinances drop to $388 billion, while purchase originations should continue to increase to $703 billion.

2013 actuals and forecast – mortgage loans – in billions
Q1       Q2      Q3       Q4
482     494     369     260

2014 forecast
Q1       Q2    Q3    Q4
251     283     290     267

Interest rates – in percent
2013 actuals and forecast
Q1      Q2    Q3    Q4
3.5     3.7     4.6     4.8
2014 forecast
Q1      Q2    Q3    Q4
4.8     4.9     5.0     5.1

For the full MBA finance commentary, go to
http://mbaa.org/NewsandMedia/PressCenter/85717.htm

Appraisal Today newsletter

Fewer appraisers in the future – fees and turn time?

In last week’s email I reported these results:

www.appraisalport.com  poll

With few new people currently entering the appraisal profession, do you foresee a shortage of appraisers at some point?

Yes, in the next few years. 2,705 votes 47%

Yes, but it=s probably years down the road. 1,603 votes 28%

No, I don=t think we will see a chronic shortage. 1,137 votes 20%

Not sure. 253 votes 4%

Total votes: 4,818

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This is a followup to that poll

As a follow up, do you think the future shortage of appraisers will affect fees and turn times?

Yes, at some point it will. 3403 vote (70.6%)

No, I don’t think it will have much effect. 663 votes (13.8%)

No, I don’t think we will see a chronic shortage. 528 votes (11%)

Not sure. 224 votes (4.6%)

Total Votes: 4,818

Appraisal Today newsletter

Will there be an appraisal shortage in the future?

www.appraisalport.com poll

With few new people currently entering the appraisal profession, do you foresee a shortage of appraisers at some point?

Yes, in the next few years. 2,705 votes 47%
Yes, but it’s probably years down the road. 1,603 votes 28%
No, I don’t think we will see a chronic shortage. 1,137 votes 20%
Not sure. 253 votes 4%

Total Votes: 5,698

Until appraiser licensing 20 years ago, most residential appraisers worked for lenders. When it was busy they hired armies of trainees. When work slowed down many were laid off. With the cyclical fees in AMC work and many lenders not allowing trainees to sign appraisals, it is not financially feasible for fee appraisers to train.

I assume that lenders will allow trainees to sign at some time as the inevitable cycle of weak vs. strong regulations shift. I have no idea when this will happen. This is the easiest way to fix the problem. Low AMC fees when business is slow is more complicated as it reduces the financial incentive for fee appraisers to hire trainees and give them part of the fee.