Appraisal News and Business Tips

lender appraisals

Comp Photos and MLS, Fannie, USPAP, etc.

Appraisalport polls on comp photos

By Steve Costello, www.appraisalport.com

This month I want to discuss three recent polls dealing with comp photos. In the first poll, we asked “With the availability of MLS photos, do you still feel it is necessary to drive by and photograph every comp?” We had a total of 3819 responses and the top two answers were very close. The winner, with 40 percent of the vote, was “Sometimes, it depends on the complexity of the specific assignment.” Coming in a close second was “Yes, I always want to see any property I use in a report” with 38 percent of the vote. The final answer of “No, I would rather just use MLS photos” only scored about half the votes as the first two answers, finishing with 22 percent. This makes sense because I think most appraisers want to look at a comp before they include it in a report, especially if they aren’t already familiar with the property. I can also see where some appraisers are very familiar with the properties in their area, use many of the same comps over and over again, and don’t feel a need to drive by and photograph them every time they use them.

In the next poll, we asked “In your opinion, with MLS, Google, and other photo sources available to clients, the main reason original comp photos are required from the appraiser is:” This poll had 3986 responses and had a pretty clear winner. A full 63 percent of the appraisers chose the answer “To make sure the appraiser actually drives by the comps.” So it looks like most appraisers don’t think their clients care as much about the actual photo compared to just making sure the appraiser actually visited the comp. The answer we expected to be very popular, “To provide the client with up-to-date photos of the comps – ensuring they exist in the stated condition,” only received 22 percent of the vote. A third response of “So the clients won’t have to take the time to look up the photos from one of the sources noted above” didn’t do well, only pulling in 3 percent of the vote. Not a surprise — we didn’t really expect many appraisers to choose that answer. Finally, 13 percent of appraisers went with “Other reason” as the best choice for this question. We really don’t know if there were one or many “other reasons” or what they are.

Finally, we asked “Would you be in favor of eliminating the requirement to include an original photo of every comp as long as a recent MLS photo of the property could be included with your report?” This question was very popular with 4770 total votes. It also produced a landslide vote with 79 percent of the appraisers selecting the answer “Yes.” Only 15 percent answered “No” and would not want to use an MLS photo instead of an original if it were available. A final 6 percent were “Not sure” how they felt about this issue. So, from this poll it is clear that appraisers feel that an original photo is not a necessity to produce a quality appraisal as long as a good representative photo is available from another source like an MLS.

My comment: As we all know, a photo taken at the time of listing from the MLS is often better than one taken later and USPAP does not  require comp photos. Fannie Mae certifications require that the appraiser inspect the exterior of the comp, not take a photo. What about re-using a comp photo? Why the requirement of an “original” photo? To be sure appraisers drive by the comps.

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FHA extends deadline for new Handbook 4000.1 to June 15, 2015

Handbook Implementation Date Extended 90-days to Give Lenders More Time to Operationalize

On April 30, 2015, the Federal Housing Administration (FHA) announced that it has extended the effective date for the policies contained within its new Single Family Housing Policy Handbook (SF Handbook; HUD Handbook 4000.1) from June 15, 2015 to September 14, 2015.

FHA recognizes that there currently are a number of competing initiatives occurring simultaneously in the mortgage industry that may be challenging mortgagee and other industry partner resources. For this reason, FHA is extending the SF Handbook effective date by 90 days with the expectation that this additional time will enable mortgagees and others to be fully compliant with the new effective date.

Link to new handbook 4000.1http://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdf

The bulk of the appraisal section starts on pdf page 441 and runs through pdf page 507.

My comment: We love to procrastinate ;> For appraisers, this means there will be opportunities for webinars and seminars. Also, written explanations. The June issue of the paid Appraisal Today newsletter will have an article on the changes written by Doug Smith, SRA, Montana appraiser. Doug has been writing for the paid newsletter for many years. To subscribe, click on the ad below.

Yes, you can start using the new criteria now. Some people like to get ready ahead of time ;>

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Appraisals-how long to write/how many per week

On average, how long does it take you to complete a 1004 interior inspection appraisal report including inspection time (excluding driving time)?

Another Very Interesting poll from www.appraisalport.com

 My comment: I have been hearing about scope creep causing increased appraisal report writeup times but now there is some data. Significantly increased, and still increasing from pre-AMC days. My non-lender report writing time has not changed from since before HVCC. Appraisalport is a lender portal, so I guess there are some appraisers that write fast and others that write slow. Or, maybe it depends on your clients. AMCs tend to combine requirements of multiple lenders into very long lists of requirements.

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On average, how many “interior inspection” appraisals reported on a 1004 do you normally produce in a week?

My comments: Starting with a conforming tract home close to your office, the time increases, depending on driving time, use of an assistant and client requirements.

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It’s Not a Comp, It’s a Sale – Lies, Damn Lies…and FNMA 'statistics'

Another “good one” by Dave Towne, Washington appraiser and commentator

Something’s been gnawing at my craw ever since January when FNMA’s wonderful CU was unleased to the world.  And before that, which still continues, is the AQM process they still use to judge the work of appraisers.

No one else has written about this, or even mentioned it, so I will: It has to do with the word “Comp” which is used liberally by FNMA.

What exactly is a “Comp?”

In FNMA’s world, it’s any property that they obtain, either by their vast AVM process which examines millions of property transactions, or properties that have been extracted from appraisal reports submitted by appraisers……..yes, your work.  In their fuzzy logic, it’s a “Comp” considered for your report if they say it is.  It is not!

A true “Comp” is a property viewed and/or analyzed by a real living, breathing, mirror fogging appraiser who compares that sold property against the subject property in terms of multiple features, characteristics and amenities.  It is not determined by an AVM or algorithm within the vast bowels of FNMA.  Until the property has such analysis done by an appraiser, it is merely a SALE……it is not a “Comp.”

This FNMA lie really became evident to me on 4/20/15 when FNMA released a news release about how CU has been integrated into their on-line Desktop Underwriter software mortgage lenders use, which you can read here:  http://www.fanniemae.com/portal/about-us/media/corporate-news/2015/6239.html?p=Media&s=News+Releases&from=RSS

Within that news release is this quotation from a VP at a mortgage lender:  “The collateral information that CU provides is invaluable and simply staggering,” said Breck Tyler, Executive Vice President, Trustmark Mortgage Services. “CU has aided in providing important comparable data that was previously unavailable or very difficult to get. CU messages in DU will help streamline appraisal review and make the underwriting of an appraisal a much more informed process.”

Then, FNMA released info directed to Correspondent Lenders who intend to use the CU process in UCDP, but don’t intend to sell the loan to FNMA:  https://www.fanniemae.com/content/fact_sheet/collateral-underwriter-non-seller-implementation-guide.pdf

That has this statement:  “Fannie Mae does not instruct or suggest to lenders that they ask appraisers to address all or any of the up to 20 comparables that are provided by CU for most appraisals.”

I want to repeat what I said above…in case you missed the point:  A PROPERTY IS NOT A “COMP” UNLESS YOU DETERMINE IT IS AND INCLUDE IT IN AN APPRAISAL REPORT.  Otherwise it’s just a ‘sale.’

If you’re an appraiser who liberally uses the word “Comp” in place of a ‘property sale’ I would ask that you be more careful.  If you receive info from a lender, AMC or anyone else who asks you to look at the “Comp” they have provided, correct them and use the words “sale property” until you have determined that it truly is a “Comp.”

I’m also asking members of appraisal organizations and associations to communicate your concern about this lie perpetrated by FNMA directly with them, and ask FNMA to change the word “Comp” used in their CU Reports, news releases, instructional materials, etc. to ‘Property Sales’ so that there is no misunderstanding about the significance of this issue.

If organizations and associations won’t do that on behalf of appraisers, then we might as well kiss the profession of residential real property appraising goodbye. Because if a list of ‘sales’ are considered “Comps” then an actual human appraiser won’t be needed to provide supportable property analysis and market value reports.

Dave Towne
dtowne@towneappraisals.com

www.towneappraisals.com
Mount Vernon, WA

My comment: I have been aware of the difference between a sale and a “comp” for a very long time. I try not to mix them up. It is very important when communicating with lenders and real estate agents, who should already know the difference. I am glad that Dave Towne points out this very big difference.

I have not found it to be an issue with non-lender clients, where I use “comparable sales” which is a much clearer term to use, since few are familiar with the term “comp”.

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Why have AMCs changed so much since HVCC?

AMCs have been around for a long time. The first AMC, LSI, started in the 1960s. Before HVCC, their market share was an estimated 10-15% of lender residential appraisals. There were relatively few AMCs. Now, there are an estimated over 400-500 AMCs.

I have been writing about AMCs in my paid Appraisal Today newsletter since soon after my first issue in June 1992. In the mid-1990s, when lender business crashed in many areas, some appraisers signed up for AMCs to get work. In those pre-Internet days, often specific forms software and transmission methods were required. Fees were lower than for direct lender work but were stable. There were no broadcast orders, shopping for low fees, or Scope Creep. When business picked up, few appraisers continued to work for them. In my area, there were a few larger appraisal companies who did all the work for specific AMCs.

Then HVCC came and most lenders shifted to AMCs to handle their appraisals. Now AMC market share is estimated at over 80%. Fees varied widely. Residential appraisal fees became sensitive to supply and demand. When business was slow, fees went down. When demand for appraisals is high, such as now, fees went up as many appraisers would not work for low fees. Many appraisers, like other business persons, were afraid to turn down work, even with low fees.

Lenders have always wanted fast turn times, to be more competitive and close their loans. Thus, AMCs push for faster turn times.

When working for direct lenders (and mortgage brokers prior to HVCC) appraisers could establish a reputation for accurate and good quality appraisals with their clients. This is still true today with those clients. However, this is not possible with AMCs who have multiple lender clients and ordering that is not done locally and is done by clerks not appraisers.

The greatest change is in the increasing Scope Creep, which has resulted in longer and longer appraisal reports and replying to many questions about appraisals. Unfortunately, much of the additional information does not affect value or make the appraisals more reliable.

Another significant factor is the widespread use of automated review software, including CU, which means that fewer and fewer licensed appraisers are used for reviews.

Even if you don’t work for AMCs, direct lenders are more “picky” but nothing like AMC requirements. Probably because they only manage appraisals for that lender.

Why has this happened? AMCs work for lenders. Lenders tell the AMCs what they want. I suspect that AMCs with multiple clients combine requests from different lenders into one very long engagement letter/list of requirements.

Everyone I have spoken with, from the lender side, says the recent mortgage crash caused lenders to be more concerned about residential appraisals. The previous crash in the late 1980s, the S&L failures, was caused by commercial property loans. There were some changes made to commercial appraisal requirements, but were minor compared with the changes in residential appraisal requirements post-HVCC.

Mortgage lending is a boom and bust business, starting with Fannie and Freddie in the 1970s. They purchased loans from lenders and made refinancing much easier. When interest rates are low, there are lots of loans. When rates are up, loans decline.

Mortgage lending is also boom and bust regarding risk of defaults. Prior to 2008, since the Great Depression, there had never been property value declines that affected the entire country. Statisticians working for lenders, investors, etc. only looked at their data from the past and did not worry about a national meltdown. So, none predicted it. This is, of course, the minus of using statistical data from the past.

What will happen in the future? We will return to the “typical” days of getting mortgage loans with loosened credit requirements. More and more homeowners will not be “underwater” and will be able to refinance. Will residential appraisal “requirements” loosen? No one knows as we have never had so many requirements that keep increasing. Lenders control the requirements. Until they decide that they are causing too many appraisers to quit, want to speed up their loan approval processes, etc. nothing will change. Residential AMC appraisal fees will continue to be cyclical, depending on supply and demand, similar to commercial appraisal fees as long as AMCs are managing appraisals. The less AMCs pay to appraisers, the higher their profits. Maybe lenders will step in and tell AMCs what they must pay their appraisers.

What about direct lenders? There is some scope creep, but not much as compared with AMCs. They don’t shop for the lowest fee. My advice to appraisers is to work for direct lenders whenever possible. Many appraisers with over 20 years of experience still get most of their work from them. When business is slow, they accept AMC work. Another option is to work for AMCs that work for one, or a few, lenders. Then the requirements will not be from a lot of different lenders.

NOW IS THE VERY BEST TIME TO LOOK FOR NEW NON-AMC CLIENTS. WHEN EVERYONE IS BUSY AND TURNING DOWN WORK!! I HAVE SPECIAL REPORTS, LOTS OF MARKETING TIPS FOR NON-AMC LENDER WORK AND ARTICLES ON NON-LENDER WORK IN MY PAID APPRAISAL TODAY NEWSLETTER. www.appaisaltoday.com

 

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Newz Flash: Fannie Mae’s Collateral Underwriter Hacked!!!

A disgruntled man who lost his home to foreclosure did it!! The CU system is completely shut down. No details were available on when, or if, it will be fixed. The un-named man was not available for comment as he is reportedly hiding out in a remote cabin in the woods in a very rural upper Michigan or Canadian location.

He, his wife, and 4 children are now living in a Tiny House on his brother in law’s rural property in Michigan. They lost their suburban 4 bedroom home they had owned for over 20 years to foreclosure. The family has an outhouse, a hand pumped well and wood heat. A small solar power array is used for a computer and Internet connection with a few hours of electricity daily.

Who is in an uproar about this? 

– Not appraisers who don’t like a system that evaluates their appraisals but they don’t know the criteria.
– Not underwriters who are required to learn a new system and do manual reviews of appraisals before sending warnings to appraisers.
– Not loan officers whose deals are taking longer to close. Not borrowers who have to wait longer to get their loans approved.
– Not law enforcement, who don’t think he is a terrorist or a nut holed up with a lot of guns.

FYI, it is April 1 today. You know what that means ;>

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New FHA 4000.1 handbook – effective 6/15/15

New FHA 4000.1 handbook tidbits –

Publish Date: 03/18/2015 | Effective Date: 06/15/2015

The bulk of the appraisal section starts on pdf page 441 and runs through pdf page 507.

Here are a few tidbits posted online from appraisers who spent the weekend reading it ;>

– The Appraiser must obtain all of the following from the Mortgagee before beginning an appraisal: Any other legal documents contained in the loan file…

– Page 454 on Photos. Front and angle shots of the comps. Hallways on 2-4 units

– Handbook replaces all previous documents, including most Mortgagee Letters.

– Page 447 ii, methamphetamine (meth) contamination

– Page 441: The Appraiser must treat room additions and garage conversions as part of the GLA of the dwelling, provided that the addition or conversion space: …

– Provide 3 year prior sales history for the comps

Will this mean increased time for FHA appraisals? Depends on how much you are doing now. Remember the old VC sheets? They were a hassle!!

My comment: It is not effective until 6/15/15. There will be some webinars, online articles, etc. before that date. I will let you know.

Link to new handbook 4000.1

http://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdf

For more details from FHA, see last week’s Appraisal Today email newsletter, in the archives, at:

http://archive.constantcontact.com/fs124/1101648677253/archive/1120449851537.html

For more details from FHA, see last week’s Appraisal Today email newsletter, in the archives, at:

http://archive.constantcontact.com/fs124/1101648677253/archive/1120449851537.html  

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Collateral Underwriter and price per sq.ft. adjustments

Fannie is using this to show that appraisers have been using adjustments that are too low, resulting in less reliable values. They are often low “legacy” adjustments. Also, GLA adjustment is one of the few factors that work well in regression.

I suggest using replacement cost new less depreciation. For replacement cost you can use local builders or cost service such as Marshall & Swift, whichever is more accurate in you area. Then take off depreciation. The result is depreciated cost. Divide by GLA. The result is depreciated cost per sq.ft.

Fannie uses price divided by sq.ft. which does not consider land value or depreciation, information which Fannie does not have available.

For example, builders cost on a property is $100 per sq.ft. Your estimated physical depreciation is 30%. Obviously, $25 per sq.ft. adjustment is not correct. There may be functional or external depreciation, which you can include. Be sure to include how you determined your GLA adjustment in your appraisal.

Market based GLA adjustments are better, such as matched paired sales but the method above will work as a guideline.

Why are adjustments low? To comply with the 15/25% adjustment guideline, which Fannie has removed. It was never a requirement. Fannie has never had a 10% per line adjustment guideline. Of course lenders and AMCs can still require the use of the 15/25% adjustment which could be a big problem for appraisers which can result in less reliable values. I never considered the 15/25 guideline in any of my appraisals, but I never worked for lenders or AMCs who required that appraisals conform to it.

Check out the graphs on GLA and 15%/25% adjustments in the FAQ document below. I included 4 of them in this month’s paid Appraisal Today newsletter.

Get the facts about what Fannie is saying, not just rumor and speculation. Subscribe to the paid Appraisal Today!!

https://www.fanniemae.com/content/announcement/ll1502.pdf

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Collateral Underwriter warning messages and Every Increasing Scope Creep from all sources

My latest opinions and observations, as of today

Fannie does not want appraisers to receive warning messages unless a “human” has reviewed the appraisal report. They want to reassure real estate agents mostly that appraisals will not be delayed. Of course, I have no idea how many underwriters have the time to read the 30+ page report. Maybe they can search the report for what they are looking. I am sure this is/will be slowing down loans.

But, I keep thinking that even if appraisers received a few CU warning messages, it is a small, small percent of all the stips from all the review software that AMCs use. No one seems to notice that appraisals take longer the more stips that appraisers receive. Particularly, when all the stips are not sent at the same time. No one seems to notice this, or care about it, except appraisers!!

These non-CU stips are mostly from arbitrary “rules” which CU does not use. Such as: picky UAD stips, “add 2 more comps”, or please review the list of “comps” from the real estate agent or borrower. Some are still using the 15%/25% adjustment rule.

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CU – subject vs. comp data. I want the subject data!!

Fannie says that typically there are around 7 UAD records per property. However, most of them must be from appraisers who used it as a comp. Why should we be compared with appraisers who used the property as a comp?

I want access to CU property data from appraisers who did an appraisal on the subject property, not from appraisers who used it as a comp. I want CU to use this data to compare my appraisal data with “peers”. Comp data is not very reliable as it usually comes from MLS and public records. Fannie says that MLS and public records are not as reliable as data from the appraiser who appraised the property for the sale.
Maybe the appraiser had seen the interior of the comp recently, but this is very unlikely. Also, I go on the MLS tour/caravan almost ever week, but I don’t spend a lot of time at each open house. Well..I do spend more time if there is good food ;> MLS photos are subject to interpretation as they are done for sales purposes. I make brief notes on the flyers and file them in binders, going back to 1990.

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