8 Common Violations Made by Appraisers
By Dan Bradley
When it comes to appraisal non-compliance with USPAP, certain violations are, unfortunately, somewhat common… I have compiled this list based on many years of personal experience as a reviewer and a state regulator, as well as feedback I have received from other states’ enforcement agencies. Once you’re aware of these common missteps, you should be able to avoid them more easily.
Excerpts:
1. Use of inappropriate sales
One of the most serious issues is the use of inappropriate sales in a sales comparison approach. Sometimes the sales used by the appraiser are dissimilar in physical characteristics, e.g., they are all larger, better quality, or in better condition than the subject, and are not properly adjusted.
In some cases, the appraiser goes some distance away to find sales, but other sales are available in close proximity to the subject. An appraiser should always explain the search parameters and why the comparable sales were chosen. Generic, boilerplate statements such as, “The best and most similar sales were selected and utilized,” should not be used.
3. Failure to analyze sales history
Most appraisers include information about prior sales and transfers of the subject property in their reports. Omitting this information is never a good idea; after all, it is easy for an underwriter or reviewer to check this information right from their desk. However, merely disclosing the date and sale price of a prior sale or transfer is not sufficient to meet USPAP requirements. The appraiser must also analyze the prior sale or transfer and provide a summary of their analysis in the report.
7. Mischaracterization of the subject property
Another (unfortunately) common violation is mischaracterization or misrepresentation of the subject property. During my term as an appraisal board member in my state, I encountered several cases in which a mixed-use property or commercial property was appraised as a residential property so a borrower could obtain a residential mortgage.
To read more, including all the violations, Click Here
My comments: The blog post is well written, relatively short, and worth reading, if only for reminders. In last week’s newsletter, Dan Bradley’s first name was misspelled as Dave, his brother. My apologies. I don’t like anyone misspelling my first name as Anne, not Ann, my correct name!
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NOTE: Please scroll down to read the other topics in this long blog post on GSEs outsourcing AI for appraisal photos and Privacy issues, ROVs, mortgage rate forecast, current real estate market, unusual homes, mortgage origination stats, etc.
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$25M California Estate With a Private Mountain in Somis, CA
Excerpts: 8 bedrooms, 11.5+ baths, 19,660 sq.ft., 22 acre lot, built in 2008
Known as El Palacio Del Solano, the 22-acre property in Somis, CA, boasts a main residence, two-bedroom guesthouse, and an event space designed for grand-scale entertaining. The “ultra-private compound” in the hills of Southern California drew the most clicks on Realtor.com® this week.
Built in 2008, the luxury estate last traded hands in 2021 for $6,250,000. Dubbed “the holy grail of Somis,” the mansion’s lavish amenities include a home theater, massage room, wine cellar, sports court, an arcade room, a lazy-river pool, and a motor court for up to 20 vehicles.
The Spanish-style residence was designed for large-scale entertaining with a wine-tasting room, grand formal dining room, and an outdoor kitchen with multiple seating and entertainment areas. This home’s private massage room, primary suite with sauna, and lazy-river pool were all designed for relaxing.
A spacious four-car garage is attached to the facility equipped with volume ceilings ideal for parking event vans, trucks, and small to mid-size buses. An estimated range of fifteen to twenty cars could comfortably be parked in the driveway and motor court spaces.
To see the listing with 40 photos, Click Here
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Fannie, Freddie’s Offshore Gambit Imperils Privacy of Millions
By Jeremy Bagott, May 20, 2024
Excerpts: Mortgage giants Fannie Mae and Freddie Mac are reportedly “bench-testing” an arrangement with a foreign AI firm in which the offshore firm will data-mine millions of images showing the personal spaces of U.S. homeowners and tenants.
If your home was appraised for a refinance or new mortgage in recent years, the lender likely sent a “property data collector” to take photos of your kitchen, living room, and each of your bedrooms and bathrooms. (Pressured by the Biden administration, government-backed enterprises Freddie Mac and Fannie Mae are instructing lenders they no longer need to use state-licensed appraisers for the task.) The images of your home’s interior spaces, along with identifying information, were then likely uploaded to a server run by a vendor.
Now, according to a source, Fannie Mae and Freddie Mac have potentially caused millions of these images to be made available to an artificial-intelligence company headquartered in Barcelona, Spain, known as Restb.ai. The images are then harvested for information with the help of artificial intelligence.
To read the post plus appraiser comments, Click Here
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Comments from Denis Desaix, SRA, MAI
Editor’s Note: Originally posted on the National Appraisers Forum Google group, which I read regularly.
I think Bagott’s issue is a legitimate concern. I wouldn’t want the interior photos of my home being catalogued by some third-party vendor that were taken related to a mortgage finance transaction I was engaging in. Ditto the floor plan. The data won’t be limited to what is gathered by property inspectors; however, appraisers’ data will also be in that mix.
The fix sounds relatively simple: Require Fannie/Freddie (or any regulated lender, if you will) to process the image-data in-house and maintain it under their control. The counterargument is that if we are going that route, then let’s classify the image data as personal financial information and cover it under the same rules that other consumer financial information is covered by.
However, it seems to me that Bagott’s editorial strongly implies that the imagery data will be identified with a specific consumer/consumer address. I’m not sure that is the case nor would it be necessary to do the analysis Fannie describes.
Here is how Fannie describes the process (from the link Bagott provides):Let’s walk through a process that uses this technology to validate the quality/condition ratings of the subject’s interior compared to the comps and (if applicable) previous photos of the subject.
1. A File# or other tracking number can identify the subject. The address need not be identified.
2. The identity of the comp’s address is less problematic, assuming the photos used are those available for public use. If the photos come from Fannie’s comp database, they, too, can be assigned a tracking number.
3. The vendor works its magic (I would encourage anyone interested at this stage to visit the one identified vendor webpage (https://restb.ai/) and especially click the link to “Appraisals and Inspections” to see how the product can be used for the stated purpose). And, by the way, at least one prominent appraisal forms provider is listed as a customer of this vendor; there are other names that many will recognize as well.
4. The results come back: the subject’s identity isn’t disclosed and remains unknown.
5. Finally, the vendor’s use of the photos is limited by contract, with stiff penalties for violation. If that doesn’t satisfy legitimate security and personal information requirements, the system can be licensed to Fannie/Freddie, and they can run it in-house.
Since we don’t know what protections against potential abuse (if any) are being put into place, there is legitimacy in asking about that and having a concern. In this case, I happen to have those questions and share that concern. Kudos to Bagott for raising them publicly.
I do take issue with Bagott on a number of his opinion pieces (not all, but enough to say “many”). But that’s OK. His pieces are not what I would call news articles. They are editorials (as they present his view on a certain item) or press releases (announcing something for purposes of an advocacy agenda and not necessarily for information purposes so one can fairly evaluate the issue’s pros and cons).
Many of my posts on this forum could be called editorials, although I try to present a balanced picture. Then, I’ll advocate my position and give the reasons why. We’re all free to express our opinions (we do so here within the limits of the forum rules and usually with professional decorum) as we see fit. That’s healthy.
But if our posts appear one-sided or present what appears to be an incomplete description, that typically generates more questions. Those questions, left unanswered, chip away at the strength of the post’s point. So, should it be with Bagott’s editorials; in this case, he raises a valid point, but it seems to me that there is a practical way to eliminate the concerns he raises. Acknowledging that possibility adds additional strength to the argument that this process must be more transparent so we are satisfied it isn’t being abused.
But that’s my editorial opinion; each of us is free to have our own, and all of us are free to debate the other’s opinions.
My comments on Denis’ post: I have known Denis for a long time. He is very savvy and reviews residential appraisal reports for several lenders. He sees a lot of appraisal photos.
My comments: Bagott’s emails are sometimes a bit “over the top” for me, but this one is worth reading. To subscribe to Bagott’s emails, Click Here
When I appraise a house that needs work, the photos always seem to look better than reality. I always comment on this in my appraisal report.
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ROV, Part 2
By George Dell, SRA, MAI, ASA, CRE
Excerpts: ROV (Reconsideration of Value) is now in the boat. Is it safe?
We suspect this will be a long row to get to the chosen island. Just row!
It may be good to start where any good study starts. “What are the words?” The only two words here are “reconsider” and “value.” Let’s look at these. (Sometimes just looking at the words can sort things out.) Different words mean different things to different people!
Reconsider: “To consider again, especially for a possible change of decision” … “especially with a view to changing or reversing.”
Value: “The worth or usefulness something.”
The new Fannie Mae Selling Guide section discusses the process to changes to the appraiser opinion of value. One more word might be important here: “Appraisal.” Appraisal is defined as the act or process of developing an opinion of value, or the opinion of value itself. An opinion.
Ah. This simplifies things. An official ROV wants you to change your opinion. Usually, if not always, this means “You came in too low.” But you already knew that …
The official ROV process includes a procedure for when the value:
is unsupported;
is deficient (due to unacceptable appraisal practices); or
reflects prohibited discriminatory practices.
Whew! A lot to think about here.
To read the full post, Click Here
My comments: If you work for lenders, read this. Very well-written, short, and understandable.
The May 10 issue of this newsletter had a long section on ROVs. To read the issue, including George Dell’s ROV Part 1, Click Here
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Fannie Mae May Mortgage Rate Forecast
Excerpts: Longer-term interest rates, including mortgage rates, have been volatile the past two months – first rising in response to stronger than expected economic data, and then a more recent decline on weaker readings. Despite this, we view economic growth and inflation as being on the same track as our prior outlook, and we continue to anticipate moderation as the year progresses.
We also continue to expect the Federal Reserve to implement the first of two rate cuts this year in September as inflation measures moderate, gradually trending toward the Fed’s 2-percent target. However, we believe the Fed is likely to remain cautious as there are still signs that inflation may remain stickier than anticipated.
Consistent with the slower sales outlook, our forecast for total mortgage originations was downgraded modestly to $1.73 trillion for 2024 ($1.81 trillion previously) and $2.08 trillion in 2025 ($2.26 trillion previously).
To read about more Fannie economic forecasts and see the graphs, Click Here
My comment: Reading Fannie’s forecasts are helpful. They have been doing them for a long time and have expert economists and other analysts.
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$2M Home Built From 11 Shipping Containers in Vancouver, WA
Excerpts: 4 bedroom, 3.5 baths, 4,074 sq.ft., 0.4 acre lot, built in 2015
A man with a one-of-a-kind idea created a beautiful residence near the border between the states of Washington and Oregon.
The house on S.E. 164th Avenue in Vancouver, WA, is built from 11 shipping containers of different colors.
“The owner actually built it himself, and he did not miss a beat when he built this,” explains the listing agent, Louise James.
She notes that the owner, who works in the import and export business, decided to build a container house.
“His friends all laughed at him,” she adds, “and said, ‘Oh, you can’t do that.’ So he drew it out on a piece of paper and said, ‘This is how I want it to be’—and it turns out to be this amazing masterpiece.”
Construction began on the 4,074-square-foot house in 2015, and finished two years later. HGTV featured the residence during its construction, on the first season of “Container Homes.”
James tells us she’s never seen anything like this home, with influences from all over the world.
Bridging the gap between East and West, the house features an array of Asian influences.
“It has a Japanese garden outside, and it has Tibetan prayer wheels on the entry,” James says, noting that the Japanese tearoom doubles as a meditation room. In a courtyard, a koi pond is outfitted with aquarium glass, which makes it possible to see the fish from inside the house, in the sunken conversation pit.
To read more and watch the video on the top of the page, Click Here
Note: video may be slow to load, but worth the wait!
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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 increased 1.9 percent from one week earlier
WASHINGTON, D.C. (May 22, 2024) — Mortgage applications increased 1.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 17, 2024.
The Market Composite Index, a measure of mortgage loan application volume, increased 1.9 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 1.1 percent compared with the previous week. The Refinance Index increased 7 percent from the previous week and was 21 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 11 percent lower than the same week one year ago.
“The 30-year fixed mortgage rate declined for the third straight week, dropping to 7.01 percent – the lowest level in seven weeks,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Rates coming down from recent highs spurred some borrowers to act, with increases across both conventional and government refinance applications. VA refinances had a double-digit increase for the third consecutive week, although the current level of refinancing is still well below its historical average. Purchase activity continues to lag despite this recent decline in rates, down 11 percent from a year ago, as potential buyers still face limited for-sale inventory and high list prices.”
The refinance share of mortgage activity increased to 34.0 percent of total applications from 32.0 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.6 percent of total applications.
The FHA share of total applications increased to 12.8 percent from 12.4 percent the week prior. The VA share of total applications increased to 13.7 percent from 12.7 percent the week prior. The USDA share of total applications decreased to 0.3 percent from 0.4 percent the week prior.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 7.01 percent from 7.08 percent, with points decreasing to 0.60 from 0.63 (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) decreased to 7.18 percent from 7.22 percent, with points decreasing to 0.44 from 0.58 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 6.77 percent from 6.86 percent, with points decreasing to 0.88 from 0.94 (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 6.42 percent from 6.61 percent, with points decreasing to 0.54 from 0.65 (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 6.48 percent from 6.56 percent, with points decreasing to 0.55 from 0.66 (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
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