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Posts Tagged ‘AMC’

Broken Appraisal: Lack of Market Knowledge Overpowers Lack of Data

January 27, 2013 | 6:06 pm | |

There was a really good appraisal story in the Sunday Real Estate Section this weekend by Lisa Prevost focusing on appraising high end properties whose theme is well-captured in the opening sentence:

As home sales pick up in the million-dollar-plus market, deals are being complicated by unexpectedly low appraisal values.

The higher the price strata of the market, the smaller the data set is to work with so the conventional wisdom seems to be that less data = more unreliable appraisals. However I believe the real problem is lack of market knowledge by more appraisers today as a result of May 2009’s Home Valuation Code of Conduct (HVCC) – the lack of data at the top of the market merely exposes a pervasive problem throughout the housing market.

To the New York Times’ credit, they are the only national media outlet that has been consistently covering the appraisal topic since the credit crunch began and I appreciate it since so few really understand our challenges as well as our our roles and relationship to the parties in the home buying and selling process. Appraising gets limited coverage in the national media aside from NAR’s constantly blaming of the appraisers as preventing a housing recovery (in their clumsy way of articulating the problem, they are more right than wrong).

Here’s the recent NYT coverage:

January 27, 2013 Appraising High-End Homes
January 11, 2013 Understanding the Home Appraisal Process
October 12, 2012 Scrutiny for Home Appraisers as the Market Struggles
June 14, 2012 When the Appraisal Sinks the Deal
May 8, 2012 Accuracy of Appraisals Is Spotty, Study Says
September 16, 2011 Decoding the Wide Variations in House Appraisals

The general theme and style of coverage comes about when Realtors start seeing an increase in deals blowing up that involve the appraisal. The Prevost article indicates that higher end sales are more at risk because the market at the top (think pyramid, not as in ponzi) is smaller and therefore the data set is smaller.

This may be true but I don’t think that is the cause of the problem but rather it exposes the problem for what it really is. I contend that the problem starts with the appraisal management company (AMC) industry and how it has driven the best appraisers out of business or pushed them into different valuation emphasis besides bank appraisals by splitting the appraisal fee with the appraiser (the mortgage applicant doesn’t realize that half their appraisal fee is going to a bureaucracy).

My firm does a much smaller share of bank appraisals than our historical norm these days but it is NIRVANA and we’re not likeley to return to our old model anytime soon.

Since the bank-hired AMC relies on appraisers who will work for half the market rate and therefore need to cut corners and do little analysis to survive, they generally don’t have local market knowledge often driving from 2 to 3 hours away.

Throw very little data into the equation as well as a very non-homogonous housing stock at the luxury end of the market and voila! there is an increased frequency of blown appraisal assignments.

There is always less data at the top of the market – the general lack of expertise in bank appraisals today via the AMC process is simply exposed for its lack of reliability. Unfortunately the appraisal disfunction affects many people’s financial lives unnecessarily such as buyers, sellers and real estate agents (and good appraisers not able to work for half the market rate and cut corners on quality).

The appraisal simply is not a commodity as it is treated by the banking industry. The appraisal is a professional service so by dumbing it down through the AMC process, they have succeeded in nearly destroying the ability to create a reliable valuation benchmark on the collateral for each mortgage in order to be able to make informed decisions on their risk exposure.

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Having Fits With Appraisal In Home Buying Process

January 13, 2013 | 9:27 pm | | Public |

The New York Times Real Estate goes gonzo this weekend with a nice write-up AND a large color artwork on perhaps the least understood part of the home buying process.

No not the radon test…

The appraisal. Can’t live with them, can’t live without them.

Here’s my stream of consciousness on the topics brought up in the article:

  • “Sale and “Comparable” are not interchangeable terms. Really.
  • There is no ratings category for (like totally) “super excellent.” The checkboxes provide good average fair poor with “good” at top end (but fear not, “super excellent” is marked “good” and like total adjusted for).
  • Not all amenity nuances that are important to you as a seller (ie chrome plated doorknobs), are important to the buyer.
  • Not all amenity nuances that are important to you as a seller, are measurable in the market given the limited precision that may exist.
  • Not all appraisers have actually been anywhere near your market before they were asked to appraise your home, so technically they shouldn’t be called appraisers. Since their clients don’t seem too concerned about this, something like “form-filler” seems more appropriate.
  • Most appraisers who work for appraisal management companies are not very good, but some actually are.
  • When an appraiser makes a time-adjustment for a rising market, understanding whether a bank will accept that adjustment or not is (should be) completely irrelevant and quite ridiculous (unless they are “form-fillers” and not actual appraisers). I have always believed that the appraiser’s role is to provide an opinion of the value and that occurs in either flat, rising or falling markets.
  • HVCC was a created with best intentions by former NY AG Cuomo by attempting to protect the appraiser from lender pressure, but it has literally destroyed the credibility of the appraisal profession by enabling the AMC Industry.
  • The 12% deal kill average of an AMC an arm’s length sale properly exposed to the market is absolutely an unacceptably high amount and a major red flag for appraiser cluelessness about local markets.
  • I’ve never heard of a major bank since the credit crunch began who would throw out the original appraisal found to have glaring errors that would severely impact the result. My quote on this nailed that sentiment with brutal precision, if I do say so:
“You have a better chance of winning Powerball than getting a lender to abandon the first appraisal.”



Understanding the Home Appraisal Process [NY Times]

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Appraising for AMCs Can Be Like Delivering Pizza

December 27, 2012 | 10:00 am | Favorites |

I recently appraised a property that was well into the 8-digit value variety – not to sound cavalier but when you are in a market like Manhattan, it’s not uncommon.

What made this assignment different was that I was contacted to appraise this property because an appraisal management company (AMC) was not comfortable using their regular panel of appraisers that do nearly all of their volume (for half the market rate and 48 hours). Although I was leery to accept the request as an exception, I had history with an exec there, they were paying our quoted fee and accepting our turn time requirements so why not?

Here’s how it went:

Day 0 – I am interviewed by the AMC representative to see whether we are experienced in this property type. The AMC rep stresses they want to be “in the loop” at all times.
Day 1 – We are engaged by the AMC to provide the report – we place a call to the property rep.
Day 2 – Property rep calls back and say they want us to inspect 3 days from now. My office informs the AMC rep the appointment via email is set for Day 5. I get a call from the AMC rep asking if a I need any help and I say “no, not at this point since we haven’t seen the property yet.” They follow with “I’ll be calling you every day of this assignment to ensure you have what you need.” I politely ask why they need to call me over the next 3 days before the inspection. The AMC rep says “yes, in case you need help.” I respond that I won’t be doing anything further until I see the property. The AMC rep said something to the effect of “Ok, I’ll wait until you inspect.”
Day 3 – The AMC representative apparently emailed me (instead of calling) but I never received it (gotta love spam).
Day 4 – The AMC representative left me a voicemail on my mobile phone and office phone chiding me because I didn’t respond to the previous day’s email (technically the AMC rep didn’t call me) and they had been forthright in saying they would contact me every day to help me and they needed to speak to me every day. I got the voicemail on my mobile during a different inspection and emailed my office asking them to let the AMC rep know I am inspecting the property the next day.
Day 5 – The AMC rep called to see how we were doing with the assignment. My assistant reminded them we were inspecting the property toward the end of the day and that they had been kept up to date. Near the end of the day I inspected the property and my office let the AMC rep know via email we had inspected the property.
Day 6 – First thing in the morning and my first chance to sit down and work on the appraisal. My office sent them an email telling them I had what I needed and confirmed the delivery date. The AMC rep called my office that afternoon to see if there was anything we needed…

This is how nearly all interaction between AMC and appraisers go. The appraiser is bombarded with meaningless status requests as the AMC industry attempts to commoditize a professional occupation. I assume the AMC rep in my case had a checklist – akin to those dated checklists with initials you see on the back of doors in highway rest stop bathrooms assuring you the bathroom was cleaned each day of the week.

The result has been the crushing of appraisal quality because trained, experienced professionals are opting out of this madness because time = money. Cut the fees 50% and then waste another 30% of an appraiser’s time with this meaningless activity and you don’t end up with a more reliable valuation opinion.

In all sincerity, I take my hat off to those professional appraisers who need to work with AMCs out of necessity that are able to put up with being treated like a teenager on their first job.

It reminds me of the canned customer service interaction we are all forced to do when we interact with a company on the phone. The call ALWAYS ends with the canned “Is there anything else I can help you with?” Yet the relationship was already established and fine up until that point and the authentic nature of the conversation is suddenly over. I pause for a second and say “Yeah, I could go for a large pizza right now.”

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Serious Jibber-Jabber: Lessons from Nate Silver to Filter Out Housing Noise

December 10, 2012 | 7:00 am | TV, Videos |

I really enjoyed this “Charlie Rose”-like interview by late night TV host Conan O’Brien and statistician Nate Silver on his “Serious Jibber-Jabber” series. I recently bought Nate’s book “The Signal and the Noise: Why Most Predictions Fail but Some Don’t” and it’s next on my reading list (actually I bought 2 copies because I forgot I had pre-ordered on Amazon for Kindle and ordered again from Apple iBooks, Doh!).

What I found intriguing about the discussion is how much effort it takes to filter out the noise and get the to meat of the issue as well as getting outside of your self-made insulated bubble to be able to make an informed decision – aka neutrality.

Real estate, like politics, is a spin laden industry whose health is very difficult to gauge if you rely on people and institutions who have a vested interest in the outcome. i.e. Wall Street, rating agencies, government, banks, real estate agents etc.

Some interesting points made:

  • During the bubble, for every $1 in mortgages, Wall Street was making $50 in side bets.
  • Many people during the housing boom saw it was a bubble but didn’t want to miss out. They would see the green arrows pointing up on CNBC screen and it became very hard to be contrarian and be left behind.

The current “happy housing news” that is all the rage seems to draw a parallel with the pundits who got the election outcome all wrong yet all were experienced in politics. The housing herd is disconnecting from what the data is showing.

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[Breaking News] CNN Gives Housing Followers Heart Attack, Case Shiller Up 1.2% YOY

September 25, 2012 | 12:01 pm |


[click to open report]

I like this index chart from the report (2nd chart presented in their report) better than the more commonly used % based chart (1st chart presented in their report) because it provides better context. The recent trend is clearly a small see-saw but still sliding in general. I’m not a fan of the CS index for its 5-7 month lag but since it’s some sort of gold standard for housing, it’s important to point out that this clearly shows housing remains tepid at best.

But more importantly…






Shortly after the S&P/Case Shiller report was released this morning at 9:00am, I got the following CNN Breaking News email at 9:15am:

Home prices in 20 major U.S. cities rise to highest level in nine years, according to a new report.

I just about had a heart attack, wondering how I could be so far off in my assessment of the housing market. However I opened the report and the numbers didn’t show that kind of gain.

At 10:21am I received a followup email from CNN Breaking News:

Correction: Home prices rose in July to their 2003 level, but remain lower than the peak in 2006. CNN’s previous alert erroneously stated that home prices had risen to the highest level in nine years.

Not to single CNN out since this has happened at ABC, Breitbart and Fox.

Speed comes at a price: Accuracy.

Similar phenomenon in the appraisal business. The absurd speed demanded by retail banks and AMCs of their appraisers even after the “lessons learned” in this credit crunch, attracts the wrong kind of appraiser. Speed still trumps accuracy.



Home Prices Increase Again in July 2012 [S&P/Case Shiller]

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[Vortex] Palumbo on USPAP: The Fool’s Gold of AMC Licensing

June 17, 2010 | 10:07 pm |

palumbo-on-uspap

Guest Columnist:
Joe Palumbo, SRA

Palumbo On USPAP is a column written by a long time appraisal colleague and friend who is currently the Director of Valuation at Weichert Relocation Resources and a user of appraisal services. He spent seven years at Washington Mutual Bank where he was a First Vice President. Mr. Palumbo holds an SRA designation, is AQB certified and he is a State Certified residential appraiser licensed in New Jersey. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions. View his earlier handiwork on Soapbox and his interview on The Housing Helix.
-Jonathan Miller

The Fool’s Gold of AMC Licensing

Since I landed in the world of Relocation some three and a half years ago, I really did not pay much attention to what was happening in the trenches of the lending world. That changed when the concept of licensing appraisal management companies came about. My interest became more of an occupational study since these laws are so “broad-brush” and vague. As the manager an in-house appraisal arm of Relocation Management Company I was shocked and disappointed that that these laws cast a net on just about anyone who manages selects and retains appraisers for third party use. Clearly this type of legislation was created out of a knee-jerk reaction to one of the many “crisis-type” issues that came AT the appraisal community in 2008 and 2009. I am specifically referring to the attention to the “appraisal process” brought about by the ill-informed attorney general Mr. Cuomo of NY and the infamous HVCC. I agree with the basic the tenets of the HVCC and the AMC laws I just do not think there will be a net tangible positive affect and that the “real issues” are being conquered. AMC laws and HVCC are not the PANECEA. I WISH THERE WERE a panacea because some calm is needed. Being the realist and institutionally tenured manager of the appraisal process I just know reality of what happens VS what is supposed to happen.

foolsgold

For starters let me say that the relocation world has no direct OTS-like government oversight or appraisal requirements for the appraisals which are NOT intended for lending. The relocation industry is self- policing and we rely on what is set up by state licensing and our own quality control. Let me also say that while my department may perform some of the same functions that an AMC does, we do not TAKE ANY of the appraisers fee. We do select maintain, review AND USE appraisers as well as arbitrate valuation disputes. Also for the record I am not anti-appraisal management company.

Here is the issue: As pointed out by the OTS, last year FIRREA laws of 1989 already contain much of the language that the AMC Laws cite. States have also set up Appraisal Boards who are supposed to monitor fraud egregious issues and such. The problem with FIRREA and the State Boards is simple: money, resources and time. So along come laws that state it is unlawful to coerce an appraiser, unlawful not to pay them, unlawful to tell them which appraiser to use, unlawful to have people who select and review who are not “trained in real estate”, and so forth and so on. So the new laws are just restating the same of what we already had but we still lack an efficient mechanism to enforce. If the AMC laws are governed and enforced by the state boards who are short on cash and time then what makes AMC laws different? Currently 18 states have such laws on their books.

On top of the AMC laws many states are requiring AMC’s to be “registered”. This process is costly and requires plenty of paperwork. KUDOS to the Governor of Virginia, who signed his states law basically making it illegal to engage in the “appraisal nonsense” described above, but NOT requiring a registration process or fee. Also noted as being proactive is Arizona, which requires licensing and registration for AMC’s but which has a single line exemption for the relocation industry simply because: “we are not the problem” (the law reads the exemption for appraisals prepared for the purpose of employee relocation) .

Recently I was contacted by a state board attorney whose state passed AMC legislation in 2009; she stated “this law was not intended for your business model….because you use the appraisal with the client, whereas an AMC does not use…. it they get it…Q C it and pass it on”. It is great to see some realistic thinking for a change. The AMC- appraiser relationship is much like the HMO doctor relationship: mutual need mandated by external forces peppered with some mistrust. Don’t get me wrong there is a lot of merit to the underlying premise of HVCC and such I just do not think it is going to result in a changed world for the appraisal community. What the appraisers do not like about the AMC’s are the request for fast appraisals, some at a lower fee than they have seen in years, requests coming with numerous assignment conditions many of which are not realistic and unacceptable (3 comps within 3 months and 1 mile) the occasional “can you hit the number request” before the analysis gets done (comps checks)…among many others.

Many of the pressures ON AMC’s…yes I said ON AMC’S, are a result of what has transpired in the world: Increased competition, web-based valuation tools, fingertip internet real estate research, fraud, secondary market issues, and MISUNDERSTANDING of the appraisal process in general. I wonder what planet the “investors” live on that have guidelines they will not purchase loans in declining markets? I also believe that a lender than asks an appraiser to “remove a negative time adjustments” should be reported to the LVCC hot line” . Oh… that’s right there is none? Call your department of banking they say. Good luck. I had an appraiser the other day who did not read or adhere to the engagement letter I sent tell me “we have an AMC law here and you have to pay me regardless or you are breaking the law”. I stated, “great, I will take my chances since you signed the engagement letter but yet failed to meet the (simple) requirements stated in the letter, which is why I have called you three times ”. We’re not talking about value here we are talking about basic development and reporting issues that were not clear to me as user and client. Is this what the AMC laws are for?

Does anyone really think that the requirement of an AMC to fill out an application, pay a fee and require a few staff to take a 15-hour USPAP will stop the madness? Actually if the fees are an issue it could increase the cost of operating for the very folks that are presumable not paying a “fair rate”. Since the BIG 3 lenders (all using profitable AMC’s) have 60% of the market now via servicing or closing every US loan, I don’t see things changing until we see a UNIFIED industry, an industry that will unilaterally agree to push back on any conditions that are deemed to be unreasonable. It is very difficult to push back on three financial giants, but without a push, it will not happen. The other day a friend told me of a lender (his client) who is seeking to create a special list outside the AMC they use; their claim is poor service and product….betcha licensing that AMC would fix that! I also heard of a request coming from a AMC in a state that requires they be licensed and registered. The “caller” asked the appraiser if he could “hit the number”. He asked “isn’t that a violation of the HVCC and the AMC laws?”. The caller laughed…who is enforcing this stuff anyway..we do it all the time and we just send a text message to our appraisers telling them what they need”. There are approximately 97,000 appraisers in the US handling over 1 trillion dollars in mortgage money. Over 75% of the states require licensed appraisers for federally related transactions and 45% require for all appraisals. Imagine if ALL 97,000 decided to make change by just saying “no” on unreasonable compensation or assignment conditions. If we did not have state licensing there would be a clamor to get it. Remember what was stated twenty years ago? “State licensing will change everything” .

Maybe it didn’t because we didn’t MAKE it matter.

What we had already in FIRREA and state law is part of the mechanism to get us to the next level. The missing ingredient is unity. It does not mean abolishing the AMC’s or AMC laws either. Let’s look within and stop trying to reinvent the wheel with both the products and the process. We are miners of fool’s gold until we make real change happen from within, which while not easy is the only way for true meaningful change.


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[eAppraiseIT Lawsuit] Cuomo Can Proceed Action Over “Inflated”, “Bogus” Appraisals

June 10, 2010 | 10:04 am | |

Ahhh, 2007 seems like only yesterday when I wrote about NY AG Cuomo’s lawsuit against First American‘s appraisal unit, eAppraisIT

Please note: eAppraisIT’s tagline is “redefining value.”

“The attorney general claims that defendants engaged in fraudulent, deceptive and illegal business practices by allegedly permitting eAppraiseIT residential real estate appraisers to be influenced by nonparty Washington Mutual,” presiding justice Luis Gonzalez wrote in today’s unanimous decision. “We conclude that neither federal statutes, nor the regulations and guidelines implemented by the OTS, preclude the Attorney General of the State of New York from pursuing litigation.”

The institutions in my 2007 post have seen change:

  • WAMU…gone!
  • OTS…soon to be gone!
  • First American…renamed CoreLogic.
  • eAppraisIT…business as usual.

New York can proceed with a lawsuit accusing title insurer First American Corp of colluding with Washington Mutual Inc. to fraudulently inflate home values, a state appeals court unanimously ruled on Tuesday.

Attorney General Andrew Cuomo had accused First American and its eAppraiseIT unit in a November 2007 lawsuit of having “caved” to pressure from Washington Mutual to use a list of pre-approved appraisers who provided inflated appraisals, in an effort to win more business.

I have to confess I’m not too neutral here on this issue – a few years ago, I decided not to renew one of our FirstAmerican subscription resources (floorplans) since we had access to more cost effective resources. Despite the cancellation at the end of the contract period, FirstAmerican continued to bill us every month for a year despite dozens of calls by me, then proceeded to threaten us with collection and then ultimately sent us to collection. This was because I opted not to renew my subscription. They couldn’t get us out of their billing system. Scary. On top of that, they never sent the product (they always send the product and then bill you).

I finally resorted to screaming and yelling until I finally got it resolved. I’ve never experienced anything like that before.

Double Whammy
So its hard to believe an appraisal management company owned by FirstAmerican was above reproach but the courts will decide, not a disaffected (you should see the emails between Wamu and FirstAmerican presented in the Cuomo lawsuit. The link to the original lawsuit document is broken now but trust me, the emails were a doozy – here’s the Wamu 10k filing).

A False Premise and a Certain Irony
Here’s irony I can’t shake. Cuomo’s Home Valuation Code of Conduct agreement between Fannie Mae and his office change the landscape of bank appraisal work forever. What started out as good intentions to stop the conflict of interest between mortgage brokers and appraisers, ended up enabling the appraisal management company (AMC) institution which is what eAppraisIT is. The lawsuit shows that AMC are MORE exposed to bank pressure than individual appraisers are.


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[WSJ Appraisal] Professional Appraiser Stereotypes Proliferate

May 9, 2010 | 11:02 pm | |

In today’s WSJ has an article that was on the front page of the online edition (not sure about the print version) called “How to Appraise Home Appraisers

The core idea behind the article was that appraisers:

  • had little data to work with these days
  • make mistakes
  • are in an environment where a low appraisal is more likely to kill a deal
  • banks are seeing people appeal the value
  • lenders may appeal value with the appraiser
  • appraisers may have used foreclosure or short sales as comps
  • appraisers may not be from the area so request a local expert

Ok, my response to all of this is [Doh!]

  • had little data to work with these days [not true with robust sales activity in past 6 months]
  • make mistakes [moi?]
  • are in an environment where a low appraisal is more likely to kill a deal [why should that be any different now – should appraisers be more flexible now – seriously?]
  • banks are seeing people appeal the value [didn’t need to during the boom because values were higher through mortgage brokers]
  • lenders may appeal value with the appraiser [that’s rare – lenders aren’t interesting in pushing values higher now as they did during boom]
  • appraisers may have used foreclosure or short sales as comps [yes and why shouldn’t they, especially in a market where they are common? as long as condition and terms are adjusted for.]
  • appraisers may not be from the area so request a local expert [lenders are predominantly using appraisal management companies and national firms who DO NOT CARE about local expertise, only the fee and turn time.

This article reflects conditions of more than a year ago. Today with the advent of HVCC, the quality of appraisers has fallen precipitously due to the popularity of appraisal management companies. For the most part working for national retail banks as an appraiser is an abomination of the profession.

None of these checklist items have much to do with today’s mortgage process that rewards lenders for hiring a middleman (AMC) who simply finds appraisers who are certified in a state and can turn work around in 24 hours and often are hours away from the property working for nominal fees.

Lenders are afraid to lend right now and the disconnect between upper management and the front lines is bigger than ever. Apparently there is great comfort by national lenders for a poor valuation product in exchange for homogenous nationwide conveyor belt style ordering with rapid turnaround and nearly non-existent oversight. The appraisal process within the mortgage process is a complete joke – it makes me want to scream.

Can we all be so blind and so dumb? Haven’t we learned anything over the past 18 months? [Nope. Not a thing.]

Good grief.

To the media – please spare everyone the misleading portrayal of our industry as professionals willing to use their eraser on occasion when the banks ask us to reconsider. Thats a mischaracterization – we have no choice and no real voice in the mortgage lending process. I’d estimate that 20% of our profession is terrific. The remainder are not.

Garbage in [AMC’s], garbage out [their appraisal quality].


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[The Housing Helix Podcast] Tony Pistilli, Certified Residential Appraiser, Vice-Chair Minnesota Department of Commerce Real Estate Appraiser Advisory Board

April 29, 2010 | 3:00 am | Podcasts |

Last month I spoke to and interviewed Tony Pistilli, a certified real estate appraiser on the Minnesota Department of Commerce Real Estate Appraiser Advisory Board. He’s got a possible solution to the current appraiser – appraisal management company conflict. Its all about conforming to RESPA and preventing banks from shifting the burden to appraisers to pay for bank compliance.

Its the first logical solution I’ve heard. The banks are essentially making the appraiser pay for their RESPA compliance by taking it out of the appraiser’s fee, often 50% of the stated appraisal fee. The consumer is being mislead by the appraisal fee stated by the lender at time of mortgage application.

  • – Appraisers and borrowers are paying for services the banks receive, not the bank.
  • – Banks should pay for the services received from the AMC’s who manage the appraisal process.
  • – Appraiser’s fees should be market driven.
  • – Banks should be held accountable for the quality of the appraisal.

He’s been spreading the word through all the channels/usual suspects in the blogosphere. Here’s my original post, including his article:

[HVCC and AMCs Violate RESPA?] Here’s a possible solution

His views seemed to have been picked up by the Appraisal Institute, the largest appraisal trade organization in the US, in their letter to HUD looking for clarification on RESPA and the disclosure of fees paid by consumers. Here’s the FAQ on the new RESPA rule.

Check out the podcast

The Housing Helix Podcast Interview List

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.


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[Interview] Tony Pistilli, Certified Residential Appraiser, Vice-Chair Minnesota Department of Commerce Real Estate Appraiser Advisory Board

April 29, 2010 | 12:01 am | Podcasts |

Read More

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[HVCC and AMCs Violate RESPA?] Here’s a possible solution

March 16, 2010 | 12:01 am | |

I was provided an interesting solution to the AMC appraisal issue from Tony Pistilli, a certified residential appraiser who has been employed for over 25 years in the appraisal area, at governmental agencies, mortgage companies, banks and has been self employed.

He wants appraisers to get the word out. His solution is compelling.

Anyone who reads Matrix knows what I think of the Appraisal Management Company and the Home Valuation Code of Conduct (HVCC) problem in today’s mortgage lending world.

Here’s a summary of the his article before you read it:

  • Appraisers, Realtors, Brokers HATE the HVCC.
  • AMC’s and Banks LOVE the HVCC.
  • Regulators are disconnected from the problem just like they were when mortgage brokers controlled the ordering of appraisals during the credit boom.
  • Appraisers and borrowers are paying for services the banks receive.
  • Banks should pay for the services received from the AMC’s.
  • Appraiser’s fees should be market driven.
  • Banks should be held accountable for the quality of the appraisal.

AMC/HVCC appears to violate RESPA (Real Estate Settlement Procedures Act) since a large portion of the appraisal fee is actually going for something else coming off the market rate fee of the appraiser.

(RESPA) was created because various companies associated with the buying and selling of real estate, such as lenders, realtors, construction companies and title insurance companies were often engaging in providing undisclosed Kickbacks to each other, inflating the costs of real estate transactions and obscuring price competition by facilitating bait-and-switch tactics.

The Ultimate Solution for the Appraisal Industry

by Tony Pistilli, Certified Residential Appraiser and Vice-Chair, Minnesota Department of Commerce, Real Estate Appraiser Advisory Board, Minneapolis, Minnesota

Since the inception of the Home Valuation Code of Conduct (HVCC) in May 2009, there has been much discussion, and misinformation, about the benefits and harm caused by the controversial agreement with the New York Attorney Generals office and the Federal Housing Finance Agency. This agreement, originally made with the Office of Federal Housing Enterprise Oversight, requires Fannie Mae and Freddie Mac to only accept appraisals ordered from parties independent to the loan production process. Essentially, this means, anyone that may get paid by a successful closing of the loan cannot order the appraisal.

In the past 6 months while the Realtors© and Mortgage Brokers associations point fingers at appraisal management companies for their use of incompetent appraisers who don’t understand the local markets, appraisers are complaining that banks are abdicating their regulatory requirements to obtain credible appraisals by forcing them to go through appraisal management companies at half of their normal fee.

Banking regulations allow banks to utilize the services of third party providers like appraisal management companies, but ultimately hold the bank accountable for the quality of the appraisal. Unfortunately, the banking regulators have yet to express a concern that there is a problem with the current situation.

I need to state that appraisal management companies can provide a valuable service to the lending industry by ordering appraisals, managing a panel of appraisers, performing quality reviews of the appraisals, etc. However, banks have been enticed by appraisal management companies to turn over their responsibility for ordering appraisals with arrangements that ultimately do not cost them anything.

The arrangement works like this, the bank collects a fee for the appraisal from the borrower; orders an appraisal from the appraisal management company who in turn assigns the appraisal to be done by an independent appraiser or appraisal company. During this process the appraisal fee paid by the borrower gets paid to the appraisal management company who retains approximately 40% to 50% and pays the appraiser the remainder. So for the $400 appraisal fee being charged to the borrower, the appraiser is actually being paid $160-$200 for the appraisal. Absent an appraisal management company the reasonable and customary fee for the appraisers service would be $400, not the $160 to $200 currently being paid to appraisers.

Rules within the Real Estate Settlement Procedures Act (RESPA) have allowed this situation to occur, despite prohibitions against receiving unearned fees, kickbacks and the marking up of third party services, like appraisals. RESPA clearly states, “Payments in excess of the reasonable value of goods provided or services rendered are considered kickbacks”.

Banks are allowed to collect a loan origination fee. This fee is intended to cover the costs of the bank related to underwriting and approving a loan. Ordering and reviewing an appraisal is certainly a part of that process. Understanding that banks ultimately have the regulatory requirement to obtain the appraisal for their lending functions, why is it that borrowers and appraisers are paying for these services that are outsourced to appraisal management companies? Does the borrower benefit from a bank hiring an appraisal management company? Does an appraiser benefit from a bank hiring an appraisal management company? The answer to those two questions is a very resounding, no! Clearly the only one in the equation that benefits is the bank, so why shouldn’t the banks be required to pay for the outsourcing of the appraisal ordering and review process?

It is here where I believe the solution for the appraisal industry exists. Since banks are the obvious benefactor from the appraisal management company services, the regulators should require that the banks, not the borrowers or appraisers, pay for the services received. This one small change in the current business model would allow appraisers to receive a reasonable fee for their services and in turn they should be held more accountable for the quality and credibility of the appraisals they perform. Appraisal fees would be competitive among appraisers in their local markets, much like the professional fees charged by accountants, attorneys, dentists and doctors. Appraisal management companies would suddenly be thrust into a more competitive situation where their services can be itemized and their quality and price be compared to those of competing providers. This will ultimately lead to lower fees and improved quality of services to the banks. The banks will then have a very quantifiable choice, do they continue to outsource their obligations to an appraisal management company and pay for those services or do they create an internal structure to manage the appraisal ordering and review process? Either way, the banking regulators need to hold the banks more accountable at the end of the process.

When all of the previously discussed elements are present, I believe the appraisal industry will be functioning the way it was intended. Appraisal independence will be enhanced and borrowers will be rewarded with greater quality and reliability in the appraisal process. This is exactly the change that is needed, in addition to the HVCC, to stop the current finger pointing and address the poor quality and non-independent appraisals that have been and are still rampant in the industry.


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[Idiotic Mortgage Lending System] How to not get scr*w*d by an (AMC) appraiser

March 15, 2010 | 4:37 pm |

Here’s the result of an email interview I conducted with Brick Underground expressing my dissatisfaction with Appraisal Management Company (AMC) appraisers these days and corresponding situation that a real estate agent was going through.

The real world appraisal situation – the name of the appraiser and related organization was omitted to protect the guilty. Here’s the sequence – READ THE DETAILS CLOSELY (sorry for the all caps but I really am yelling):

  • Appraiser who works for an Appraisal Management Company on behalf of a national lender performs an appraisal of a walk-up apartment.
  • Contract price in appraisal was $414k when the contract price was $460k
  • The appraised value was close to the incorrect contract price.
  • The wrong apartment was appraised. The correct apartment is larger than the one appraised.
  • The inspection/effective date was listed as January 27, 2010 when the property was actually inspected on February 3, 2010.
  • No comparables from the subject neighborhood were used.
  • The appraiser reversed the floor level adjustments suggesting that the lower floor of a walk-up is less valuable than a higher floor (A built-in health club!).
  • The appraiser gave no credit for a private roof deck.

And the key detail…

  • The AMC fought hard saying that the appraisal was correct. In fact, despite these amazingly negligent errors they “refused a new appraisal saying despite errors below, the value stands.”

In other words, the appraiser did not know the market or how to appraise a walk-up, was guided by the contract price which was actually wrong. When told the price was wrong and a smaller apartment was appraised, the AMC stood by the appraisal.

I didn’t appraise the property and have no idea whether the apartment was worth the sales price. I’m just using the information provided.

The only solution for the buyer is to roll the dice and go to another bank. The bank loses because a professional evaluation was not performed. The bank likely doesn’t even know that this happened. A buyer and seller lose because the appraiser was incompetent. The broker may lose a fairly earned commission because of a form filler who has no business being called an appraiser.

This is not appraising – it is idiotic form filling managed by people who should not be in the mortgage lending business.

So you can see how my interview on Brick Underground covering this topic was so terse – I was being told the above situation at the same time. Here is the link again:

How to not get scrwd by an appraiser [Brick Underground]

As I’ve said many times before, the current appraisal system with Appraisal Management Companies is an accident waiting to happen while we pretend that everything is OK.


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