My New Blog

I never imagined that I would become a blogger, but here I go. As an Appraiser I am constantly looking at new and updated information on the housing market and local values. The newspapers provide a lot of information that the public looks at, maybe understands maybe not, makes an impression and moves on. Todays Washington Post is such an example.

The headline reads "Fannie, Freddie Agree to Tighten Appraisal Rules". The first impression is that those 'wild and crazy' appraisers need to be reigned in. But the real thrust of the article is the recent agreement between New York Attorney General Andrew Cuomo and Fannie Mae and Freddie Mac on protecting appraisers from lenders who pressure them to make specific values. These new rules are really guidelines that prohibit lenders from influencing appraisers by threatening to withhold business and limiting lenders from using 'in-house' appraisers that might not be objective. These new rules would also restrict the lenders from owning the appraisal companies that they use for similar potential conflict of interest problems.

What is interesting to me is that appraisers have always had to follow the USPAP (Uniform Standards of Professional Appraisal Practice) guidelines that clearly prohibit attempts to influence or pressure appraisers by outside parties. In that situation appraisers should refuse the assignment and report the offense.

Hopefully, as dishonest loan officers, lenders and appraisers are weeded out of the market by the recent downturn, those of us that are still working to service the public and provide honest valuations that lenders and borrowers can have confidence in, won't have to be "reigned in". Then the perception of the appraisal field will return to that of the integrity and objectivity the profession projected when it was created. 

If you'd like to read the whole article here's the link: http://www.washingtonpost.com/wp-dyn/content/article/2008/03/03/AR2008030301374.html

Kenneth Harney’s column in Saturday’s Washington Post caught my attention, “Fighting Back Against Corrupt Appraisals”. I expected another simplistic blaming tirade against the appraiser’s role in the current housing downturn. I was pleasantly surprised that he presented a fairly balanced report on the illegal influence that some loan officers had put on appraisers to “hit the number”.

The bulk of the article was about the new proposed guidelines from Fannie and Freddie for appraisals. Harney notes five keys components of the guidelines:

• Lenders must guarantee that the property valuations they use are free from influence or pressure and conform to a new national code of ethics.

• Appraisers and consumers will have a complaint hotline to report any impropriety by loan officers, real estate agents or others.

• Lenders that have in-house appraisal staffs or financial interest in appraisal management firms won’t be allowed to use valuations generated by these companies.

• Mortgage brokers will be cut out of the appraiser selection process altogether.

• A new “Independent Protection Institute” will be developed the oversee appraisers and monitor the accuracy of home appraisals and automated valuations. They will also mediate complaints.

These guidelines are supposed to go into effect January 1, 2009, pending comment from the public and the Mortgage Industry.

Cary Barker, Assistant Editor, Working RE, www.workingre.com, reports in his article “Turning Tide, Appraiser Independence” that “Nine states have also passed legislation that will protect appraisers from being influenced by brokers and lenders. Many other House bills and state bills are pending.”

So what does this mean to you and me? Is it the end to the personal relationship and service that independent appraisers like me provide to loan officers all over the area? Will everyone in the housing industry now be under ‘Big Brothers’ increased scrutiny and control? Who will be in control of the “Independent Protection Institute”, appraisers, lenders, government bureaucrats?

Before we all panic, let’s take a breath and pause. The tough market that we have been dealing with for the past 2 years has made all of us a ‘little’ stressed. We all know many people that were in the industry 2 years ago that have moved onto other careers. All of our jobs have become more difficult. How many of these proposals become actual practice and what modifications are added after all the review and political maneuvering we will have to wait and see.

Here’s what we do know. People want to buy and re-finance houses. Banks need to lend money to make money. Someone needs to facilitate the loan and valuation process. Our jobs may be changing, but if we remain flexible and alert we can adapt to the new world of real estate and be successful.

What can we do? Contact our national and local professional organizations to lobby for our positions and for input into the final decision making process. We must speak out and add our ‘common sense’ experience to the bureaucratic thinking.

The next year will be really interesting!

To read the whole article by Harney here’s the link: http://www.washingtonpost.com/wp-dyn/content/article/2008/03/14/AR2008031402007.html

Thank You Elizabeth Razzi! In Sunday’s Washington Post Real Estate section, in her weekly column Local Address, Razzi correctly sums up the current pressures and complications that consumers, appraisers and lenders find themselves in with many areas of the local market declining in value. Lenders and underwriters need to protect their investment and they depend on appraisers to give them a reliable estimate of value. Sounds simple but in today’s market it has become difficult.

Razzi points out that appraisals now include much more then just 3 comps and a value in a report. Lenders are interested in as much information about that local market as they can get. Besides closed sales we now in factor in properties under contract, active listings, DOM (days on market) and seller or builder incentives to help us make the best value estimate we can. Review of market statistics for trends is important. Foreclosures in an area can also impact values. Today’s appraisal reflects the analysis of much more information then many people realize. AVM’s become even less reliable in these changing markets and a full appraisal is the best way to go.

Low value is the most common complaint today. We all want deals to work but the appraisal must have current data to be reliable. In the current changing market, valuations become more difficult. Good appraisers work hard to explore all the available information and use their best judgment to estimate value.

Two other points that Razzi covers are important. She mentions the proposed new appraisal standards by Fannie and Freddie and I like her summary: “The proposed standards simply call for fair play. It’s not fair for lenders to withhold payment for appraisals they don’t like. It’s not fair to kick an appraiser out of the game if he doesn’t play along.” Enough said.

Her second point is that “Appraisers should be free from pressure to hit a preordained target”. Consumers typically overestimate the value of their home and in a re-fi they expect more then is sometimes realistic. Lenders have become much more cautious in working with re-fi customers to avoid some of these pitfalls.

Appraisers don’t want to “kill” deals, but are ethically obligated to be objective, independent and impartial. Current appraisers must walk a fine line in today’s market.

To read her whole article here’s the link: http://www.washingtonpost.com/wp-dyn/content/article/2008/03/07/AR2008030703907.html

The foreclosure situation continues to make news, raise concerns and impact the stock market. In today’s Washington Post, the Business page headline is "Mortgage Foreclosures Reach All-Time High". The bad news referred to is the report by the Mortgage Banker's Association stating that "2.04% of outstanding mortgages were in foreclosure in the 4th quarter last year, an all-time high".

California and Florida account for 30% of the foreclosures. These areas are particularly hard hit. Nationally, 42% of the foreclosures were for subprime ARMs and 20% were prime ARMs. Is there any good news out there?

One glimmer of hope is that the impact appears to be localized, meaning some areas are worse off and other areas are doing better then average. In the Washington DC Metro area things are noticeably better. Foreclosures in Virginia at 1.01%, in DC 1.0% and in Maryland they are 1.22%, nearly half the national average. So basically 1 mortgage in 100 in is default.

So what is the prognosis for our area? Some unqualified buyers bought bad loans for houses they couldn't afford. Unfortunately, everyone suffers. Until lenders can clear the loans and relieve the market glut, prices will continue to fall as sellers compete with each other and the banks to sell houses.

The good news is the Washington Metro area is doing better then most and should rebound quicker then most. When? Nobody really knows. We are monitoring values closely.

Heres the link to the article: http://www.washingtonpost.com/wp-dyn/content/article/2008/03/06/AR2008030601447.html