Brokers And Licensing - Root Of The Problems

[Ann O'Rourke]

For a while now I've been thinking about the changes in the residential
mortgage appraisal business. Why has it gone downhill? Why has the
standard become "give ‘em what they want" even though over the past few
years almost all res appraisers were swamped with work?

Licensing and the shift from lender to mortgage brokers ordering
appraisals are the primary factors.

Why did originations shift from lenders to mortgage brokers? Many analyses
showed that it was cheaper for lenders if mortgage brokers did their
originations. Lender staff and loan officers was more expensive.

Prior to licensing, lenders had approved lists. Appraisers had to apply,
send in samples, and have their work periodically reviewed. Now, there are
very few of those lists. Instead those ordering appraisals just look for
state licenses.

Mortgage brokers are paid on 100% commission. An appraisal that doesn't
make the deal work is of no use to them. If the loan goes bad, there is
seldom recourse to the mortgage brokers.

If there would have been licensing but lenders still ordered appraisals
and had appraisal departments, "lets make a deal" would not have become
the standard. Most trainees would be trained by lenders as staff
appraisers, not in sweat shops working for peanuts.

An idea I recently heard was that the "lets make a deal" of appraisals and
appraisers could reflect poorly on all appraisers, not just residential
form fillers.

What's the future?

 

[Nancy Wyatt]

I will not even try to guess what the future holds.

Maybe a giant crackdown on appraisers by the boards?

Maybe homeowners suing appraisers. Maybe ads on TV from laws firms. "Are you upside down on your home because of a bad appraisal; Call Joe Blow and Associates."

Maybe some regulation in the lending industry?

Maybe a slowdown that will take most appraisers out of the industry?

Maybe an S & L crisis


It does not seem that this can go on for the forseeable future.

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[Bill Rose]

How about a complete reengineering of the entire program? That's what it's going to take. It's a textbook example of a dysfunctional process. Process engineering consultants would have a field day with this mess.

 

[Oregon Doug]

Ann - valid points all. I feel that the crux of the matter falls to the basic licensing concept that was formulated as a Federal mandate but intrepertation, enactment and enforcement was given to the States. (I thought that we had settled this little matter of "States Rights" during the Lincoln administration - I was wrong.) In the beginning, it was feared that appraising was such a complicated and difficult process that licensing would limit the number of practitioners to such a small number that lenders would face great difficulty in their business. (FIRREA was enacted to promote protection of the lending instisutions.) Due in large to this fear, the qualifications and requirements for becoming a licensed/certified appraiser were set at very minimum levels [in 1989, there were less than 1,000 of us RM's in the entire country]. Basically, today's quandry is the result of flooding our profession with vast numbers of untrained & unqualified appraisers to allay the fears and meet the demands of the residential lending industry. It's comming home.

Additionally, cut-throat ecomomic compition in the lending industry resulted in the creation and use of appraisal alternatives (AVM's & the like) that make it less economically viable for appraisers to remain in business. The shift from lender direct involvement to Broker involvement is essentially an economic trend towards expense reduction via outsourcing. Those in the lending industry see it as risk out-placement too {appraisers are not the only dumb ones in town}.

I anticipate a steady reduction in the number of qualified and knowledgable practioners as the old folks retire/die off. Few of the young ones have a clue and will be swept aside as the industry continues it's economic "outsourcing/cost cutting" binge. Most state regulatory agencies are funded by licensing and related fees and as the number of appraisers decline in future years, so goes the regulatory boards' income - fee increases.

The licensing concept initiated by the Feds was intended and directed towards protection of our lending industry but most of the State boards are essentially "consummer protection" agencies. Due in part to the lack of local jurisdiction over a Federally requlated industry, lenders have essentially been left to do whatever they want. Remember that little S & L incident a few years back - well, those folk are still with us - doing their thing. Back then, they pretty much wrecked the S & L industry, but not to worry - there was the FSLIC to bail 'em out. When the FSLIC went bust, those S & Ls that merged/managed to survive fought like mad to be allowed to join the FDIC. Congress allowed it. Those "Banks" you see with that little "fsb" {Federal Savings Bank} behind their name are nothing more than sheeps' skins that the wolves are hiding in.

My crystal ball is in the shop right now so I'm not sure exactly where we are headed but I've been around long enough to understand where we came from. Frankly, I'm about to give up - I'm getting tired of trying to keep the moths out of the candle flame.

Oregon Doug

 

[xm39hnu]

Cookie-cutter mortgage appraising is about as challenging as watching paint dry. They are a waste of my time and education, IMO. There needs to be an inexpensive alternative to a $300-$500 appraisal for home loans below de minimis.

We need appraisers around--good ones--who can handle the complex stuff that arises with transitional use, structure mismatched with zoning, life estates reserved, vacant land, and all the stuff that makes you pull your hair out developing a solution to the problem. We just aren't necessary to a standard mortgage of under $250,000.

The S&L crisis didn't arise from flipped homes (although the next one might). It arose from inflated appraisals of major properties, and inadequate and unsupported market research. Prob'ly more than a little lender pressure on the appraisers as well.

 

[jay trotta]

Future - who knows :question:

Mortgage Brokers - they may get Licensed here and other States, but something Bad has to happen before change is warranted. The S&L crisis was about mostly Commercial Loans, Residential was secondary - at that Time it was Bankers who oredered the appraisal work, and now you have the Mortgage Broker ordering the work; is it really any different :question:

From current regs., the Lender claims responsibility; it would appear they could then sue the Broker/ Originator -if they become responsible for the debt. Does that offer a solution :question: - I don't think so, but it could offer some recourse.

The cost of our work should be (in some way) be driven by ALL factors, just like any other business; "cookie cutter" has nothing to do with anything, your responsibility doesn't change and your "E & O" - still requires your "best efforts" or your pocket will be feeling a pinch.

Back in the 80's & 90's we were in the $250 range for work, so even if your at $350 today, you haven't kept up with "inflation or the cost of Living". AVM's or whoever - are getting $450+ on the typical appraisal, so they are making darn near what you do, yet they do nothing more than provide a lead and are generally a sub of a major player, therefore increasing THEIR bottom line well beyond yours.

It appears a nature of the industry, because of the few that are willing to sell their services short (not their responsibility) for the sake of makin a "buck".

h34r:

 

[Jeff Horton]

Originally posted by Ann O'Rourke@Sep 19 2004, 07:22 PM
What's the future?

I am sure I am not the only one but unless things change.... a new career.

The only business I have left is out of state lenders that find me on the internet. And a couple of local clients that want honest values. Since I won't "cooperate" or "work with them" the locals won't use me.

I am actively looking for something else to make a living at.

 

[Jim Hill]

Oregon Doug:

I agree with some of the things you said but once again I find you doing what so many appraisers do and that is blaming much many of the problems on the assistants.

You made this comment:

Basically, today's quandry is the result of flooding our profession with vast numbers of untrained & unqualified appraisers.

Who hired these untrained apprasiers? Bing Go- APPRAISERS who did not care!

Doug they may be new to the field of appraising and still learning but who do you think is signing off on all their appraisals ?

Yes there many new people who are learning this business and many are trying hard to learn and do it right.

For each assistant there is a supervisor who should be checking the reports and even going with the assistants on inspections.

It's so easy to blame many of the problems on the assistants but I don't believe we are directing the blame in the right direction.

Who is in charge of these assistants that we think are creating all these problems?

Most of the mills I have seen turning out fast appraisals are run by appraisers who have been in the field for years and who are not doing what they should be doing in supervising these people.

Why we continue to lay the blame at their feet of the assistants is hard to figure because we all know who signs their reports.

J. Hill

 

[The Matrix]

A lender makes a loan based on an inflated appraisal and sells the loan to the secondary market. When the loan goes bad, the US taxpayer bails out the bad loans. There is no incentive for the lender to tightly regulate appraisal quality because ultimately there is no penalty for making bad loans. The government (ie the taxpayer covers the costs).

 

[Tawfik Ahdab]

Maybe homeowners suing appraisers. Maybe ads on TV from laws firms. "Are you upside down on your home because of a bad appraisal; Call Joe Blow and Associates."

I've actually come to the conclusion that litigation consulting could be a very lucrative future sub-specialty of appraisal in the near term. Not litigation support, but litigation consulting - that is, vetting appraisals (as in having them undergo Standard 3 reviews by other appraisers), and if found to be sufficiently bad, and the consequences of relying on the appraisals obviously deleterious to the aggrieved parties, referring them to tort lawyers.

The litigation consultant, an appraiser not acting as an appraiser, would hire the review appraiser and refer fraudulent/incompetent work to tort attorneys. Most of the appraisals reviewed would have been mortgage-related. The consultant would assist the attorney in developing the case. If enough bad appraisals could be associated with a particular lender, a class-action lawsuit could be initiated.

I'm not saying that association with tort lawyers is tasteful in any way, but I think civil litigation consulting could certainly be a good and lucrative way for appraisers to initiate reform of the mortgage lending industry.

A consequence of such a course of events would be for Errors and Omissions insurance to skyrocket. Indeed, it would rise to the point where it would be very expensive if not unobtainable. Lenders would nonetheless demand it of appraisers in light of the emerging explosion in mortgage-related lawsuits. The effect would be that E & O insurance companies would require some sort of proof of post-licensing competence on the part of the insured. That would entail reviewing or auditing the appraiser’s work-product prior to issuance of a policy, making E & O companies the de facto source of approved appraiser lists.

As a result of this putative sequence of events, E & O companies would need many in-house appraisers to both review appraisals and audit files, thereby extending career opportunities for many appraisers.