When / How Did These Problems Develop?

[Pamela Crowley (Florida)]

When and how did these problems develop?


Please keep your replies directed to this question. General answers and/or specific examples would be good here.

Keep in mind that there are (or might be) more specific questions regarding this issue in other questions. You might want to read through each thread question before starting your answers.

 

[Tim Hicks (Texas)]

Lender pressure has always been a part of the appraisal business. However, the mortgage broker business has grown exponentially over the past 14 years and has caused the lender pressure problem to grow exponentially.

 

[Mary Tiernan]

It is my humble opinion that lender pressure problems have been created by unscrupulous appraisers in the industry.

According to USPAP, certain steps must be taken in the performance of an appraisal. Most appraisers also incorporate guidelines from Fannie Mae which further specifies how an appraisal is to be developed. However, it all boils down to how well the appraiser was initially trained in ethics and proper business principles.

The most common guideline given under USPAP is what is considered the norm or "acceptable business practices." An appraiser who pushes the limits of this guideline and performs work below acceptable busines practices has created a lower threshold of "acceptable."

Poor training, inadequate specific guidelines, lack of enforcement of guidelines by government agencies, and unscrupulous appraisers in the industry have all combined to create an atmosphere whereby lenders can and do eventually find an appraiser who will complete an appraisal assignment in accordance with their business practice which is in direct violation of the ethics as outlined in USPAP and practiced by well-trained, ethical appraisers.

 

[Scott Kibler]

Late 1980's, early 1990's with the ascendance of commissioned mortgage brokers as the primary originators of residential mortgage loans.

 

[Joker]

Working for both portfolio lenders and for brokers, I can attest that there is an extreme difference in the pressure between the two. When I first started appraising it was rare to have lender pressure. With the widespread use of the internet and mass communication, it seems that mortage brokers are primary originators of residential mortgages.

Mortgage brokers and loan officers are commissioned "sales people", who have little or no connection to or understand a moral/ethical responsibility to the funder of the loan, the pressure to influence value is rampant. Mortgage brokers will promise continued work to an appraiser who will continue to meet the necessary values.

I once had a mortgage broker brag to me that he had a home appraised for $97K that he personally knew would not bring more than $50K in an arms length transaction. His statement to me: "What do I care? I got the loan approved and earned a higher commission based on a higher loan." To me, that sums up the origin of the problem.

 

[Restrain]

Once the lender had no responsibility for the loan, problems began. Much of my work before the 90's was with banks, local S&Ls, and mortgage lenders who knew that they would be held responsible for the loan.

Now, no one is responsible for the loan. It's a "risk factor" to the secondary market. The fact that the borrower may have a loan that is 50% over the value of the home, and was effectively defrauded out of tens of thousands of dollars plus interest, is not relevant to the lenders, the secondary market or the regulators. All they care about is "risk factor".

Until regulators realize that an inflated appraisal and the accompanying loan (and I'm not talking about 5-10% here, but 50-100%) is de facto fraud, and that the consumer is being defrauded daily, no change will take place.

I've numerous appraisals in my files where lenders and appraisers came together to generate appraisals on properties for lower-income people that inflated values over 100%. When the homeowner finally figured out what had happened, their only recourse was to walk away. And as long as that is the only recourse to the lender (who is driving this situation), then there's not going to be any change.

 

[Mister Ed]

Extending on Doug's remarks:

Mortgage Brokers are out to make the sale. By the time they order the appraisal, they have the loan package ready for the final rubber stamp--our appraisal. So, if the deal does not fly or they have to lend the borrower fewer dollars than originally planned and cannot roll all of the overextended credit cards and car payments that are as big as the mortgage into the loan.....

ITS THE APPRAISER'S FAULT because the appraiser did not keep the Mortgage Broker's promise of "fixing all the ills with the refinance."

Now, since this appraiser won't "keep the MB's promise," that appraiser is officially on the DO NOT USE list.

 

[Karl]

Lets take a work in progress example Sale of a home. Contract is for 99,900 5 Comps show the value to be 94,500 The LO the RE Agents all scream Yes even the Buyers agent. Cause its less commission. The RE tells LO that they know an Appraiser that knows what he is doing, Tanslated "I got an Appraiser that'll do what I ask"

(Not many Appraisers that won't adjust to the contract price cause they like to feed the family)

Home Appraisers by this Appraiser for 100,100 Now U have a sale over market & when next home goes on market for 105,000 & comes in at 100,000 Then they'll call in the GOOD Appraiser. This continues UNTIL there is an "ADJUSTMENT" in the market all the Congressmen & women are HOPING the adjustment comes AFTER they have qualified for tier government retirement program.

 

[J in Florida]

Also, moving the appraisal ordering to the END of the loan processing instead of the BEGINNING of the process has contributed to the increase in lender coercion.

When the appraisal was ordered at the BEGINNING of the process, the appraiser had more time to complete the assignment. Further, it the value of the property turned out to be insufficient to support the loan, there was not near as much time invested in processing, closing dates had not been set and committed to, and rate locks were not as much of an issure. Futher, there was more of an opportunity to renegotiate the sales contract (in the case of a purchase) with less time constraint pressure.

When the ordering was moved to the END of the process, as a post underwriting condition, the pressure of the entire deal now rested upon the results of the appraisal. Many times at this stage, rate locks were now in place, closing dates and times have been committed to, moving vans, apartment leases, and related property closings have all been committed to. This creates tremendous pressure for the results of the appraisal to support the number needed to close the loan. This was generally not the case when the appraisal was ordered at the application phase.

 

[Mister Ed]

When the ordering was moved to the END of the process, as a post underwriting condition, the pressure of the entire deal now rested upon the results of the appraisal.

This now "allows" the lender to blame the appraiser for "not appraising the property high enough." This really takes a new twist on things. Many MB's/LO's think that we decide value--which is VERY INACCURATE!!! I have never decided the value of any home. I have (and always do) give my opinion of market value based upon the market evidence. The market drives the direction of my opinion.