Double Trouble - How Risky Are Hybrid Appraisals, And Where Do The Hazards Lurk

[J Grant]

Like some of us have been saying - it's the expanded use of these risky products that will become a problem. Very little risk of lawsuits for portfolio management and in house bank valuation products. When you start using risky products for cash out refi's and purchases, you will see an explosion of issues from all sides. Thankfully, most appraisers are figuring that out when it comes to these products.

Why didn't Peter didn't claim that "but these have been around for over 10 years" would be a fantastic defense? Seems to be an accepted one for a handful of folks around here. I was planning on using that as my defense both in the courtroom and in front of the state board.

Their expanded use and the way they will play out in markets are unknown and a 2 year test pilot ( whose participants are pre disposed to report back good results ) will tell little

 

[Michigan CG]

inspector tells me the house is 1,500 sq ft, when in reality it is 2,000 sq ft, that is misleading and a significant error.

Same problem could arise with a 2055 report.

 

[Evincere]

Their expanded use and the way they will play out in markets are unknown and a 2 year test pilot ( whose participants are pre disposed to report back good results ) will tell little

On must keep in mind who is is orchestrating the modernization


The GSEs are working together, at the direction of the Federal Housing Finance Agency (FHFA), to assess and, as appropriate, begin implementation of strategies to redesign the UAD. Under the auspices of the Uniform Mortgage Data Program (UMDP)*, the initiative will focus on modernization of the current UAD dataset and residential appraisal forms.

The initial stages of the multi-year initiative will explore options and make recommendations regarding changes to the UAD and appraisal forms that will support emerging technologies and data updates, and provide a foundation for appraisal process modernization.

 

[J Grant]

Same problem could arise with a 2055 report.

Which is why 2055 reports are rarely, if ever used for origination loans. They are mainly in lending used for a low value HELOC or a pre foreclosure where interior access is not possible/other uses.

I get very few requests for 2055 forms and turn half of them down due to lack of data/difficulty in doing them credibly ( even if fee is good, so it is not always about fees )

 

[djd09]

yeah i remember the 2055. those were ordered by the lowest of all the brokers, for the purpose to hide the interior disaster. pass.

 

[Tom4value]

There are a lot of comments here so forgive me if I missed one but it looks like everyone is concerned about liability regarding the property. Me, not so much. The disclosure that you never inspected the property will protect you (hopefully).

My issue as to why I don’t do them is I didn’t inspect the neighborhood. Yes, I am what they call an expert in my market but I admit I don’t know every neighborhood, every street like the back of my hand. When I do an “inspection”, it is not just of the property. I inspect the area. I don’t leave the same why I arrived. I drive around. I am responsible for knowing about that train track I never knew was there all this time. I can “disclose away” any issue about the property but not the neighborhood. In order to feel comfortable, my disclosures should basically say, “I know just about as much of this property as you do”.

 

[George Hatch]

I've commented before (even wrote an article on it) that the inspection will only report on the attributes at the subject site. Since we ALSO gather info about the neighborhood when we inspect that info won't make it into the inspection so an appraiser who is using one will have to backfill it during their desktop analysis in order to more/less approximate what they normally do when physically inspecting. That's more time/effort at the desktop level and it contributes to why you might end up spending more time at your desk for one of these than what you would spend at your desk to complete a conventional 1004.

 

[mike32716]

In reading Peter's article he notes that the overwhelming majority of complaints are to regulators by buyers, sellers, and Realtors (he has shared this many times before). Given that the 1004P is only done if FNMA's AVM fails to support the value (and the inspection would not even be an option if they didn't have good data), then it is highly likely that the [optional after the AVM fails] 1004P will also not hit the number. The probability of disgruntled buyers, sellers, and Realtors will be high. How many of those reports will be sent to the state? Even assuming one prevails at the state level, and hasn't made any significant errors (you did certify that you knew the neighborhood, right), it will still take alot of time, money, and effort to fight. Is it worth it?

As I've mentioned before I have been getting some of these 1004Ps from a couple of my direct lender friends. Only two of twelve hit the number (3 others were for refis or a test as they had no sale price). The quality of these 1004Ps I have reviewed is on a wide spectrum. My takeaway so far has been that for the houses that qualify for the PIW/PIW with inspection/1004P route, FNMA has very good data, and doing a 1004P is not likely to result in a higher value. This might change in the future if FNMA starts pushing 1004Ps as a first choice regardless of the quality of data they have. No telling where that could go.

 

[mike32716]

I've commented before (even wrote an article on it) that the inspection will only report on the attributes at the subject site. Since we ALSO gather info about the neighborhood when we inspect that info won't make it into the inspection so an appraiser who is using one will have to backfill it during their desktop analysis in order to more/less approximate what they normally do when physically inspecting. That's more time/effort at the desktop level and it contributes to why you might end up spending more time at your desk for one of these than what you would spend at your desk to complete a conventional 1004.

Can we read your article yet George?

 

[Evincere]

In reading Peter's article he notes that the overwhelming majority of complaints are to regulators by buyers, sellers, and Realtors (he has shared this many times before). Given that the 1004P is only done if FNMA's AVM fails to support the value (and the inspection would not even be an option if they didn't have good data), then it is highly likely that the [optional after the AVM fails] 1004P will also not hit the number. The probability of disgruntled buyers, sellers, and Realtors will be high. How many of those reports will be sent to the state? Even assuming one prevails at the state level, and hasn't made any significant errors (you did certify that you knew the neighborhood, right), it will still take alot of time, money, and effort to fight. Is it worth it?

As I've mentioned before I have been getting some of these 1004Ps from a couple of my direct lender friends. Only two of twelve hit the number (3 others were for refis or a test as they had no sale price). The quality of these 1004Ps I have reviewed is on a wide spectrum. My takeaway so far has been that for the houses that qualify for the PIW/PIW with inspection/1004P route, FNMA has very good data, and doing a 1004P is not likely to result in a higher value. This might change in the future if FNMA starts pushing 1004Ps as a first choice regardless of the quality of data they have. No telling where that could go.

If the 1004p is tiered upgrade Fannies PIW update states that in states where property “inspection” is licensed and regulated by the state, so must the inspector be who submits a report. That would be about 25 states.