Fannie definition of market value

[George Hatch]

George your right it does not conflict with USPAP but does with Fannie-freddie-FHA-VA and almost any loan production assignment.

Primarily because that definition was imposed on them by the govt. Which that could change at any point if the decision makers had reason to do it.

Bert has commented about the downsides of using that definition in appraisal assignments being used by a lender and IMO much of his reasoning for that makes sense. I think the lenders should rephrase the question of "what's the value?" into a more explicit "what's the value to us as a lender?". Whether as a supplemental value opinion or by swapping it in for MV. That way they could call out their assumptions independent of what a borrower was trying to do.

But in the meantime the primary virtue of using a single definition of value for these assignments is that doing so works towards consistency and uniformity - even if imperfect. More is always better than less.

I think lenders should be adjusting their underwriting to reflect their exposure to different levels of risk at different points of the RE cycle. But, they can't be given more discretion without also being given more responsibility for their outcomes. Which we as a society never seem to follow through with. Hence the repeated cycles revolving around the effects of the same moral hazard.

 

[glenn walker]

Its different EVERY time.

So long as the economy keeps improving, with locked-in low interest rates, people may grumble if they lose equity but they will keep making their mortgage payments.

With the shortage of inventory, banks are facing no losses if they get the green light to start turning the screws on people who are behind on their mortgages. Seeing it already. People behind on payments are already selling their homes and even walking away with cash.

Everybody's happy, no?

(I'm no Pollyanna, but this is a completely different dynamic from 2007. Caveat: The Feds still may screw it up if they don't allow the free market to stabilize sometime in the near future.)

Actually some areas are showing some scary defaults rates but foreclosures have not been yet started in most areas. Also in-some areas as many as one 1 out 6 tenants is behind on rents and many newer landlords dont have much equity because they cashed out over the last two years. The trouble is we are in a situation where nobody knows how big the Zombie market is but its way larger than we are being told and everyone knows everything has to be perfect or we are going to see some real numbers next year. Right now in many areas its not a strong as people think. Another factor is many nw buyers have no idea how much additional cots can come along with purchase of an-older home and thats where the FHA type buyers get hit real hard.

Your just playing word games and I have no problem with appraisers believing they are appraising as to the most probable price except is a lie and they don't and never have. And like I stated unless in a very stable market there is no such thing as-a probable price unless you have a Chrystal Ball Reader . I have not seen one single sale in 3 months that I would have thought was probable. At best possible

 

[J Grant]

But in the meantime the primary virtue of using a single definition of value for these assignments is that doing so works towards consistency and uniformity - even if imperfect. More is always better than less.

I think lenders should be adjusting their underwriting to reflect their exposure to different levels of risk at different points of the RE cycle. But, they can't be given more discretion without also being given more responsibility for their outcomes. Which we as a society never seem to follow through with. Hence the repeated cycles revolving around the effects of the same moral hazard

Make it easier for a lender to choose to lend at an LTV % up or down, within a tolerance of 3% or whatever , above or below a OMV in appraisal. They can do that now but few do cause it shifts the responsivity from us to them. But it would solve many of the problems about a one single point value

 

[Meandering]

Its different EVERY time.

So long as the economy keeps improving, with locked-in low interest rates, people may grumble if they lose equity but they will keep making their mortgage payments.

With the shortage of inventory, banks are facing no losses if they get the green light to start turning the screws on people who are behind on their mortgages. Seeing it already. People behind on payments are already selling their homes and even walking away with cash.

Everybody's happy, no?

(I'm no Pollyanna, but this is a completely different dynamic from 2007. Caveat: The Feds still may screw it up if they don't allow the free market to stabilize sometime in the near future.)

More than 11 million Americans are behind on their rent and many could face eviction when the national housing protection expires in June.

Know what happens when the hungry go on the hunt?

They don't all move in with their relatives.

Edit to add

Defund the police, yup, great idea.




.

 

[George Hatch]

By the time a lender gets around to "we will accept" in the appraisal process, the distinction starts to appear between what the buyers/sellers are actually doing in the market vs what lenders do when making loans.

I consider that a real problem because once a lender starts dorking the application of the definition of value the outcome no longer reflects what the appraiser says they're doing. In effect we SAY we're doing market value when what we actually DO is a little closer to "mortgage lending value". This is especially so when appraisers start getting into omitting info that might trigger a stip instead of addressing those situations directly in their analyses and reporting. Reflecting what buyers and sellers are doing then becomes subordinate to getting the clean report that will get through underwriting.

 

[Terrel L. Shields]

jump to the intangible/subjective type adjustments such as for Condition, Quality, View, Functional Utility and so on. The problem with these kinds of adjustments, is that it is difficult for a reviewer (who doesn't know what he is doing like most don't) to decide whether these adjustments are too large or too small. Correct me if I am wrong by telling me just how you would be able to determine this.

interesting point. There are a host of adjustments that are subjective. I have yet to make my first adjustment for "view" in 31 years. My mentors pounded in my head that these were too nebulous to quantify with any certainty. Pulling a single paired sale from the stack makes for a guess, not an adjustment. Find the most similar view. Same with quality. Condition-age - well I can extract that from the comps although that is difficult if the house has been remodeled extensively. I can extract accrued depreciation from any sale though. So it really boils down to finding the most similar properties. I will ignore less similar properties that are closer or more recent.
In many of my assignments, I find effective age (condition+age) and SF to be the 2 factors besides land that drive values - and land is valued as if vacant and available for its HBU- thus is a dollar for dollar adjustment.

people may grumble if they lose equity but they will keep making their mortgage payments.

Sometimes. And sometimes it doesn't matter. I worked for a number of banks during the crunch who sent notices to borrowers saying that they were re-appraising their property and if the LTV wasn't still 80% or whatever that they would need to come up with more money. Many couldn't. I recall 2 chicken farms in particular where the people were "underwater" despite making all their payments. There were people and groups who tried to get the FDIC to relent and offer forebearance to those who were making timely payments. Unfortunately, the FDIC basically insisted the banks shore up their balance sheets period. The banks then foreclosed, sold the places for what they could, and wrote down their reserves accordingly. One bank survived, one didn't.

 

[glenn walker]

But in the meantime the primary virtue of using a single definition of value for these assignments is that doing so works towards consistency and uniformity - even if imperfect. More is always better than less.

I think lenders should be adjusting their underwriting to reflect their exposure to different levels of risk at different points of the RE cycle. But, they can't be given more discretion without also being given more responsibility for their outcomes. Which we as a society never seem to follow through with. Hence the repeated cycles revolving around the effects of the same moral hazard

Make it easier for a lender to choose to lend at an LTV % up or down, within a tolerance of 3% or whatever , above or below a OMV in appraisal. They can do that now but few do cause it shifts the responsivity from us to them. But it would solve many of the problems about a one single point value

They will solve the definition of value by expanding more waivers which are not appraisals and are valuations. The downside to this recent cycle is in some areas appraisers are charging very high fees and once this market cools down Fannie & Freddie and other agencies will have a good argument that many appraiser were price gouging when those $900.00 fees on those 1,000 Sq.Ft. Ca Bungalows is shown not be C & R . Also those better not be on people that are of color or too woke, because add that into the racial bias claims and mix in price goughing and I can see Old Elisabeth-or Aunt Maxima- screaming to eliminate appraisers once and for all.

 

[glenn walker]

Agree on Vi

interesting point. There are a host of adjustments that are subjective. I have yet to make my first adjustment for "view" in 31 years. My mentors pounded in my head that these were too nebulous to quantify with any certainty. Pulling a single paired sale from the stack makes for a guess, not an adjustment. Find the most similar view. Same with quality. Condition-age - well I can extract that from the comps although that is difficult if the house has been remodeled extensively. I can extract accrued depreciation from any sale though. So it really boils down to finding the most similar properties. I will ignore less similar properties that are closer or more recent.
In many of my assignments, I find effective age (condition+age) and SF to be the 2 factors besides land that drive values - and land is valued as if vacant and available for its HBU- thus is a dollar for dollar adjustment.

Sometimes. And sometimes it doesn't matter. I worked for a number of banks during the crunch who sent notices to borrowers saying that they were re-appraising their property and if the LTV wasn't still 80% or whatever that they would need to come up with more money. Many couldn't. I recall 2 chicken farms in particular where the people were "underwater" despite making all their payments. There were people and groups who tried to get the FDIC to relent and offer forebearance to those who were making timely payments. Unfortunately, the FDIC basically insisted the banks shore up their balance sheets period. The banks then foreclosed, sold the places for what they could, and wrote down their reserves accordingly. One bank survived, one didn't.

Agree in general very few view adjustments can be extracted with any accurate and can be very subjective. My first Mentor actual boss a MAI at the S & L said Son people buy a location and not a view and so consider the two as a package and how the location when combined with the view is what makes its location-superior or inferior to another property. When I first stared selling real estate I quickly realized that buyers rarely purchase something for a view unless the location in its totality is better. He also taught me to never get caught in a corner in a review because almost all view adjustments can't be defended so I usually make a combined adjustment in the location Grid and not-view grid and then I explain this included the totality of the location and view when combined so that duplicate adjustments were not being made. So far never have been challenged on this.

 

[Joe Flacco]

Agree on Vi

Agree in general very few view adjustments can be extracted with any accurate and can be very subjective. My first Mentor actual boss a MAI at the S & L said Son people buy a location and not a view and so consider the two as a package and how the location when combined with the view is what makes its location-superior or inferior to another property. When I first stared selling real estate I quickly realized that buyers rarely purchase something for a view unless the location in its totality is better. He also taught me to never get caught in a corner in a review because almost all view adjustments can't be defended so I usually make a combined adjustment in the location Grid and not-view grid and then I explain this included the totality of the location and view when combined so that duplicate adjustments were not being made. So far never have been challenged on this.

What it is is that the market reaction to the view in one location is not the same as the market reaction to the view in another location. Same goes for almost all site characteristics including size / grading / elevation, etc.

 

[Alsie35]

Actually some areas are showing some scary defaults rates but foreclosures have not been yet started in most areas. Also in-some areas as many as one 1 out 6 tenants is behind on rents and many newer landlords dont have much equity because they cashed out over the last two years. The trouble is we are in a situation where nobody knows how big the Zombie market is but its way larger than we are being told and everyone knows everything has to be perfect or we are going to see some real numbers next year. Right now in many areas its not a strong as people think. Another factor is many nw buyers have no idea how much additional cots can come along with purchase of an-older home and thats where the FHA type buyers get hit real hard.

I would not be surprised if the values of 2021-2 turn out looking like a bit of a "spike" and things drop some after that. Just that I don't see a "melt-down" on the horizon like we saw in the late 2000s. Again, those who locked in low interest rates may grumble but they will "hold on" through any dip in values.

Until then ... the market is what the market is. We don't create it, we just report it.