Illegal In House Valuations

[George Hatch]

If unlicensed the valuer is governed by the IAG - interagency guidelines, not USPAP. That's a much lower bar and not subject to state boards.

The operative term I used was "appraiser" and the licensing is implied. Perhaps I should have been more specific. Apologies.

But regardless of the what term or role we're using the conceptual comparison still stands:

The difference between an appraiser unlicensed valuer performing an appraisal evaluation for a lender as an employee vs via direct engagement is ___________

 

[George Hatch]

I think big banks lending their own money should be allowed to take valuations back in house. They should be able to do it in house without full blown appraisals. The whole collateral risk management model should be overhauled. What we are doing now is basically the same as it was pre-internet with the main changes over time being who communicates and engages with who. The model is way outdated for 2025.

"should be allowed"? It's never been prohibited. One of my best friends has worked on staff for Chase for many years, and prior to that he worked on staff for a smaller commercial bank. He has literally never worked as a fee appraiser. His brother works as a fee appraiser now but he worked on staff for many years, too. That's how we met - we were both working on staff for the same lender.

What IS prohibited is staff appraisers working for the loan origination side of the lender's operations. VP of Appraisal Dept is a peer to VP Loan Production. Not a subordinate.

Perhaps that isn't the case in Korea's regulatory environment.

 

[Joe Flacco]

"should be allowed"? It's never been prohibited. One of my best friends has worked on staff for Chase for many years, and prior to that he worked on staff for a smaller commercial bank. He has literally never worked as a fee appraiser. His brother works as a fee appraiser now but he worked on staff for many years, too. That's how we met - we were both working on staff for the same lender.

What IS prohibited is staff appraisers working for the loan origination side of the lender's operations. VP of Appraisal Dept is a peer to VP Loan Production. Not a subordinate.

Perhaps that isn't the case in Korea's regulatory environment.

Of course banks have staff appraisers. But what does your friend do? What are his responsibilities?

 

[George Hatch]

Appraising properties. He's been moving into review, too; which is also subject to the entire front end of USPAP as well as a couple SRs.

It's not the employment that the banking regs prohibit - its the lack of firewall between the appraisers and anyone on the loan production side. Always has been, right from the outset. Back in the late 1990s when I was teaching live CE we made the rounds to several of the big box residential lenders and presented in front of their appraisal staff. When I was reviewing for a big box residential lender prior to the meltdowns in 2008 I was reviewing their wholesale line as a fee reviewer. But I wasn't reviewing the appraisals their in-house appraisal dept were doing - they had their own reviewers doing that.

I used to tell my course participants that if they ever interviewed for a staff position they should be asking about that separation/isolation. If anyone from the loan production side participated in any way in the interview process then that indicated to what would be a hostile work environment for appraisers.

Whether it's working as a fee appraiser or staff appraiser the relationship will still hinge upon the question of how seriously the lender takes the appraisal function. If they're just going through the motions or otherwise pushing the appraiser to make value then that's going to be a high-conflict relationship. OTOH if what they really want is an appraisal they trust - even when it kills the deal - then that will be a much easier relationship.

 

[Joe Flacco]

What do they need appraisals for every property?

I would say that at least 2/3 of the time, I can go on MLS and figure out a reasonably tight value range for a property in 15 minutes.

 

[George Hatch]

What do they need appraisals for every property?

I would say that at least 2/3 of the time, I can go on MLS and figure out a reasonably tight value range for a property in 15 minutes.

That's a somewhat different question. Resale of the loans to the secondary market adds in it's own effects on the decision making. So when the GSEs decide their AVM might be sufficient to purpose for a certain percentage of loans that affects the demand for appraisals at the lenders.

One big advantage using fee appraisers has over staff appraisers is that the use of fee appraisers is scalable according to the volume levels. The lenders aren't paying for hours that aren't being worked and fixed overhead that isn't being used productively.

If a lender is doing 100% of their appraisal work by staff that can create problems for them. When the volumes lag you end up with a roomful of unproductive appraisers sitting around and competing for the fewer assignments that do come in. That goes on for maybe 2-3 weeks before the lender starts laying people off. They can't carry employees who aren't producing. Not for long, anyway.

That's how I got laid off twice by the same bank. They laid the majority of their appraisal dept off during a slow down and rehired me 6 months later when the volumes picked up, only to lay me off again when the volumes lagged. Except the 2nd time I was better prepared as a result of keeping a side hustle going by doing split fee work for a residential fee shop. After getting laid off the 2nd time that's when I struck out on my own - by necessity, not by plan or ambition. I learned then that - WRT appraising - corporate employment doesn't necessarily result in security.

 

[shrubberyvaluation]

What do they need appraisals for every property?

I would say that at least 2/3 of the time, I can go on MLS and figure out a reasonably tight value range for a property in 15 minutes.

3rd party, and of course sometimes it looks obvious but its not to someone outside of the business.

 

[Joe Flacco]

That's a somewhat different question. Resale of the loans to the secondary market adds in it's own effects on the decision making. So when the GSEs decide their AVM might be sufficient to purpose for a certain percentage of loans that affects the demand for appraisals at the lenders.

It's not a different question. You just didn't get what I am saying. The whole model seems to be outdated.

I don't know much about how it works inside the bank, but it should be less about the value, and more about things like how good is the value, what is going on in the specific market and segment, what is the appropriate LTV, stuff like that.

 

[George Hatch]

I don't disagree with your observations. Alls I was saying is that the question of why they don't need an appraisal for everything is a little different from what we were discussing prior to; whether it is in any way improper or unethical or illegal for a lender to use appraisals prepared by staff appraisers. In America, I mean; not in Korea.

 

[Bobby Bucks]

I hope USPAP sees this and put a stop with our Non appraiser collateral valuations.

I've been writing USPAP once a week for the last 30 years and have never gotten a reply. I've concluded they're either rude or just don't bother to read their mail.