1004 Re-write: To Include Different Sow (hybrids)

[KONA]

They need to be held accountable!! At a minimum, I would put their name in the Certification; otherwise, I would not do the appraisal. According to USPAP, aren't we required to know and take responsibility for experts we use in the course of producing an appraisal?

 

[J Grant]

They need to be held accountable!! At a minimum, I would put their name in the Certification; otherwise, I would not do the appraisal. According to USPAP, aren't we required to know and take responsibility for experts we use in the course of producing an appraisal?

I don't have an answer, will assume AMC's and lenders are having their lawyers find weasel language to get into the forms resolving THEM of liability if they provide the inspector. The head of Fannie seems to want to be the new UBER, trotting out programs to lower appraisal standards and stretch lending standards, aka higher debt to income ratio, appraisal waivers and allowing air Bnb income to qualify borrowers. and hybrids for GSE lending purposes .

I did out of curiosity ask my E and O insurance- they said if I as appraiser do hybrid with non appraiser inspecting, their E and O covers what I do as an appraiser, but not what inspector did. However, since my conclusions about the property as well as value opinion will be based in part on inspection results. how will that work in practice if there is a complaint/problem with the appraisal?

 

[hastalavista]

According to USPAP, aren't we required to know and take responsibility for experts we use in the course of producing an appraisal?

It depends: but for the hybrid assignment we are discussing, likely not.

Here is the recent USPAP Q&A that discusses this: https://appraisalfoundation.sharefile.com/share/view/sec788eff13f4e41a

 

[hastalavista]

I did out of curiosity ask my E and O insurance- they said if I as appraiser do hybrid with non appraiser inspecting, their E and O covers what I do as an appraiser, but not what inspector did. However, since my conclusions about the property as well as value opinion will be based in part on inspection results. how will that work in practice if there is a complaint/problem with the appraisal?

My take is that if the appraisal had valuation/methodology issues/errors, you'd be responsible for those issues/errors.
If the inspection of the property you relied upon was factually incorrect, and you did your reasonable due diligence of confirming that data (the inspector says the property is 2,000sf; your public records data say it is 2,025sf; but both are wrong and it is really 4,000sf), I'd say you have little or nothing to worry about.

When these (hybrid) products start rolling out in a larger volume, the reactions to them are going to be similar to the reactions we experienced when the 2055 was introduced (the latest rendition). When it first came out, I didn't take those assignments because I wasn't comfortable with them; after some time, I became comfortable with them and would do one now. But, there are plenty of appraisers who were never comfortable and simply don't do them. A business decision for either group, and their choices are the right ones for their practices.

 

[J Grant]

Here is my view and prediction for the hybrids for GSE work...if the form is same with different SOW box, it means borrower fees will likely be similar, flexibility for lender to assign it as a hybrid or non hybrid. I assume certain properties willy qualify with Fannie for hybrids inspection but not others.

Hybrids for GSE lending imo will be benefit those lenders or AMC's who now rely on staff appraisers. With hybrids, the staff appraiser can pump out twice as much volume for same pay, and the com[pant can fire half their staff appraisers and save money. They will pay the inspectors as little as low as possible , and either employ them or use them as bid per order.

I cant' see how assigning as a hybrid offers an advantage to those lenders who use an independent fee appraiser fee panel ,unless the borrower fee for hybrid vs hybrid matters enough to affect borrower decision.. If the hybrid is on 1004 form I wonder if there will be any fee reduction to borrower or anything more than a marginal fee reduction.

 

[J Grant]

Most 2055 work is not for purchases or primary refinance of property . I don't get asked for a lot of 2005 work and of that work, it is mostly REO work which has a legit reason appraiser can not enter . A bank evaluationg an REO for its own portfolio is pretty sophisticated about the limitations of a drive by .

My prediction is the hybrids in volume for primary mortgage loans will they will mainly be done by staff appraisers because it makers little sense, for a lender using a fee panel to assign as a hybrid vs a non hybrid, what is the advantage to them?

The only advantage would be if for a hybrid fee to borrower is low enough to matter in borrower decision, but since it looks like the hybrid will be an option on the 1004 form I doubt that will be the case.

If lender leaves it up to me if I want to sit home in pajamas while a schmoo goes out and inspects maybe it will be attractive... Let the shcmoo drive and use up their car depreciation and experience the danger of taking comp photos from irate homeowners and cars speeding up around them, I can sit home / walk my dog and get their result in over the iphone...maybe I would like it!

 

[hastalavista]

Not to any correlated scale, but below is the dynamic as I see it.

The yellow zone is where something other than a traditional 1004 (or traditional appraisal) is needed and allowed. The green zone has been where a traditional appraisal is needed and required. The red zone is where the collateral value doesn't matter because the borrowers cannot qualify for traditional financing due to reasons outside of the collateral value.



The "less than a 1004" valuation-tool zone (yellow) is expanding.
While there is the potential to stop or reverse its expansion via regulation, I think it is fair to say the chances of reversing expansion are slim.
What I think we can do is advocate for limits to the expansion. But that is going to be a non-stop firefight because the pressure to expand the less-than-1004 zone will be present and only a significant financial crisis will stop its momentum.
The questions (IMNSHO) appraisers who work in the traditional residential mortgage market (green zone) should ask themselves are these:
1. If my green zone is shrinking, what should I do about it?
2. If the yellow zone is expanding, is there a service-opportunity within that expansion-space that makes financial sense for me to pursue?

What is ironic in my diagram above (and, not everyone is going to see it the way I do) is if the yellow zone expands due to better risk management and analytics, then maybe the red zone will shrink (shift right), and loans that are not made today might be made tomorrow and will really need a traditional appraisal. The irony (from my perspective) is that I think it will be much riskier for appraisers to complete assignments in what is now in the red zone vs. taking on a hybrid assignment in what is now the green-but-turning-to-yellow zone. Will assignments higher on the risk* ladder pay more than assignments lower on the risk ladder? I doubt it (we'll have little clue where, in the risk-spectrum that requires a 1004, our particular assignment falls).

*The credit "risk" may have nothing to do with the complexity of the appraisal assignment.

 

[J Grant]

I agree with your thinking Denis /chart. However...

The "less than a 1004" valuation-tool zone (yellow) is expanding

But according to the new /old forms lol, the hybrid for GSE lending IS still a 1004 ! It just has a runner inspecting, to be blunt. I wrote my prediction for which clients are more likely to use it on above posts., if it affects my business/clients I will decide at the time

 

[hastalavista]

I agree with your thinking Denis /chart. However...

The "less than a 1004" valuation-tool zone (yellow) is expanding

But according to the new /old forms lol, the hybrid for GSE lending IS still a 1004 ! It just has a runner inspecting, to be blunt. I wrote my prediction for which clients are more likely to use it on above posts., if it affects my business/clients I will decide at the time

I hear you. I said:

The yellow zone is where something other than a traditional 1004 (or traditional appraisal) is needed and allowed. The green zone has been where a traditional appraisal is needed and required.

(my bold)
I can only get so much information typed into that chart!

But you get the gist.

 

[George Hatch]

WRT acknowledging professional assistance or expertise, that's generally been characterized as the "professional" part of appraising - the analyses opinions and conclusions. Similarly, outside expertise that also include their own analyses opinions and conclusions would fit those criteria for

Other tasks in the appraisal process such as research or data entry or measuring haven't triggered the disclosure requirements because they don't get into the professional part of the assignment as such.

I think the case could be made that if a property inspection report prepared by a property inspector or engineer would be disclosed its because they are developing analyses, opinions and conclusions of their own; and on that basis the 3rd party party appraisal inspections that also include various opinions and conclusions about the property attributes would also warrant disclosure and attribution.