1004mc And Comps

[timd354]

Fantasy quiz: what if the GSEs hadn't deluded themselves that they could pass their responsibilities for due diligence off to their seller services (DU is an both acronym and an expression of, "Oh, really?") with the threat of a repurchase demand the sanction? What if law enforcement agencies and the GSEs hadn't dismissed appraiser fraud, originator fraud, and collusion in the mortgage origination racket? What if the appraisal organizations had been more aggressive in sanctioning their incompetent and dishonest members?

What if, what if, what if? Who cares as we don't have a time machine and cannot go back in time and change what happened in the past. All that anyone can do, is change what they do today and change what they will do moving forward. While far from perfect, the secondary market is much more focused on appraisals and appraisal quality and knows much more about the properties that secure its mortgage loan than has ever been the case, resulting in an overall collateral/appraisal risk that is much lower now.

 

[residentialguy]

I think most appraisers are under the impression that there are two homes that exist that are not comparable. All properties are comparable. Yes you heard that right . . . All properties are comparable. Rural appraisers understand this better than anyone else. I am surprised to see a QA that uses the term "Truly Comparable" because that is not included in any USAP or FNMA guidelines. All that we are required to do is use the "Best Comparables Available." You can compare a 7,000sf home with a 400sf home. If that is the best comp you might even use it in the report. You can compare a condo in Florida to a mansion in Beverly Hills. You are going to be expanding a few search parameters and your adjustments are going to be crazy, but they are still considered comparable.

Now, you may ask . . . would you ever use these as comparables? Of course not, because we are required to use the best comparables available, and I am sure there are numerous nearby condo sales that would be considered better than using a Beverly Hills home as a comparable for a condo in Florida. So instead of saying that a home is not comparable, we should be using a more accurate term such as that the home is not one of the best comparables available, or even a term like "Poor Comparable Selection."

Unfortunately, the lovely form states the heading "Comparable" which give the impression that all properties you use are similar. They often aren't.

A Comparable (as used in the 1004MC) is an apple to apple property comparison, not an apple to orange comparison. Apples and oranges may be competing...if oranges were to drop to $.25, the apple buyers may buy them instead of the orange, but that doesn't make them comparable, or similar to each other.
Our bible The Dictionary of RE Appraisal says that comparables are similar properties! Therefore they won't have great adjustments. Yes, you can compare a 7,000 sf home with a 400 sf home, but that is not a comparable as being a similar property, nor is it a practical comparison. Yes, sometime we only have chicken poop to make chicken soup. I've often used non-comparables in my report to compare certain aspects, but I explain why it was necessary...And even though I used them in my report as one of the comps, they were not included in the 1004MC. As most of the things we do (and FNMA hates to admit), there is much subjectivity to this. But your opinion better reflect that of the market. If you included 7,000 sf homes with a 400 sf homes in your comparable analysis, I can guarantee that your state board or any court will have issue with the credibility of your opinion.

 

[Peter LeQuire]

[

What if, what if, what if? Who cares as we don't have a time machine and cannot go back in time and change what happened in the past. All that anyone can do, is change what they do today and change what they will do moving forward. While far from perfect, the secondary market is much more focused on appraisals and appraisal quality and knows much more about the properties that secure its mortgage loan than has ever been the case, resulting in an overall collateral/appraisal risk that is much lower now.

Got it. We're decades smarter than we were in (pick your year). There is palpable arrogance in asserting that, because we can capture and analyze more information than ever, we can look past the moral risk of moving massive amounts of money around. The names of the crooks will change over time, but the venality that makes them crooks doesn't. Without addressing the fact that moral risk is greater than collateral/appraisal risk, whatever system is in place is vulnerable. Yep, the individual appraiser is much more likely to get caught doing something that she ought not, but I would suggest that the magnitude of the risk exposure from any one defective or dishonest appraisal is miniscule compared to the losses generated by failure of due diligence at every level of loan production and securities marketing.

Got it. Appraisers have to be hammered into shape so that the data base is as pure as it can be. The analogy of Snowden is appropriate - too bad it's overlooked: it's a perfect metaphor for the day.

"What if?" indeed.

“Those who don't know history are doomed to repeat it.” -Edmund Burke

We're doomed to repeat the past no matter what. That's what it is to be alive. It's pretty dense kids who haven't figured that out by the time they're ten.” ― Kurt Vonnegut

 

[residentialguy]

doppelganger

 

[Meandering]

Sure, their computer determines comps through regression.

Throw a bunch of do-do in the fan and report what sticks to the wall.

Do-do in, do-do out.

.

 

[Peter LeQuire]

"Our bible The Dictionary of RE Appraisal says that comparables are similar properties!"

Our bible is being rewritten.

 

[timd354]

[



Got it. We're decades smarter than we were in (pick your year). There is palpable arrogance in asserting that, because we can capture and analyze more information than ever, we can look past the moral risk of moving massive amounts of money around. The names of the crooks will change over time, but the venality that makes them crooks doesn't. Without addressing the fact that moral risk is greater than collateral/appraisal risk, whatever system is in place is vulnerable. Yep, the individual appraiser is much more likely to get caught doing something that she ought not, but I would suggest that the magnitude of the risk exposure from any one defective or dishonest appraisal is miniscule compared to the losses generated by failure of due diligence at every level of loan production and securities marketing.
Everybody knows that will always be crooks who will try to cheat no matter what, especially when large amounts of money are involved...so that is not exactly a brilliant observation. Everyone also knows that no system will ever catch every crook and that risk cannot be completely eliminated, but so what, that does not mean that risk cannot be properly and mitigated so that it is reduced to an acceptable level, which is exactly why there is more due diligence at every level of the loan production process then there ever has been.

Got it. Appraisers have to be hammered into shape so that the data base is as pure as it can be. The analogy of Snowden is appropriate - too bad it's overlooked: it's a perfect metaphor for the day.

"What if?" indeed.
What if people did not quote meaningless quotes like they were some sort of expression of genius? That would change exactly nothing in the past.
“Those who don't know history are doomed to repeat it.” -Edmund Burke
That is an asinine saying and is simply not true at a macro level...things change whether or not people know anything about the past and history never repeats itself in exactly the same way
We're doomed to repeat the past no matter what. That's what it is to be alive. It's pretty dense kids who haven't figured that out by the time they're ten.” ― Kurt Vonnegut
Another asinine quote that is obviously not true. If what Vonnegut stated was true, then there would be no sense trying since we are apparently doomed not matter what we do...sorry, but I utterly reject Vonnegut's dystopian view of the world and utterly reject the notion that we are prisoners of destiny who are doomed to repeat the past.

The amount of due diligence that goes on at every level of the loan production process and on every aspect of the loan file is currently much higher than it has ever been. Additionally, the riskiest loan programs have been eliminated and the regulators are actually regulating the mortgage industry like never before (especially the bank owned mortgage companies). Undoubtedly, there is the danger that in the future as we get further and further away from the bubble and crash that people will forget and due diligence will be reduced and loan programs will be expanded in ways that increase risk to an unacceptable level. It is up to the regulators and the risk management people in the industry to keep that from happening.

 

[djd09]

The amount of due diligence that goes on at every level of the loan production process and on every aspect of the loan file is currently much higher than it has ever been. Additionally, the riskiest loan programs have been eliminated and the regulators are actually regulating the mortgage industry like never before (especially the bank owned mortgage companies). Undoubtedly, there is the danger that in the future as we get further and further away from the bubble and crash that people will forget and due diligence will be reduced and loan programs will be expanded in ways that increase risk to an unacceptable level. It is up to the regulators and the risk management people in the industry to keep that from happening.

What is the GSE's requirement percentage of loans made to borrowers below the median income?

 

[residentialguy]

GSE used to require breathing on your own as their only criteria to get a loan, but they have loosened their requirements to include those on life support systems.

 

[Peter LeQuire]

Re: #88. It's encouraging to hear that the process is being scrutinized. My understanding is that there is (and probably always has been) pressure on lenders and regulators to relax standards - for property and credit/income mortgage eligibility, and that those pressures continue. I show the extent to which I've been fossilized by expressing reservations about how a self policing process of loan origination and the farming out of the due diligence required of prudent loan origination and underwriting can withstand the inherent tendency that favors very short term profit in preference to long term investment quality. Appraisers are not the only occupational group that is under constant and increasing pressure that favors turn time and fee over thoroughness: surveyors took a huge hit with the acceptance by lenders, the agencies and the GSEs started accepting "survey exceptions" in their title guarantees; title examination assignments are shopped in the same way appraisal assignments are. The whole process is remindful of Russian roulette. But, if those with skin in the game are satisfied with such investment tactics overall, God bless 'em and bring it on.