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AMCO's board draws big names
Mortgage Banking , Dec, 2004 by Matthew Royse
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AMCO, AN INDEPENDENT VALUATIONS SOLUTION COMPANY BASED IN Cleveland, substantially beefed up its board in October. AMCO's advisory board now boasts Andrew M. Cuomo, former Secretary of the Department of Housing and Urban Development (HUD); William C. Apgar, former commissioner of the Federal Housing Administration (FHA); and Jack F. Kemp, former Secretary of HUD, congressman and vice presidential nominee. This impressive group was interviewed recently by Mortgage Banking about their new roles on AMCO's board. We will feature interviews with each of these leading housing policy-makers in a special three-part series.
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First in the series is our interview with Apgar, who joined AMCO's board on Oct. 5, 2004. We asked what attracted him to serve on AMCO's board. He cited his experience at HUD, where he administered the FHA single-family and multifamily mortgage insurance funds, multifamily rental assistance programs, and grants for the construction of housing for the elderly and disabled populations. In addition, he referred to his current experience as a senior scholar at Harvard University's Joint Center for Housing Studies and Kennedy School of Government. "I have done a lot of work on the broad topic of mortgage fraud, specifically the role of appraisal fraud," said Apgar. "When I was introduced to AMCO, it seemed like they had the experience and resources that could tackle this topic."
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One of the top issues Apgar is concerned about is the increased pressure appraisers are experiencing from all parties involved in the home-buying process. "We have a housing system in which there is a lot of temptation to change the appraisals to meet the demands of mortgage lenders and Realtors. Honest people in the appraisal business would say to me when I was doing research on FHA appraisal reform that they could make a noble stance, but if they did that someone else would get the business."
As a former commissioner of FHA, Apgar said that the FHA program has more challenges than private mortgage insurers. "Unlike insurers operating in the conventional market, FHA has limited capacity to monitor its appraisers, and the pressure on appraisers to modify FHA appraisals can be intense. It is very difficult for the FHA to stop bad appraisers who participate in FHA programs, because of the legal requirement that lenders are allowed to select the appraiser," said Apgar. However, he said, FHA has made great progress on holding everyone involved in the process more accountable. But there is a lot of work still to be done on getting the bad actors out of FHA, he said. Outsourcing the appraisal function to an independent and objective partner would make sense, according to Apgar. "The FHA marketplace will embrace this outsourced solution if there are no legal barriers placed in the way," he said.
Mortgage Banking asked Apgar about the FHA zero-down-payment proposal. He said that he hasn't looked at the full proposal in detail, but he noted there is a need by FHA to move down the credit-quality spectrum a bit because FHA has the capacity to bring better oversight and discipline into the market. "FHA has always been a break-even operation, even as FHA lowered down-payment requirements to 3 percent. So, I don't think that a zero-down option represents a dramatic difference. Furthermore, the zero-down program gives FHA more ability to monitor its appraisers," he said.
The pressure on appraisers is not going to stop anytime soon, as lenders shift toward the subprime sector. We asked Apgar about whether appraisals will be even more important as the industry shifts toward subprime. "Yes, subprime lending poses more risk to both lenders and borrowers. But if a loan is properly underwritten and the property is appropriately appraised, subprime loans can be priced in a way that makes sense. But one of the implications will be that more borrowers end up in default. We know that as you go down the credit-quality grade, the likelihood of default rises pretty regularly. Compared to prime, subprime is 10 times more likely to be in serious delinquency or default, and there will be more foreclosures coming out of subprime. Whether or not there is a problem depends on whether there is collateral behind the loan. It is foreclosed properties, [which] were overvalued to begin with, that present the marketplace with its biggest problems," said Apgar.
We asked about the recent presidential election and why housing wasn't a priority of the two candidates. Apgar said he voted for Kerry. But beyond that, he senses there is a consensus in Congress that it is ready to move beyond the traditional approaches and address some of the basic housing issues. In addition, Apgar feels that the overall housing system works so well that people often forget about it. This is due to the fact that consumers have the ability to get good financing. "A middle-income family can go to a mortgage lender or broker and get money at rates that rival the rates available to the best corporate borrower. Plus, people don't think about the housing system, and don't think about whether or not elected officials are watching Fannie Mae and Freddie Mac, guiding FHA and dealing with some of the housing issues. It just happens. Maybe it is the problem of success--that we have a housing finance system that is so stable and efficient that people don't see it," said Apgar. Still, he points out, people are definitely concerned about whether the housing market will remain strong. "People have a lot of wealth in their homes and are nervous about the so-called housing bubble," he said. "That is why it is so important that AMCO and other industry leaders continue to sound the alarm about the problem of overvaluation and appraisal fraud."
