Appraisal Warranty Insurance

[Meandering]

thanks Peter,

I thought that would be a stretch. Although it would be a similar concern if an AMC mandates Skippy to buy such insurance, and Skippy continues doing 3 or 4 reports a day, traveling outside the neighborhood for better comps and ignoring comps in the neighborhood. They'll both move the liability to the warranty.


.

 

[Rick Stillman]

Never check my work

Thank you. Yes, I think sampling of appraisals covered could be valuable, and there is a benefit to also having the E&O with the same firm.

-- Peter Christensen, LIA's general counsel

Thank you Peter, for your insight and extensive commentary. I have two observations - one, I am somewhat amazed that in the 7 or 8 years I have carried E&O insurance, not once have I been asked about the thoroughness of my work, or my experience, or anything else that may set me apart from a so called average appraiser. Contrast this with health insurance, in which I do receive benefits because I don't smoke, etc. Details matter, except in the murky world of E&O insurance, where I pay the same premiums as the bottom feeders with the crank and go mentality.

Secondly, an AMC I once worked for a long time ago, StreetLinks, issued a million dollar insurance policy with every appraisal they delivered. That's impressive. They attached a fancy cover page with a serial number for each and every appraisal. Then, to be even better, they started adding "value comps" for their clients, which was having the appraiser research and comment on a few "additional" comps which they, in their amazing wisdom, were able to extract from the market. So their clients were really getting a lot more for their money - and I credit StreetLinks for having the marketing moxy to do these things. Unfortunately, their moxy which they so exuberantly exhibited to their clients delight, resulted in an extra, and unnecessary, workload for me. Needless to say, we no longer enjoy each others company.

I hope these examples give you the insight you need to proceed with this. I absolutely would include a policy with every appraisal, although I think the $15 fee would be adequate. I absolutely would quit working with any lender that attempted to twist my arm to add on yet another layer of work/expense to what I already do. This lemon has been squeezed more than enough - but I can guarantee you that a few will try. It's always more, more, more.

If an insurer would be selective about who they would insure, and make the cost affordable, this could be a boon for appraisers to compete on equal footing with some of the AMCs that manage way too much - but I guess they have to continually raise the bar to make their services worthwhile. That's another thread, of course.

When and if it does come down to the insurer monitoring the quality of work, good work can be seen a mile away, whereas all the perfume in the world can't make bad work smell nice. It isn't hard to see the differences. And for that reason - if the work was not monitored, I would not participate because I am not going to pay inflated rates so the skippies can ride the coat tails of the true professionals. It's kind of ironic, isn't it, to think that your company likely insures a large number of skippies already, because nobody in the E&O industry ever sees anyone's work. Wow - how many time bombs are you sitting on Peter? You now know job one for you... ferret em out.

PS - although I am not with your company now, I was in the past, so I do know quite a bit about how your company works.woohoo

 

[Junior Member]

I am somewhat amazed that in the 7 or 8 years I have carried E&O insurance, not once have I been asked about the thoroughness of my work, or my experience, or anything else that may set me apart from a so called average appraiser. Contrast this with health insurance, in which I do receive benefits because I don't smoke, etc. Details matter, except in the murky world of E&O insurance, where I pay the same premiums as the bottom feeders with the crank and go mentality.

Thanks for your detailed commentary. I quoted just a part above. To give you a partial answer -- regular E&O for appraisers is relatively inexpensive compared to other professions and the low premium level does not leave room for an insurer or its broker/program administrator to go into a very detailed analysis of an appraiser's education, quality of work, specific experience, etc. -- there is no net savings to be gained for either the appraiser or insurer. Also, believe or not, some appraisers don't like it when asked more questions about their work type or asked for a resume. As a separate issue, with regular E&O that covers appraisers for the broad spectrum of all the work they do (ranging from residential lending work through AMCs to things like appraising conservation easements for tax deductions), higher levels of education/experience sometimes actually correlate with higher losses because of the work type, complexity and other factors. This is why a couple of programs specifically only aim to insure appraisers appraising 1-4 SFRs for lenders.

All of the above factors change when we start talking about qualifying appraisers to offer insured valuations with the lender having a direct ability to make a claim on the policy over an inaccurate appraisal when there's been a foreclosure or repurchase.

Valuation warranty insurance is not something new to LIA. We wrote some of the policies that first began insuring valuations in 1997, have had insured valuation products in place with well known companies, and work with current providers of the insurance. The question I'm getting at now with this thread is whether to go to the trouble and expense of trying to bring the ability to insure valuations directly to appraisers. If there's lack of interest or hostility to it, it's probably not something we want to try. (Part of our research also involves talking to lenders, of course.) I am very happy to have received all the thoughtful responses and good discussion.

-- Peter Christensen, LIA's general counsel

 

[JTip]

StreetLinks, issued a million dollar insurance policy with every appraisal they delivered. That's impressive. They attached a fancy cover page with a serial number for each and every appraisal.

$15-$30 per report so I can add a bullet point to my marketing brochure......

Sounds like a great money maker....for the insurance agent.....

 

[Mike Kennedy]

"lender's loss relating to a deficient appraisal in the event of a foreclosure (or repurchase in some cases),"

Hi Peter, a couple of questions:

1. "However, although focused only on a lender's loss due to an inaccurate valuation, appraisal warranty insurance is much more expensive on a per appraisal basis because it directly pays a lender's loss and the payment of that loss doesnot depend on a lawsuit or other legal action or on whether the appraisal is actually established as negligent."

Based on the above, it would appear that the Appraiser offering to reimburse Lenders via such insurance, after a Claim was made for reimbursement, would be perceived as "guilty" of producing an "inaccurate" valuation absent substantiated proof?

Doing so would then provide clear, documented ammo for said Lender (or others) to lodge State Complaints and demands for license revocation against the Appraiser for Appraiser-acknowledged Ethics, Conduct and USPAP Standards of appraisal practice- as well as violations of individual state appraiser laws. No?

2. is there data available which demonstrates the percentage of foreclosures or repos where appraisal deficiency has actually been proven versus those foreclosures / repos which have been proven to have been caused by intentional failure of lenders to comply with federal and/or state lending laws governing both:

A. borrower qualifications and attendant risk as well as
B. existing Federal Laws & Regulations mandating Lender (& 3PA) selection of only qualified, competent Appraisers?

3. from post 3 "the qualification criteria to enhance risk avoidance and improve marketability of the insured valuations."

I suggest the qualification criteria already exists (OCC Interagency Appraisal Guidelines, TILA, RESPA etc.). Lenders (whether direct or via 3PA) are legally tasked with the responsibility for selecting ONLY qualified Appraisers with demonstrated experience and competence.

IMO, the "bottomless hole" in the "system" - in the 1990s S&L crisis and the most recent "Bubble Burst" - was, and remains Federal and State Regulator's intentional failure to enforce existing Federal and State Laws governing the selection of Appraisers.

Any additional "Insurance" responsibility and cost is now, and must continue to be be borne by Lenders and their "Agents" (captive subsidiaries or independent AMC/agents) who continue to fail to comply with existing Laws.


OCC bulletin on Oct 30, 2013 on Third Party Oversight

"SummaryThis bulletin provides guidance to national banks and federal savings associations (collectively, banks) for assessing and managing risks associated with third-party relationships. A third-party relationship is any business arrangement between a bank and another entity, by contract or otherwise.1
The Office of the Comptroller of the Currency (OCC) expects a bank to practice effective risk management regardless of whether the bank performs the activity internally or through a third party. A bank’s use of third parties does not diminish the responsibility of its board of directors and senior management to ensure that the activity is performed in a safe and sound manner and in compliance with applicable laws.2

http://occ.gov/news-issuances/bulletins/2013/bulletin-2013-29.html


http://www.occ.gov/news-issuances/bulletins/2010/bulletin-2010-42.html

Interagency Appraisal and Evaluation Guidelines

VI. Selection of Appraisers or Persons Who Perform Evaluations
An institution’s collateral valuation program should establish criteria to select, evaluate, and monitor the performance of appraisers and persons who perform evaluations. The criteria should ensure that:
• The person selected possesses the requisite education, expertise, and experience to competently complete the assignment.
• The work performed by appraisers and persons providing evaluation services is periodically reviewed by the institution.
• The person selected is capable of rendering an unbiased opinion.
• The person selected is independent and has no direct, indirect, or prospective interest, financial or otherwise, in the property or the transaction.
• The appraiser selected to perform an appraisal holds the appropriate state certification or license at the time of the assignment. Persons who perform evaluations should possess the appropriate appraisal or collateral valuation education, expertise, and experience relevant to the type of property being valued. Such persons may include appraisers, real estate lending professionals, agricultural extension agents, or foresters.31

An institution or its agent must directly select and engage appraisers. The only exception to this requirement is that the Agencies’ appraisal regulations allow an institution to use an appraisal prepared for another financial services institution provided certain conditions are met. An institution or its agents also should directly select and engage persons who perform evaluations. Independence is compromised when a borrower recommends an appraiser or a person to perform an evaluation. Independence is also compromised when loan production staff selects a person to perform an appraisal or evaluation for a specific transaction. For certain transactions, an institution also must comply with the provisions addressing valuation independence in Regulation Z (Truth in Lending).32
An institution’s selection process should ensure that a qualified, competent and independent person is selected to perform a valuation assignment. An institution should maintain documentation to demonstrate that the appraiser or person performing an evaluation is competent, independent, and has the relevant experience and knowledge for the market, location, and type of real property being valued
http://www.occ.gov/news-issuances/bulletins/2010/bulletin-2010-42.html

 

[Michigander]

Wouldn't it be nice if the qualified reviewers at Fannie could rate appraisers they have seen and put preference on those who do really solid work. Then lenders using those appraisers would get a streamline pass or something? Instead of adequate, the reward could be for excellence?

 

[ockyappraiser]

I can see a new business stream in this. . .review/forensic appraisals for the insurance companies against their covered appraisers who had a claim.

 

[Joe Flacco]

Wouldn't it be nice if the qualified reviewers at Fannie could rate appraisers they have seen and put preference on those who do really solid work. Then lenders using those appraisers would get a streamline pass or something? Instead of adequate, the reward could be for excellence?

If only the world made sense.

 

[ExplainDNA]

Yup. ^^^

Best,

Dave...

 

[Junior Member]

I can see a new business stream in this. . .review/forensic appraisals for the insurance companies against their covered appraisers who had a claim.

Technically, the work would be retrospective appraisals, because the insurance insures a valuation, and does not relate to whether the original appraisal was performed in compliance with USPAP or whether there are other issues in the original report. The claim is also not against an appraiser; it is a claim by the insurer for a loss directly on the policy -- very different than the way an E&O policy works. When appraisers are now doing reviews for mortgage repurchases, some of those are used now to pin blame on the original appraisers. That adversarial process is not part of the process with an insured valuation and is actually part of what the arbitration process seeks to avoid by directly insuring the lender's loss.

-- Peter Christensen