ASA fired off quite the letter

[Elliott]

Jeremy Bagott's take on the 'modernized' GSE's (4/7/23):

"Recently, under the protective camouflage of their federal conservatorship, Fannie and Freddie began eliminating critical checks and balances in a radical experiment with U.S. taxpayers’ money and the U.S. economy on the hook. Fannie has scrapped or weakened long-accepted underwriting safeguards like standard FICO scoring, title insurance, mortgage insurance, downpayments and appraisals.

Fannie is even encouraging a new form of the “liar loan,” a product promoted with a perfectly straight face by mortgage brokers during the lead-up to the 2007-2008 financial crisis. Fannie’s new liar loan, called “Value Acceptance,” accepts a collateral value pulled out of the ether by the lender or a third party with a stake in gaining a commission or pleasing the customer. But don’t worry. Fannie checks the stated values against its algorithm – the equivalent of a “Zestimate.”

Fannie then dumps the resulting risk into capital markets via junk-rated credit default swaps it calls “CRTs.” This practice is relatively new for Fannie, which has found itself propping up an over-the-counter marketplace for the synthetic derivatives."


And residential appraisals have been falsely accused as the bad guys because of second valuations probably done by 3 or 4 skippys.

 

[J Grant]

you

Why not? Just add waiver is OK type of language. You can put whatever you want in those contracts. Not a real issue anyway, these contracts are so weak they become virtually unenforceable if someone decides to not buy. The only cases I've known where they were enforced was if a seller tried to back out.

Time to brush up on contract law!! I was a RE sales agent for 5 years prior to appraising so agents do tend to understand contracts well even if they are a Duffus....

A Waiver WAIVES ( negates,) any value contingency!! That is the whole point of it !! There is NOTHING, anyone can put back into the contract to mitigate once a buyer decides to go with it. It means essentially the buyer forfeits the right to back out of a deal wrt valuation issues.

However, a contract is very much enforceable, wrt financing contingencies and appraisal contingencies.

 

[glenn walker]

No big deal there are 99 ways to get out of a residential contract anyway. LOL

 

[Cob]

We need to develop a unified message. Something short and sweet.

As my old boss would say, "Trying to unify appraisers is like trying to herd cats."

 

[Cob]

Interesting letter but in the grand scheme of things, it will have no effect. All of his points have been addressed multiple times in various committees and commissions but ultimately, someone with better access and deeper pockets has paid good money to buy the people that make the final decisions. I suspect that Corelogic is in line to sell F/F all of the 'accurate and credible' data necessary for their waiver decisions.

None of this should be a surprise to any appraiser that pays attention to the world around them. For the most part, they have at their fingertips all of the data necessary to produce a reasonably credible appraisal report, thanks to the internet. Did they think that they were the only ones scouring this online data? Plus, appraisers have willingly provided CL and others mountains of data via the UAD reports.

Its like the publishers of those 'old' phone books trying to keep phone numbers off of the internet and force everyone to continue to use the 10 lb books. Appraisers are the harness makers of the past. Sure, they still sell some harnesses today but its a bit of a specialized market.

As to the cries of 'protecting the public good and the taxpayers'....appraisals have never been very useful in that regard. All of the reasonable and credible appraisal reports in the world did virtually nothing to mitigate the last real estate crash. No reason to think they would prevent the next one.

Vetting the borrowers and requiring a sensible down payment would go a long ways in preventing a real estate crash but since the real estate market has become little more than a gov't subsidized and guaranteed welfare program, the last thing the Fed wants is to have anyone (appraisers) in the way of perpetuating this grand scheme.

YMMV.

I agree with pretty much everything that you are saying, HOWEVER, if there are no appraisers putting their E&O and licenses on the line, who will get blamed during the next real estate market downturn, I will pay GOOD money to hear the excuses when it happens, but we all already know what will happen, the government will step in and bail everyone out like they always do. I worked in the restaurant business for several years in my past life, at the end of January, I started back in that industry, it's not as good of pay as appraising and it is "somewhat" stressful, but when I'm done at the end of the day, I am done.

I don't have clients calling me 3 weeks later about their meal, I go to work and leave when I'm done, free of charge, no E&O, no MLS dues, no buying software, no paying to renew my license, no phone calls or emails for bids, no angry Realtors, homeowners, sellers, buyers, AMC's, banks, lenders calling and emailing me. I will keep appraising and complete assignments as they trickle in, but as far as relying on appraisal work as my sole income, those days are gone and NEVER coming back.

Unfortunately for a lot of people on AF (not you personally), they either don't want to or refuse to accept the reality of our industry, some don't know what to do when their cheese is moved and they continue to try to push a 900 LB boulder up the side of the hill, without accepting that it's going to eventually crush them, I am not being harsh, just being real.

 

[Elliott]

Why are banks 'failing' ? (WSJ 4/10/23)

“The auditors failed to mention the fire in the basement or the box of dynamite on the first floor, but they did point out the peeling paint on the flower box,” said Erik Gordon, a University of Michigan business professor. “How could they miss the interest-rate risk?”

Silicon Valley Bank’s unrealized losses in its bond portfolio appear to “meet every definition of a possible critical audit matter,” said Martin Baumann, a former chief auditor at the PCAOB who had a leading role in designing the new measure. The current banking crisis is the first big test of critical audit matters, a measure designed to help investors decode risks and uncertainties buried in financial statements.

Banks can keep these losses off their books by classifying their bondholdings as “held to maturity,” or intended never to be sold, allowing them to be held at cost rather than fair value. The banking industry last year relied more heavily on this accounting maneuver [see next comment below] , as rising rates pummeled balance sheets."
.....................

What are the chances in the future when hundreds of billion dollars of PAVE inspired loans are on the book and the auditors figure out they are failing and aren't close to 'market value' what will happen? You can't pave over bonds that have interest rate risk and you can't pave over a mortgage loan that is underwater. Will the GSE's produce an accurate audit?

 

[Elliott]

(WSJ 3/29/23) Here's the what happens when banks switch to and from 'held to maturity':

" “This is an artificial accounting construct, not an economic measure of the value of the assets,” said Sandy Peters, head of financial reporting policy for the CFA Institute, which certifies chartered financial analysts. “The value of a bond doesn’t change based upon how management decides to classify it. It’s worth what it’s worth.”

At Wells Fargo, unrealized losses on held-to-maturity securities were $41.5 billion, equivalent to 23% of total equity. At U.S. Bancorp, they were $10.9 billion, or 21% of total equity. At Truist, they were $9.9 billion, or 16% of total equity. The percentages at JPMorgan and PNC were 13% and 11%, respectively.

Silicon Valley Bank’s unrealized losses in its bond portfolio appear to “meet every definition of a possible critical audit matter,” said Martin Baumann, a former chief auditor at the PCAOB who had a leading role in designing the new measure."

.......................

My $64 question is, "Will the PAVE 'equity' appraisal standard and/or FNMA's 'modernized hybrid' standard be the next 'accounting trick' which will produce the next financial crisis or critical audit matter?

 

[Cob]

That is the problem - appraisal is an upfront cost, and when it is cash out of their own funds, people are reluctant to pay - $500 upfront, yet those same people will go tens of thousands or more into debt to get a "free" service ( it was not free, it just was not paid out of pocket )

That is why RE commissions can easily be 10k or 20k or 30k etc-they are not paid upfront out of pocket, they come out of the proceeds at closing, and thus give the illusion of being magically free-

When you get a home inspection, you pay upfront, when you get a survey, you pay upfront, when you get HVAC work done, you pay upfront, when you get a new roof, you pay upfront, when you get HVAC work, you pay upfront, when you have plumbing work done, you pay upfront, when you get a new fence, you pay upfront, NONE of these services rarely allowing you to just get an invoice and hope it's paid later, yet appraisers are expected to float lenders/banks/AMC's/borrowers for several weeks until they get paid.

 

[J Grant]

When you get a home inspection, you pay upfront, when you get a survey, you pay upfront, when you get HVAC work done, you pay upfront, when you get a new roof, you pay upfront, when you get HVAC work, you pay upfront, when you have plumbing work done, you pay upfront, when you get a new fence, you pay upfront, NONE of these services rarely allowing you to just get an invoice and hope it's paid later, yet appraisers are expected to float lenders/banks/AMC's/borrowers for several weeks until they get paid.

That is not our main problem or even a problem for most of us. We may pay upfront for a fence, but that does not mean the guy installing the fence got paid that day. As long as clients pay in a timely manner I have never seen it as a problem- I meant the upfront payment from the borrower makes the borrower resent the $ spent, compared to a RE commission or lender points which get rolled into the loan or come out of proceeds ( and cost the borrower far more than the appraisal fee)

 

[Cob]

That is not our main problem or even a problem for most of us. We may pay upfront for a fence, but that does not mean the guy installing the fence got paid that day. As long as clients pay in a timely manner I have never seen it as a problem- I meant the upfront payment from the borrower makes the borrower resent the $ spent, compared to a RE commission or lender points which get rolled into the loan or come out of proceeds ( and cost the borrower far more than the appraisal fee)

I agree with you, what I have never understood is, when a borrower applies for a loan, just like I did last year, you pay the loan application fee and the appraisal fee up front before anything moves forward, yet the appraiser is still expected (in most cases) to wait up to 30 days and you are correct, the guy installing the fence isn't getting paid right away, but that's more than likely because he is an employee and not an independent contractor like appraisers are to lenders/banks/AMC's.