Be the Driver, rather than just a passenger of your appraisal practice

[DWiley]

We appraisers are not in the credit risk business. We are in the property valuation business.

On top of the URAR form it states: Purpose: A Market Value Opinion of the Subject Property.
The URAR form does not state Purpose: Risk Analysis for the subject Property.

If lenders are using appraisals in an off label way for risk analysis, perhaps that is part of the problem.

I would assume with todays; rich array of computer programs and data, lenders have a plethora of risk analysis methods available, such as forecasting future year changes from a present day property value according to interest rate changes, inflation, economic variables etc.

If you think that appraisals are not risk management tools, then you are basically arguing for the elimination of appraisals for lending. Appraisal reports are risk management tools for lenders. Full stop. Please stop pretending that you do not understand that.

 

[J Grant]

I just posted the URAR statements of the purpose and the intended use of an appraisals . It does not state risk management as the purpose nor the intended use.

So if lenders are using appraisals for risk management or claiming that risk management is the purpose , well neither is not stated in their very own URAR form.

Are bankers too cheap to order actual risk management tools ? I would think with the all the data and statistics and forecasting programs around they would be available - or abe to be developed for their specific needs.

Shame on them for trying to piggy back on a present effective date appraisal, an additional use of forecasting/ years out service as a risk management tool.

 

[J Grant]

If you think that appraisals are not risk management tools, then you are basically arguing for the elimination of appraisals for lending. Appraisal reports are risk management tools for lenders. Full stop. Please stop pretending that you do not understand that.

I understand they are using appraisals for that. But are you denying that lenders do not use the appraisal for its stated use., evaluation of the subject property for a mortgage transaction?

I understood you the first time you said the lenders use appraisals as risk management tools. I am saying we appraisers can not prevent that, but appraisals are not designed for that purpose.

Can you explain why "Risk Management " is NOT named as either the purpose of, or intended use of, the appraisal on the URAR form?

 

[nachocheesefries]

That is great and all but a passenger/driver pep talk and suggestions don't help if you are a typewriter store selling and repairing them. There is only so much work. Res appraising is a done deal for a large majority of the appraisers left who survived the last die off in 2008-2010. This is permanent with the 50-60% waivers on all loans, the hybrid, desktop push and greatly reduced fees yet carrying the same 100% liability, the whole race thing, AMC's , refi market gone for many many years. There will obviously be jobs and work for commercial appraisers and some residential but a tiny fraction moving forward permanently. So over the next 1-5 years appraisers will tap out for retirement or changing careers are various personal decision point junctures. Commercial may do ok. Residential is toast. Are you an appraiser or a writer trying to drive viewership to articles and clicks ?

I do not agree at all. Banks loaning other peoples money don't care about appraisals. Banks loaning their own money, 100% care.

Neighbor across the street from me is number two man at a regional lender in my area. Has a lot of respect for appraisers and has said, his bank will NEVER use AVM's on portfolio/in house loans.

Calm down people...

 

[DWiley]

I understood you the first time you said the lenders use appraisals as risk management tools. I am saying we appraisers can not prevent that, but appraisals are not designed for that purpose.

Actually, the report forms you use are designed, by the GSEs, specifically for that purpose

 

[George Hatch]

I acknowledge that, but it is a mis application of the purpose of an appraisal, and thus they can play games and mis use it for risk management. Including off loading their risk with a Waiver..

The WAIVER is, from this viewpoint, the ultimate risk management tool - complete warranty and relief for a lender wrt the valuation,, because they can shift the risk to the tax payer.

I don't know what you're on about WRT "risk management". If the purpose of the appraisal is to enable a mortgage lender to make a mortgage lending decision, that decision is 100% about managing the risks of a gross overencumbrance of the property that the lender would be unable to recover in the event of a foreclosure/resale. Not just in the GSE assignments, either.

WRT the value of the collateral, a mortgage lending decision is nothing BUT risk management. The only way you could interpret "make a mortgage decision" as relating to anything but risk management is if you think their reason for getting the appraisal is strictly limited to being a regulatory requirement. The value conclusion legally justifies their outlay of that loan.

 

[George Hatch]

URAR form states:-The purpose of this summary appraisal report is to provide the lender/client with an accurate, and adequately supported, opinion of the market value of the subject property

URR form does NOT state: :The purpose of this summary appraisal report is to provide the lender/client with an accurate, and adequately supported risk management tool for the subject property

What we're discussing here is the meaning of the intended use is "for the lender/client to evaluate the property".

Why do lenders encumber the property when issuing a loan if not for the expectation they'll be able to extract repayment via foreclosure/resale? Why does the value conclusion matter in that decision if not for the understanding that said value will be the amount the lender can reasonably expect to recover? If the value conclusion isn't a factor in their decision making about whether or not they can get their money back then why even get an appraisal?

 

[J Grant]

I don't know what you're on about WRT "risk management". If the purpose of the appraisal is to enable a mortgage lender to make a mortgage lending decision, that decision is 100% about managing the risks of a gross overencumbrance of the property that the lender would be unable to recover in the event of a foreclosure/resale. Not just in the GSE assignments, either.

WRT the value of the collateral, a mortgage lending decision is nothing BUT risk management. The only way you could interpret "make a mortgage decision" as relating to anything but risk management is if you think their reason for getting the appraisal is strictly limited to being a regulatory requirement. The value conclusion legally justifies their outlay of that loan.

Hey, the lender can apply all the risk management they want to the appraisal product.

That still does not change the fact of the appraisal as a product is limited to the information as known and presented as of the X effective date, nor does it change what the stated purpose and intended use of the appraisal is on the URAR form

 

[nachocheesefries]

Hey, the lender can apply all the risk management they want to the appraisal product.

That still does not change the fact of the appraisal as a product is limited to the information as known and presented as of the X effective date, nor does it change what the stated purpose and intended use of the appraisal is on the URAR form

That right...its just ONE component of the risk pie and is generally just a snap shot of the risk on that particular day.

 

[J Grant]

What we're discussing here is the meaning of the intended use is "for the lender/client to evaluate the property".

Why do lenders encumber the property when issuing a loan if not for the expectation they'll be able to extract repayment via foreclosure/resale? Why does the value conclusion matter in that decision if not for the understanding that said value will be the amount the lender can reasonably expect to recover? If the value conclusion isn't a factor in their decision making about whether or not they can get their money back then why even get an appraisal?

I always assumed the value, condition - everything in an appraisal pertains to the ability of the lender to evaluate the property.
We appraisers do an appraisal for the use of property evaluation of the subject by the client. Will they grant a loan, yes or no, at this LTV% amount of the property based on appraisal infofrmon. The next step in a loan greenlight where the lender's encumbers the property with a loan to extract repayment in event of s default is out of our bailiwick..

I was having trouble with Danny's term "risk management" applied to appraisals, which seems to attach an ongoing future use of the appraisal as a risk tool wrt borrower performance/default ( over which we appraisers have no control )