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

[glenn walker]

During the Great Mortgage Meltdown, forget Fannie and Freddie Bail Out, Also hundreds of Major Banks were bailed out and there loan losses were covered by the fed's and Treasury. Guess who that was the tax payers. Therefore "risk" was never coveted by the banks and thats whats called a Banking Bail Out. None of those appraisals done in year 2007 was worth the paper they were printed on by 2010. Thats Just a Hard Fact . Today Risk Management is about the Entire Loan Portfolio not individual appraised values.

 

[DWiley]

During the Great Mortgage Meltdown, forget Fannie and Freddie Bail Out, Also hundreds of Major Banks were bailed out and there loan losses were covered by the fed's and Treasury. Guess who that was the tax payers. Therefore "risk" was never coveted by the banks and thats whats called a Banking Bail Out. None of those appraisals done in year 2007 was worth the paper they were printed on by 2010. Thats Just a Hard Fact . Today Risk Management is about the Entire Loan Portfolio not individual appraised values.

True. And, when the last crash happened there was no such thing as the credit risk transfer (CRT). That is a significant difference that most who opine on the topic are not even aware of.

 

[J Grant]

True. And, when the last crash happened there was no such thing as the credit risk transfer (CRT). That is a significant difference that most who opine on the topic are not even aware of.

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.

 

[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.

Risk management is NOT an "off-label" use - it is the primary use. The risks associated with collateral are value risk, condition risk and marketability risk. It is no accident that the current forms address all three of those risks, not just one of them. Please do not pretend that you did not already know that.

'

 

[TerryRohrer]

True. And, when the last crash happened there was no such thing as the credit risk transfer (CRT). That is a significant difference that most who opine on the topic are not even aware of.

So some unknown part of the risk in about 40% of the GSE's portfolios is transferred through an untested financial engineering effort? Seems some risk remains to be managed, along with an assessment of the efficacy of CRT. Still lots of eggs in one taxpayers' basket, it seems.

 

[J Grant]

Risk management is NOT an "off-label" use - it is the primary use. The risks associated with collateral are value risk, condition risk and marketability risk. It is no accident that the current forms address all three of those risks, not just one of them. Please do not pretend that you did not already know that.

'

I am not on the lender end. I assume their use for an appraisal is what it says on the URAR -evaluation of collateral for lending purposes.

If lenders expand their use of that to include risk, management especially for risk for years out into the future beyond the appraisal effective date, it exceeds what the appraisal is designed to do.

The appraisal addresses value, condition and marketability, in the service of providing a valuation of the property, not for a risk management tool !

Why dont' lenders use actual risk management tools, such as forecasting value impact for future changes in mortgage rates, market conditions, economic changes etc ?

 

[J Grant]

Risk management is NOT an "off-label" use - it is the primary use. The risks associated with collateral are value risk, condition risk and marketability risk. It is no accident that the current forms address all three of those risks, not just one of them. Please do not pretend that you did not already know that.

'

The fact that lenders can make it their primary use does not change the fact that the appraisal is designed as a valuation for a property product rather than a risk management tool. Perhaps the cheapo bankers need to order two products - a present eff date appraisal of the property and then years forward, irsk management future forecasting product ?

 

[Tim Hicks (Texas)]

Don't you love the "how to improve" articles aimed at getting clicks?

 

[J Grant]

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

 

[J Grant]

URAR states: INTENDED USE: The intended use of this appraisal report is for the lender/client to evaluate the property that is the subject of this appraisal for a mortgage finance transaction.

URAR does not state :INTENDED USE: The intended use of this appraisal report is for the lender/client to manage risk for the property that is the subject of this appraisal for a mortgage finance transaction.