FANNIE MAE Announcement

[rijman]

My first reaction is the FNMA announcement is good news. All good appraisers benefit from policing of appraisers that removes bad appraisers. My only concern is who is doing the policing and what criteria is being used. Let's hope it doesn't become a witch hunt where reports are being turned in for minor infractions.

Another major concern I have is that FNMA is ONLY interested in turning in appraisals where the value appears to be overstated, which can create greater risk to them. Why not turn in appraisals where the value appears to be significantly understated? My standard limiting conditions indicate that I appraise to market value, which really is not true in all cases because I am really meeting FNMA guidelines. FNMA wants an appraisal that meets their guidelines first to protect them. My limiting conditions don't mention anything about protecting the lender or appraising to FNMA guidelines rather than market value. Could I alter my limiting conditions, NO! FNMA won't accept an appraisal with altered limiting conditions.

My point is the bias in the lending industry to be conservative, which is sometimes necessary to meet FNMA guidelines especially in a market of increasing values. When the lending industry threatens with penalties for over valuing properties with no penalties or apparent concern for under valuing then what message are they sending to the appraisal community? This is bias plain and simple.

What is the fix? Alter the limiting conditions for federally related loans to indicate we are appraising to FNMA/FHLMC guidelines and remove the definition of market value. Let's not have borrowers further misguided to believe the appraisal report is done with the sole intent of estimating market value, because it is not.

Ask yourself this question, how many appraisals have been turned over to state licensing boards by the lending industry because they thought the value was too low? Probably none. Yet how many have been sent in because the value was believed to be overstated? Is the standard we appraise by predicated solely on whether or not we over appraise a property? If the concern of good appraisers is to not over appraise, the only penalty is in over appraising, then chances are they may ocassionally under appraise or stay conservative. By staying conservative and under appraising an appraiser can be found in violation of USPAP, not that the lending industry would ever care. Borrowers care and that is where appraisers can be open to liability.

I have no problem providing the lending industry with the product they want. Let's just be honest about what the product really is and revise our limiting conditions accordingly so we don't mislead borrowers who do ocassionally read our limiting conditions.

Regards,

 

[Francois K. Gregoire]

My first reaction is the FNMA announcement is good news. All good appraisers benefit from policing of appraisers that removes bad appraisers. My only concern is who is doing the policing and what criteria is being used. Let's hope it doesn't become a witch hunt where reports are being turned in for minor infractions.

Another major concern I have is that FNMA is ONLY interested in turning in appraisals where the value appears to be overstated, which can create greater risk to them. Why not turn in appraisals where the value appears to be significantly understated? My standard limiting conditions indicate that I appraise to market value, which really is not true in all cases because I am really meeting FNMA guidelines. FNMA wants an appraisal that meets their guidelines first to protect them. My limiting conditions don't mention anything about protecting the lender or appraising to FNMA guidelines rather than market value. Could I alter my limiting conditions, NO! FNMA won't accept an appraisal with altered limiting conditions.

My point is the bias in the lending industry to be conservative, which is sometimes necessary to meet FNMA guidelines especially in a market of increasing values. When the lending industry threatens with penalties for over valuing properties with no penalties or apparent concern for under valuing then what message are they sending to the appraisal community? This is bias plain and simple.

What is the fix? Alter the limiting conditions for federally related loans to indicate we are appraising to FNMA/FHLMC guidelines and remove the definition of market value. Let's not have borrowers further misguided to believe the appraisal report is done with the sole intent of estimating market value, because it is not.

Ask yourself this question, how many appraisals have been turned over to state licensing boards by the lending industry because they thought the value was too low? Probably none. Yet how many have been sent in because the value was believed to be overstated? Is the standard we appraise by predicated solely on whether or not we over appraise a property? If the concern of good appraisers is to not over appraise, the only penalty is in over appraising, then chances are they may ocassionally under appraise or stay conservative. By staying conservative and under appraising an appraiser can be found in violation of USPAP, not that the lending industry would ever care. Borrowers care and that is where appraisers can be open to liability.

I have no problem providing the lending industry with the product they want. Let's just be honest about what the product really is and revise our limiting conditions accordingly so we don't mislead borrowers who do ocassionally read our limiting conditions.

Regards,

P. David, David or rijman (what do you go by?),

Thought provoking comments and observations. No surprise considering the author. Let's stew on it for a while.

Bye the way, I have seen appraisal reports submitted as part of a complaint the value was too low. Of course there were other issues along with that allegation, but the initial red flag was the low opinion of value. My experience, though, tends to support your argument. If the baisis of the complaint is initially value, the usual allegation is one of being generous or selecting comparable sales with the primary criteria being 'support the price'.

 

[Tom Hildebrandt]

Frank etal

All the talk about good appraisers and bad appraisers, high values and low values makes me nervous.

USPAP does not define good and bad appraisers, does not say anything about high or low values.

If our national standard does not address it, the criteria for disciplinary action should not be couched in those vague and elusive terms.

Complaints referred to a regulatory board should be phrased in terms of errors of ommission and commisson, incorrectly applied (or ignored ) methods and techiques and other more empirical elements of Std 1 that can be proven, not subjective issues of value.

Regards

Tom Hildebrandt GAA

 

[rijman]

Tom, you bring up a good point, but that doesn't necessarily apply in the real world. My experience in CA with the OREA is that value issues are given top priority. It is not enough for an appraiser to make some mistakes or violate USPAP, they want to see a clearly overstated value to be able to really nail the appraiser. There is minimal harm if the appraiser ends up close to market value after breaking every rule in the book. The investigators have only so much time in a day and must prioritize, which in my experience, results in focusing on the worst cases rather than the marginal cases where the end appraisal value was "close enough."

I am certain that FNMA will use the appraisal value, specifically over stated values that threaten their security on a loan, as their guideline whether or not to forward a report to the state licensing authority.

All improper value issues can be related to violations of USPAP, I agree with that. Just know that those who police appraisers tend to focus on overstated value problems. They are looking for victims and clear cut fraud.

With FNMA's help each state licensing board should start seeing a lot more appraisal reviews. Anyone looking for an appraisal review job with their state may be in luck this year as hiring is sure to pick up if FNMA follows through.

Regards,

 

[Tom Hildebrandt]

P. David

The policy of the NCAB has historically not to do appraisal reviews on work products submitted to them. In fact, I only know of one case where an investigator (all the NCAB investigators are state certified appraisers) have admitted publically to doing an Standard three. Instead they do "act finding" investigations in which the investigator tells the board staff (and the board at probable cause hearings) his opinions regarding what the appriaser did worng. Of course this testimony is unsworn and not recorded so they often never have to prove anything. Further, the the actual notice of hearing includes charges of overvaluing etc.

The problem with the NCAB (and other regulatory bodies) is that often they do not practice what they preach.

I understand the need to prioritize, I would suggest that fraud and diliberate misrepresentation should be the guide for prioritizing rather than a value criteria.

At any rate, nice comments.


Regards

Tom Hildebrandt GAA