Federal Reserve Bank Of Philadelphia - Appraising Home Purchase Appraisals

[timd354]

I came across a rather interesting working paper recently published by the Federal Reserve Bank of Philadelphia - WORKING PAPER NO. 17-23 APPRAISING HOME PURCHASE APPRAISALS, which can be found at the following link:

https://www.google.com/url?sa=t&rct...23.pdf&usg=AFQjCNGSxv91e7E3Aem9aWmAK7SlBaVyTw
https://www.google.com/url?sa=t&rct...23.pdf&usg=AFQjCNGSxv91e7E3Aem9aWmAK7SlBaVyTw
The paper's authors conclude that appraisals have an upward bias, there is confirmation bias on purchase related appraisals, and AVM's are more predictive of default than appraisals.

The paper is highly technical, but worth the read. While I don't agree with some of the conclusions and some of the methodologies utilized, I have no doubt that papers like this one have been and will continue to be utilized to justify PIW's/Appraisal Waivers and the current trend away from requiring appraisals in every mortgage loan transaction.

In order to counter the trend away from appraisals, Appraisers as a group are going to have to be able to refute the data and/or methodologies and conclusions from this other papers. Simply arguing that appraisals are better and do a better job assessing collateral risk simply because appraisers say so without any data to support their argument is not going to be a winning argument and is not going stop the trend away from requiring appraisals on every loan. This is why it important for residential appraisers to join a professional organization (such as the AI or NAIFA) and push the leadership of these organizations to fund/conduct there own studies regarding the issues raised in the Philly fed's paper.

 

[Randolph Kinney]

The paper's authors conclude that appraisals have an upward bias, there is confirmation bias on purchase related appraisals, and AVM's are more predictive of default than appraisals.

Sounds like the AVM method is superior which means appraisals by appraisers can be done away with.

 

[Eli]

VA would say look at our track record and laugh. Me too.

 

[LANoble]

Time and funding are obstacles. If I didn't have to work ~ that would help but completely agree with what you're describing TimD354. Very interested in working on scholarly projects like this and wish we had funding for it like the government does.

 

[ucbruin]

"Simple as that. If you opt for no appraisal, you’ll know immediately whether your contract price is acceptable for the mortgage amount you’re seeking. That’s impossible with the traditional approach where you have to wait for the appraiser to bless the deal, which sometimes doesn’t happen because the appraisal comes in lower than the contract price."



Appraisal-free home sales could raise buyers’ interest

http://www.bostonherald.com/busines...l_free_home_sales_could_raise_buyers_interest

Depends on who you interview....

 

[BRCJR]

If the research (due diligence) performed is as comprehensive as the below statement appears it is they lose some credibility. Dodd-Frank and HVCC have no working relationship, unless I misunderstood that D-F made HVCC obsolete.


From page 5:

In particular, many lenders have turned to AMCs to help ensure compliance with the HVCC, the

appraiser independence rules in the Dodd-Frank Wall Street Reform and Consumer Protection Act,

and the Interagency Appraisal and Evaluation Guidelines.3

 

[timd354]

Sounds like the AVM method is superior which means appraisals by appraisers can be done away with.

Certainly one of the conclusions of the paper is that AVM's are betting at predicting default than appraisals. Thus, there is no doubt that this paper will be utilized (and probably already has been) to justify the expansion of the use of PIW's and other appraisal alternatives.

If appraisers want to avoid a further expansion of PIW's and other non-appraisal alternatives, they would be well served to come up with an intelligent and well-supported rebuttal to this paper. Simply disagreeing with the paper and and stating that appraisals are better than AVM's because we say so, is not going to get it done.

 

[Eli]

Certainly one of the conclusions of the paper is that AVM's are betting at predicting default than appraisals. Thus, there is no doubt that this paper will be utilized (and probably already has been) to justify the expansion of the use of PIW's and other appraisal alternatives.

If appraisers want to avoid a further expansion of PIW's and other non-appraisal alternatives, they would be well served to come up with an intelligent and well-supported rebuttal to this paper. Simply disagreeing with the paper and and stating that appraisals are better than AVM's because we say so, is not going to get it done.

I don't care. VA will keep on rocking. They can sink their own ship.

It's been sunk before.

 

[Randolph Kinney]

Why disagree with the paper? If their data, analysis and conclusion are valid, appraisers should use AVMs and charge less.

 

[timd354]

If the research (due diligence) performed is as comprehensive as the below statement appears it is they lose some credibility. Dodd-Frank and HVCC have no working relationship, unless I misunderstood that D-F made HVCC obsolete.


From page 5:

In particular, many lenders have turned to AMCs to help ensure compliance with the HVCC, the

appraiser independence rules in the Dodd-Frank Wall Street Reform and Consumer Protection Act,

and the Interagency Appraisal and Evaluation Guidelines.3

Do you really think anyone is going to care about what you see as a misstatement regarding the HVCC, which is really not germane to the conclusions in the paper? If that is best argument that appraisers come up with regarding this paper, then they are in deep do-do.