Freddie Mac vs Appraiser Bias

[J Grant]

Maybe, maybe not. Over time I would expect there to be some standards laid out for that service, instruction on how to meet those standards, and some qualifications established to distinguish the haves from the have nots. After all, mortgage lending is a highly regulated business. It's just a matter of time before some concern arises about the wisdom of sending into people's homes a legion of "inspectors" whose criminal history has never been vetted.

One thing I do know is that if some "PDRs-R-Us" school was set up down at the local mall to offer a 40-hr QE instructional course on how to inspect a home and document their SOW and their findings in a report that would probably be 37 more hours of formal instruction on that topic than most appraisers have ever taken. Myself included.

In terms of pure conjecture on my part it's possible that:

a 40hr QE course + maybe 50 inspections could potentially yield a more technically proficient PDR than most appraisers could produce. ​

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Moreover, if a gasbag like me who is just spitballing on an internet forum can come up with such conjecture then you had best trust and believe the same has previously occurred to other parties at the GSEs and lenders before me. And if it somehow hasn't already occurred to them then it's just a matter of time until they do get to it.

Well they've obsoulsy figured it all out and decided to go ahead over the objection and arguments of appraisers

How'd that work out in the mortgage crash when they continued allowing mortgage lender pressure for years over the objection and arguments of appraisers?

Just because a for profit system approved selling a product does not mean that product benefits anyone other than the profiteers.

 

[George Hatch]

If the client is aware of that limitation, and if the client has decided to engage that assignment in full knowledge of that limitation, then that decision is on them. Not the appraiser they asked to perform that assignment. They don't get to claim "I was cheated".

I'm not saying I think it's a good idea on their part because I don't. Or perhaps the more accurate way for me to put it is to say we don't actually know if disconnecting the appraiser from the inspection is going to lead to more losses.

With that said, if they're allowed to use these assignments then the appraisers are allowed to provide them.

 

[J Grant]

As far as appraiser bias is concerned, I'm still not seeing any quantification on that. Nobody knows exactly how common or rare these examples are in the appraisal profession as a whole; whether or not it's more common in some locales than others or what the group characteristics are of the offenders (does that subset consist of a higher percentage of males or whites or older or younger or more-vs-less experienced).

And we *especially* don't know if that subset includes a higher-than-average percentage of AMC involvement and/or substandard fees - you pulled that (prejudicial) allegation straight out of thin air.

We know the number of offenses and offenders is not zero but so far that's all we know. So we really haven't even defined the problem pursuant to developing a solution that will more specifically target that problem. All they can do is say "even a little misconduct is wholly unacceptable so that therefore justifies taking the more extreme position as an abundance of caution."

The so called unknown bias "problem" appears so minuscules it hardly merits being called a problem

And their extreme position as an abundance of caution is the reverse o fcaution, since they are using so called "bias " to greenlight a LESS reliable inspection system. Never heard of an abundance of caution be expressed by ushering in an inferior methodology, since, the two are diametrically opposed.

 

[TerryRohrer]

Just ridiculous

Appraisers spent two years with a supervisor going on inspections to receive training. Though only a part of the training is the rote aspect how to take a photo or measure a house.

If the third party folks get regulated it might help, but it would not eliminate the fundamental disconnect that the appraiser never set foot on the subject property. To head off a tiresome rebuttal, we are aware USPAP does not require an inspection.

I think the intent is to completely remove any regulatory oversight from the valuation function. Unlicensed, unregulated PDRs fed into GSE AVMs, no one to answer to. Leave a few fee appraisers struggling in the wild under the full weight and overhead of ineffective, burdensome regulation to keep feeding the database with fresh data while profiting by managing their risk onto taxpayers' backs. WINNING at both ends!

 

[J Grant]

If the client is aware of that limitation, and if the client has decided to engage that assignment in full knowledge of that limitation, then that decision is on them. Not the appraiser they asked to perform that assignment. They don't get to claim "I was cheated".

I'm not saying I think it's a good idea on their part because I don't. Or perhaps the more accurate way for me to put it is to say we don't actually know if disconnecting the appraiser from the inspection is going to lead to more losses.

With that said, if they're allowed to use these assignments then the appraisers are allowed to provide them.

The appraiser is the one stuck liable and /or getting challenged with ROV and reviews for their work- not the client.

At least if the appraiser inspected the subject, they can say " I inspected the property, and based on my personal observation, I stand behind X ". That defense is gone in a hybrid or desktop.

 

[George Hatch]

The so called unknown bias "problem" appears so minuscules it hardly merits being called a problem

You might be right. I know that I would prefer to believe that. However, I have no proof to support that preference, just as they have no proof to support their accusation. So we still need to move forward from where we now find ourselves.

The activists are working on public opinion and putting pressure on the politicians and the govt. At this point "doing nothing" is not one of the options for the politicians and the govt, it's subsequently not one of the options at the lenders, and it's also subsequently not one of the options for the appraisers. They're going to do it to us whether we like it or not, so we might just as well lie back and let it happen - do it for England.

 

[alebrewer]

At least if the appraiser inspected the subject, they can say " I inspected the property, and based on my personal observation, I stand behind X ". That defense is gone in a hybrid or desktop.

I don't see any difference - from a liability perspective - from your statement and/or this similar statement: "I did not inspect the property, and base my opinion(s) as to the quality and condition of the property on (x document). Based on those observations, I stand behind X"

 

[J Grant]

You might be right. I know that I would prefer to believe that. However, I have no proof to support that preference, just as they have no proof to support their accusation. So we still need to move forward from where we now find ourselves.

Well Danny ran the data and all he came up with of any substance was a sliver percentage of difference, like .02% of appraisals that were under CS price in a few census tracts.

Plus there is the fact that the lawsuit cases which got attention were never proven to be about bias even though the plaintiffs said so - nobody ever saw the appraisals or could decipher if the higher appraisal was the bad apple or not. Though your own research that you posted hee indicated the lower value appraisals seemed to be the better supported.

 

[George Hatch]

I've said before that my primary suspect for unreasonable outcomes in appraisals is appraisers not working to their capabilities. Not malice or racial bias. TO ME, that means the first logical step is for appraisers to put more effort into the problem identification phase of their assignments.

IMO and based on all of the examples I've seen so far, if the appraisers had written up a decent summary of the composition and pricing trends of the neighborhoods - inclusive of the entire range of residential properties therein - and a more detailed summary of their subject's market segment and its pricing trends, that combination would have made it a lot more difficult for a 2nd appraiser to get away with coming in and presenting less similar properties to "support" their higher valuation.

As as far as appraisers who are operating with personal bias are concerned, if they had provided that analysis it would have also made it harder for THEM to proceed with an unreasonable SC that directly contradicted their own neighborhood and market analyses. Either way there's nothing but upside to putting a little more time/effort into their problem identification phase.

Take the Marin City situation as an example. If an appraisal report had noted there were a limited number of SFRs in that area, about evenly split between the lower quality "pole houses" like the subject vs the superior quality/appeal conventional slab foundation homes; and if the report had noted the pricing trends for this neighborhood had always been lower than the neighborhoods within the city limits to the s/e and the unincorporated Mill Valley area to the n/w, then that would have made it very difficult for the 2nd appraiser to get away with ignoring those facts as a means of saying the superior quality/location sales were direct comparables for the subject without making the necessary adjustments.

 

[J Grant]

I don't see any difference - from a liability perspective - from your statement and/or this similar statement: "I did not inspect the property, and base my opinion(s) as to the quality and condition of the property on (x document). Based on those observations, I stand behind X"

I think an appraiser who never saw the property has far less support for standing behind X conclusion - to challengers and even to themselves.

Not seeing a property and going off cold removed data is like reading an ingredient list for a meal vs sitting down and eating it.