Hybrid

[hastalavista]

I'm afraid there will be plenty off appraisers willing to do Hybid appraisals; and the lenders will likely have a actual scope of work (and not "trick" these apprises and later claim they didn't understand the scope of work/ the appraisers "lied" that they actually inspected the property. It will significantly diminish the reliability of these "appraisals", but that will become a product/market, but it will happen regardless of our criticism..

I'm in agreement with you in that FRIs who use this product will not design it as a "trap" to sue appraisers if the specific loan goes south.
I'd bet dollars to donuts that if I was engaged to do one of these and I designed the SOW myself, it would be even more bullet proof as far as my liability than the typical 1004. And when I say "bulletproof", that doesn't mean I'd disclaim everything under the sun. I describe what I did and what I relied on, and that if such data relied on is incorrect, then that could affect assignment results. That's it in a nutshell (obviously longer when written out).

What are the real components of the lending decision?
A. Borrower's ability to service the debt (employment/income status)
B. Borrower's credit history; which is evidence of how they handle debt and how much debt they have
C. If secured, the value of the collateral used to secure the loan

We can quickly see that if A and B are very strong, then C becomes less critical to the lending decision. A qualifier to this, naturally, is the loan-to-value ratio based on the collateral value; at a higher LTV% . Then, as a matter of prudence, despite the strength of the borrower, the collateral value becomes more important and the type of inspection associated with the valuation (hybrid, drive-by, appraiser-inspection inside and out) ramps up.

This is why I agree with you that regardless of what we may think, this type of product will be acceptable for some loan-profiles in the market. I'd rather see this than BPOs or AVMs; neither of which require an appraisal/appraiser.
And, this is why I think that we are better arguing the appropriate boundaries of this type of valuation vs. arguing that they should not be allowed, period. I believe we can corral such a valuation product (argue that it should stay within its box), but we will not eliminate it because (IMNSHO) the underlying logic of when to use it (where "C" fits in relationship to "A & B" above) has merit.

 

[Meandering]

We can quickly see that if A and B are very strong, then C becomes less critical to the lending decision. A qualifier to this, naturally, is the loan-to-value ratio based on the collateral value; at a higher LTV% . Then, as a matter of prudence, despite the strength of the borrower, the collateral value becomes more important and the type of inspection associated with the valuation (hybrid, drive-by, appraiser-inspection inside and out) ramps up.

Almost sorry for giggling (NOT), but it seems that one condition of being a residential lending appraiser, is to have a short term memory, or let others re-write the history for you.

When A and B were very strong, and C was less critical, thousands of borrowers walked away from their properties, when they realized they owed more than the properties were worth, and were not going to pay it. Have we forgotten the crying about the people who could afford to pay those mortgages, but instead chose to give the properties back to the banks and walked away? Apparently we'll just re-write the history like it did not happen, and those people won't walk off again.

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[hastalavista]

Almost sorry for giggling (NOT), but it seems that one condition of being a residential lending appraiser, is to have a short term memory, or let others re-write the history for you.

When A and B were very strong, and C was less critical, thousands of borrowers walked away from their properties, when they realized they owed more than the properties were worth, and were not going to pay it. Have we forgotten the crying about the people who could afford to pay those mortgages, but instead chose to give the properties back to the banks and walked away? Apparently we'll just re-write the history like it did not happen, and those people won't walk off again.

I haven't forgotten.
Were most of those "thousands" of loans auto-underwritten with low standards, possibly SISA loans, and with LTVs in excess of, say, 60%? My bet is yes.
So, if I have a strong credit borrower, verified income and debt, and a low LTV, is my risk the same as those thousands of loans?
And, let's say my LTV is 60%, the hybrid values the home at $300k, and a 1004 values it within 5% of that, and the borrower walks because around the corner is another Great Recession. Would the difference in appraisal types make a difference in why the borrower defaulted?
My loan amount on 60% LTV at a $300k value is $180k.
My loan amount on a 60% LTV at $285k value (I'm assuming the hybrid over-valued the property by 5%, which would not be the expectation for all valuations... indeed, I suspect hybrids, at least in the beginning, will be more cautions, but let's go the other way) $171k.
Per Wikipedia's reprint of a Case-Shiller Chart, its index fell 34% following the recent housing crash. Some markets were up to 50% declines, others, hardly any decline at all.




Again, that's why I say that this battle (the use of a hybrid) is better fought on arguing its limitation and boundaries vs. saying it will create great default losses.

 

[George Hatch]

What's "meaningful and not misleading to intended users" is defined by those users
What's a "Credible Assignment Result" is judged within the context of the intended use.
What's an "Appropriate SOW" for an assignment is identified by the appraiser and in consideration of the above two. As in, *after* consideration of the above two.

There is a 2-part test for that SOW decision, and one of those tests is what the power users think is meaningful to them. Sorry, but there is no reference to the state boards or any other external fixed and arbitrary benchmark for SOW decisions.

But if there was such an external benchmark then it would bear an explicit attribution in your reports. Cite your reference, because you're going to want any reviewers to stick to the script.

 

[Meandering]

What's "meaningful and not misleading to intended users" is defined by those users
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Yet judged by state boards. USPAP provides the minimum of what is "meaningful" to ALL intended users.

What's a "Credible Assignment Result" is judged within the context of the intended use.

Yet judged by state boards. USPAP provides the minimum of what is required to be "credible" to ALL intended users.

What's an "Appropriate SOW" for an assignment is identified by the appraiser and in consideration of the above two. As in, *after* consideration of the above two.

Yet is judged by state boards, in relation to meeting the minimum USPAP requirements and not violating minimum USPAP requirements Standards and comments and not considering FAQs. Because FAQs are not enforceable as they are not USPAP.

There is a 2-part test for that SOW decision, and one of those tests is what the power users think is meaningful to them. Sorry, but there is no reference to the state boards or any other external fixed and arbitrary benchmark for SOW decisions..

Sorry, but the state board judges it all and enters the picture after loans default and lenders suddenly decide they were mislead and what was provided to them was not meaningful. Can we all say Chase at the same time?

But if there was such an external benchmark then it would bear an explicit attribution in your reports. Cite your reference, because you're going to want any reviewers to stick to the script.

USPAP is the external benchmark, and that benchmark is used by state boards to determine if the appraiser provided a meaningful and credible report, according to how the state board interprets USPAP, because let's face it. If the loan was made, the report must have been meaningful and credible, that's why the lenders have underwriters. So, what made all those reports not meaning and credible, 2007-today???

And if all this BS was correct, USPAP would not make the appraiser responsible for the appropriate scope of the work. USPAP would be a two sentence document, Do what the client tells you to do, and make a number that the client can use, solidifying your credibility.

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[ucbruin]

Will there be liability for the appraiser who provides the inspection and sketch?

 

[Meandering]

I haven't forgotten.
Were most of those "thousands" of loans auto-underwritten with low standards, possibly SISA loans, and with LTVs in excess of, say, 60%? My bet is yes.
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You will have to bet, one way or the other, because nobody ever released the numbers of non-credible valuations that went belly up, and were not full appraisals performed by appraisers.

You got stats for the BPOs that were performed for belly up loans?


Not before your dying day will you ever see that number.

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[Meandering]

Will there be liability for the appraiser who provides the inspection and sketch?

Better yet,

How do you know if that "inspector" is better trained than your trainee?

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[hastalavista]

You will have to bet, one way or the other, because nobody ever released the numbers of non-credible valuations that went belly up, and were not full appraisals performed by appraisers.

You got stats for the BPOs that were performed for belly up loans?


Not before your dying day will you ever see that number..

So you have no more proof than I do?
Ok. Then I'll go with my argument of setting the limits on such hybrid-appraisal loans using a higher standard of underwriting and a lower LTV than otherwise. Because the underlying logic of that argument, without stats one-way or the other, is something that has merit and can be persuasive, and rings true (as opposed to "...they're just unsafe!").

 

[Meandering]

So you have no more proof than I do?
Ok. Then I'll go with my argument of setting the limits on such hybrid-appraisal loans using a higher standard of underwriting and a lower LTV than otherwise. Because the underlying logic of that argument, without stats one-way or the other, is something that has merit and can be persuasive, and rings true (as opposed to "...they're just unsafe!").

Neither of us have the stats, but that does not solidify your argument either.

But I got.

Strategic Default: Walking Away from Mortgages
Risks Of Walking Away From Your Mortgage Debt - Bankrate
More Americans Walk Away from Their Mortgages | The Fiscal Times
Is It Ethical to Walk Away on a Mortgage? - The Simple Dollar
How to Walk Away | HuffPost
Will More Borrowers Walk Away From Their Mortgages ...
Why do underwater homeowners keep paying the mortgage ...
Debtor's Dilemma: Pay the Mortgage or Walk Away - WSJ
What Happens to Borrowers Who Walk Away From Their Mortgage ...
Can't Afford Your Mortgage? Walk Away! – Consumerist
Homeowners: Can't pay? Just walk away - CNNMoney
How To Walk Away From Your Mortgage - Business Insider

It you're not going to do a real appraisal, why bother paying for something Fannie and Freddie are going to tell me "what it's worth"?

When the borrowing public realized how easy it is to manipulate "the number" and no one is responsible, you can sit there and spew the credibility of the garbage to the client.

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