Lender says no time of sale adjustments!

[rijman]

I have heard rumors in chat rooms about lenders who will not allow time of sale adjustments, but I had never encountered this first hand until today. A condition came in on a report to eliminate the time of sale adjustments because the lender does not allow them.

I have documented value increases in the neighborhood with three sources including a paired sales data analysis. I never get conditions back about my time adjustments because they are always properly explained, supported and warranted.

I wrote a letter back to the lender explaining in depth the definition of market value, limiting conditions and appraiser's certification within the appraisal report, which must be complied with for the report to be USPAP compliant and adherent to FNMA/FHLMC guidelines. The appraiser can't ignore current market conditions just because the lender decides they won't allow time adjustments, which really is a conflict because I am sure the lender requires the appraisal to be in conformance with USPAP and FNMA/FHLMC guidelines.

This is really a form of bias, the lender wants to keep the value down by not recognizing increasing property values whereas the appraiser is required to appraise to market value without bias. Where does the lender get off telling the appraiser how to appraise with a guideline that does not even conform to investor guidelines.

Have you ever run across a lender who won't allow time of sale adjustments? If so, is there any further information you can add for future reference?

This is yet another case for my argument that the standard limiting conditions for federally related loans should be altered to redefine the definition of market to include we appraise to market value "within FNMA/FHLMC guidelines." There are too many examples I see in a rising market where FNMA/FHLMC and lender guidelines try to keep the appraiser from reaching market value as defined within the current limiting conditions accepted by FNMA/FHLMC. Remember, FNMA will not accept altered limiting conditions.

Do you really need three closed sales to support market value?

 

[Dave Smith]

If its a secondary market loan involved ask the lender to check the Fannie - Freddie guidelines where time of sale adjustments, if supportable are required. Provide the lender with a copy of the guidelines section or refer the lender to the appropriate web site for the information.

If its an in house deal then ask the lender in writing for their written guidelines, which you are willing to consider and follow as long as they don't compromise your ethics and/or USPAP.

Remind the LO the borrower chooses the lender, the lender chooses the appraiser and the appraiser appraises to USPAP, Fannie & Freddie guidelines. with the appraiser getting to choose the value.

 

[George Hatch]

Whose appraisal is this, anyway? Is it your opinion of value or is it their opinion of value? Is it your license and E&E on the line or is it theirs? Not only that, but I have yet to see any lender that has a written policy forbidding adjustments based on time. See if they actually have a written policy or if this is some urban myth the underwriter is perpetuating to streamline their loan writeup. If it isn't a written policy, I would question its existence. If it is a written policy, I would want to see it; and if it actually exists, I would want to get it changed. I'll bet you money the policy doesn't even exist.

I don't tell a lender how to underwrite a loan. They shouldn't be telling me how to appraise the property. If they want to cut the loan, they should do it on their own, not ask us to be the villain. If they don't believe in time adjustments, let them underwrite their loan accordingly.

It's one thing to be responsive to the needs of our customers. It's quite another to let them dictate our opinion. You have already offered them a good product. I would tell them that you would decline to write a misleading report or offer an opinion that is not your own. Tell them that they are putting your license and your livelihood at risk by asking you to change a good appraisal/appraisal report and offer instead a misleading one. Tell them the borrower could sue you and them if they ever found out. When it comes to changing an analysis and the subsequent opinion of value, there's no difference between doing it to hit a predetermined number and doing it to make their underwriting more idiot-proof. It's still wrong any way you look at it.

I followed through once on this with a lender (in regards to their 'requirement' that a condo appraisal of a 10-year old unit in a 190-unit project required an outside comparable). When the dust finally settled, there was no written policy anywhere and their 'requirement' all a sudden wasn't so important. I was soooo surprised.


George Hatch

 

[Austin]

George: I know you don’t like regression and statistics talk, but from a statistical standpoint there is no way you can justify or support a 4% or less price increase over a years period. With three comparable sales the margin of error is more like 7% or more. The only people I know that believe in matched pairs still believe in the Easter Bunny, The Tooth Fairy, and Santa’s Elves. Unless you live in a utopia with a perfect market, which I doubt. The lender probably has figured this all out and that is why they want the time adjustment out. I hope you didn't make an adjustment for design and appeal ( I love that one), functional utility (that is always good for a laugh), and quality of construction (that says volumes about your talent for chosing comps.) Remove these four adjustments and then we can really see who the appraisers are.

 

[Larry Lyke]

Austin --

You are throwing me off my stride. What -- no Easter Bunny, When I've still got 3 chocolate ears to go.

I would think that a lender could say across the board that they do not accept Time Adjustments. It'd be nice to know about it before doing the report, though.

Actually, it's a nice defense when the Realtors bash you. They've already built it in the Listing Price.

 

[rijman]

We are talking about a 1%/month increase in values that is supported by two published reports and a model match paired sales analysis. In a market of increasing values it is not possible to appraise to "market value" without making time of sale adjustments.

By the way, I have contacted the corporate office of Flagstar Bank and have 2 messages into different people to confirm the policy against time of sale adjustments. I will be very surprised if they can provide a written policy.

Appraising without time of sale adjustments in a rising or declining market is not appraising to market value as indicated within the every appraisal report I complete. I refuse to appraise to FNMA/FHLMC value, rather than market value, until the limiting conditions are changed to accurately reflect the value definition.

Regards,

 

[Ben Vukicevich SRA]

George,

The bank just has a really old FHA-type underwriter :lol:

It was standard policy in my FHA service office not to allow time adjustments even in an appreciating market. Of course, that killed alot of deals. You obeyed or you got "gripped-up" on review. Two poor reviews in one year and you were history. So you definitely obeyed rather than lose your FHA roster status. I believe there was one field office in the mid-west that even stated you had to adjust garages at $2,000 per. The SREA and AIREA, before the merger, informed their members that they could not accept appraisal assignments based on these conditions and that was way before USPAP. But who the hell listened to them and their bright ideas. There were also FHA service offices that would not allow condition adjustments-absolutely not acceptable. The chief appraiser dictated appraisal policy.

You want to work-you meet their guidelines. Hey, remember that lender that told me more than 3 comps was unacceptable (the "if you can't make the value with 3 comps, there's something wrong" lender). They had to come crawling/begging because the BC paper lender they shoved the loan to wanted two more comps, if the value was over $200,000. That's a good one, if the value is over $200,000, we want 5 comps or they don't do the loan.

It's such a game. But it's out there. Hah, come to think of it, I'm sure it falls under USPAP Supplemental Standards :roll: Yeah, let's stuff it in there. Wacky underwriting requests can have their very own USPAP Supplemental Standards. Hell, we do it for FHA. Why not everybody else? But what do I know. I "tap dance" very well after 28 years.

Ben

 

[Austin]

Rigman: If I were a lender in a market in which prices were increasing at 1% per month, I wouldn’t waste my time on an appraisal. On a $100,000 house, if the appraiser is $10,000 to high, in 10 months what difference will it make?
Second: If prices are increasing at 1% per month, something is terribly wrong. This reflects a temporary housing shortage that sooner or later will return to equilibrium resulting in many people owing more on their homes than they are worth. Even more of a reason not to waste time on an appraisal. If you accept the premise that contract price equals market price, who needs an appraiser? Just hire some kid to fill out the forms.
Larry said Realtors have the time adjustment built in, and he is correct. That is even more reason to take it out as an adjustment. If you use comparable sales and never make a time adjustment, it is not possible for prices to rise. Think about it! You are making a time adjustment because a time adjustment is built in. If you take the time adjustment out, then you don’t need to make a time adjustment.

 

[rijman]

Just to followup, I talked to two different underwriters today at Flagstar's corporate office and neither have ever heard of an in-house guideline that does not allow for time of sale adjustments. One UW checked their "Property Guidelines" book and still could not find anything on it. I guess the myth continues.

Regards,

 

[George Hatch]

Rijman,

Just to followup, I talked to two different underwriters today at Flagstar's corporate office and neither have ever heard of an in-house guideline that does not allow for time of sale adjustments. One UW checked their "Property Guidelines" book and still could not find anything on it. I guess the myth continues.

This is truly classic. Think of how many urban appraisal myths we could undo just by chasing them down to their (nonexistant) source. Keep up the good fight.

Austin,
I'm in San Diego County as well, and 1% a month is nothing. We have seen some residential properties double in the last three years. There is a shortage of housing, particularly in the under $250,000 range. And apartment properties have mostly doubled in that time. Interestingly enough, industrials and most of the commercial uses haven't bumped more than 15%. Of course, the 1990's recession whacked some property values by as much as 40%. There are some who contend that won't happen again here. I can't decide if I agree with that or not.

As for not being able to demonstrate a time adjustment, if the sales are arrayed chronologically with no adjustments at all, they will quite adequately tell that story. This being a mostly urban/suburban market, comparable sales that are truly comparable are not that tough to come by. I say that if it's apparent, then make the adjustment. If it isn't apparent then don't make the adjustment. And no, I don't think 'three comps and only 3 comps, never any more than 3 comps and never any less than 3 comps' is an appropriate way to appraise unless those are 3 great comps and there is no other story to tell. Obviously, if there are 3 model matches with little or no adjustment then the addition of extra comps will not serve to make the opinion of value any stronger. We all aspire to find those 3 model matches having closed within the last 30 days so that we won't have to make any adjustments or answer stupid underwriter requests. Those are already few and far between since the computers get those first.

Don,
Supplementals were always OK, so long as they don't contradict USPAP. I think we could easily make the argument that this particular type of 'requirement' does indeed violate the standards rules, particularly when there is an impact on the final opinion of value. I'm positive you feel the same way. I never heard the underwriters complain when I was making downward adjustments for time during the recession. As always, they want to cut the loan and they want to use our appraisals to justify it rather than take the responsibility themselves. Meanwhile, we are being asked to participate in deceiving these property owners into thinking their property isn't really worth what we (or they) think it is. This hurts.

George Hatch