Let the borrower order it. The case for it.

[john snyder]

Cut and pasted from a different forum.

"Despite repeated warnings from these regulators, very little has been done in retail lending channels to create a firewall between loan officers and appraisers," said Robert Murphy, Chairman and Chief Executive of ValuAmerica. "It's the industry's worst-kept secret: some lenders apparently would rather face a fine from their regulators than risk alienating their commission-based loan officers by preventing them from meddling in the appraisal selection and review process. Inflated appraisals were a major part of the S&L crisis twenty years ago, and they are a significant factor in today's credit/housing crisis -- just read the headlines."

Are you more influenced by one homeowner or a mtg. company/bank?

jbs

 

[TJSum]

Influenced is the wrong word, because that complies one actually does try to hit a number.

Pressure is the correct term. From my 18 years experience, the borrower tries to apply the most pressure. The dirty little secret, at least in this region is the majority of the bogus numbers are seen with REFI appraisals. The media seems to always focus on sales, but the REFI's are where much of the vastly inflated values reside. And the target number on refi's is usually created by the borrower, or the borrower in tandem with the LO. The LO just wants to do a deal, it is the borrower who wishes to pay off his last vacation, speed boat, kids college education (etc.) and wrap it all into their new loan. In the vast majority of cases, the borrower is not the "innocent victim" the media loves to spin...

 

[Terrel L. Shields]

The borrower should not choose the appraiser. The lender agent should not choose the appraiser. The person who stands to LOSE their investment should choose the appraiser.

Thus the MB and LO should be out of the loop. But the investment bank client who ultimately ends up with their money in it should pick the appraiser and unfortunately, that step might be weeks or months down the road from the transaction.

The solution is some sort of oversight of the process of selection but a workable process has yet to me, at least, been created or proposed. If the LO continues to pick appraisers, then there should be a requirement that the LO personally has to stand any loss related to over-appraising. They have to have a stake in it.

The real solution relates to the borrower. They,too, must have a stake in the outcome. That means they need to put up REAL money to borrow money. And it means that the loan cannot and should NEVER exceed the sales price regardless the appraised value. The LOWEST value should be the basis for the loan. And, of course, both AVMs and AMCs should be banned from the process or at least the AVM should not be used as a basis for reviewing the appraisal.

 

[c w d]

Influenced is the wrong word, because that complies one actually does try to hit a number.

Pressure is the correct term.

Sadly, that isn't the correct term either......how about extorted?

The borrower is just as likely to shop values as well. The difference, however, is that the borrower is not the focal point for recurring business. The MB is. And if you're a "good" appraiser, the MB is going to funnel appraisals your way. If you tick off a borrower, you don't necessarily have to worry about losing thousands of dollars of business. Both the HO and the MB are similarly motivated albeit for different reasons. One just has the means to make you or break you.

 

[PropertyEconomics]

I have long been an advocate of letting anyone order the appraisal ... with the understanding that a full and complete review will be done by a certified appraiser from within the market area. I believe if everyone knew their work was going to be reviewed prior to the loan being approved ... the quality of the work product would go up. Reviewers should be required to have a minimum of five years in the business as a certified appraiser and ALL reports should be so reviewed.
Most will say, sure they will just pic a reviewer that will agree with the value. Perhaps that is so, but it is also just a likely that number hitters who go outside the area for comparable sales will realize that there will be reviewers with much more experience and perhaps then the quality of our product will be increased.
If value is value, it should not make a difference who orders the appraisal. Quality and accurate analysis should be our goal. How we get there should be of the utmost importance to our profession. Realize spending $700 - $800 for appraisals and reviews in a $200,000+ transaction is a pittance compared to the billions that have been lost and the billions more that may be on the books that are bad now.
The lending community, the appraisal community, and the government regulators are being foolish for a few more pennies in the deal. Advocacy for quality is the only way this will work. If every lender knew that they were buying the home back from the secondary investor if it were shown that the appraisal or the lending package was fabricated .. THEN .. and only then .... will we begin the process of correcting the mess than has been made of our profession.

 

[Marcia Langley]

Borrowers are not less likely to coerce appraisers than loan originators. And they are just as likely to fabricate bogus complaints. And they could do a lot of "word of mouth" damage to your local reputation.

I think the existing banking regs have this right. Appraisal selection/ordering should be handled by the Compliance Officers' or General Councils' department.

It is appropriate for the entity making the decision (whether to extend credit) to be the client and only intended user.

 

[Alison Swain]

Cut and pasted from a different forum.

"Despite repeated warnings from these regulators, very little has been done in retail lending channels to create a firewall between loan officers and appraisers," said Robert Murphy, Chairman and Chief Executive of ValuAmerica. "It's the industry's worst-kept secret: some lenders apparently would rather face a fine from their regulators than risk alienating their commission-based loan officers by preventing them from meddling in the appraisal selection and review process. Inflated appraisals were a major part of the S&L crisis twenty years ago, and they are a significant factor in today's credit/housing crisis -- just read the headlines."

Are you more influenced by one homeowner or a mtg. company/bank?

jbs

In seven years, I can recall very few instances where a homeowner tried to twist my arm on a value, to overlook deficiencies, etc. Mortgage brokers, OTOH ---- it's standard business practice for them. 95% of the time, I'd say.

 

[john snyder]

Okay how about undue influence as defined below:


Sheesh how are we going to stop communication with the homeowner/borrower who we have to contact to get in, the realty broker that may have the key, and the loan officer that is paid a commission?

Let the borrower be the client. They pay for the appraisal. Have the review, which is done ad nauseum today do the rest.

No total alleviation of undue influence, but maybe an environment of less undue influence.

jbs



jbs

 

[john snyder]

Sorry lost the first part.

Undue influence (as a term in jurisprudence) is an equitable doctrine that involves one person taking advantage of a position of power over another person. It is where free will to bargain is not possible.

jbs

 

[PropertyEconomics]

To All ... If an appraiser can be coerced, influenced, bought off, paid for, chided into a value, cajoled into helping, flirted with, smooth talked, etc etc etc ... there is nothing one can do about the ethics of that appraiser .. except .. kick them out of the business. One cannot dictate ethics .. either you have them or you dont.
I personally dont care who orders the report ... in my world the number is the same.

We focus too much on the symptom and not enough on the disease.