Let The Borrower Pick The Appraiser

[chad hampton]

Not sure about the borrower, but I'd like to go back to working with brokers. I built up a good list of clients and worked hard to keep them. The problem of pressure could have been dealt with at the broker level by regulating and licensing them, same way they did to us. A broker asks to push value, file a complaint and he's out.

Instead they blew up everything, spent 100x's more than they had to, and come close to destroying this entire profession. Typical.

 

[TRESinc]

Yes, I believe the borrowers selection is a bad idea yes because they would Do THE EXACT same thing...so why does that excuse the lenders and AMC's for acting in a manner contrary to public trust? The lenders should know better, and they get bailed out by the taxpayer. The public does not know any better and nobody bails them out as individuals if they lose their home.

Amazing world you live in ...just because an appraiser on a bulletin board floats an idea that won't happen, you still think it's fine for lenders and AMC;s to act unethically in appraiser selection while they gouge fees. You'd rather hurl snark at other appraisers than hold lenders and AMC's accountable for their actions.

do i like what some of the shady AMCs and lenders are doing to some borrowers? nope. can i change their practices? nope. what can i do? put forth the effort to get away from the residential lending side of appraising and make my life better. or i could ***** and whine on a message board to other appraisers and cross my fingers that someone somewhere does something to make my life better. i choose the former. appraisers are the ones enabling lenders and AMCs to take advantage of them. some appraisers are their own worst enemy.

 

[timd354]

Not sure about the borrower, but I'd like to go back to working with brokers. I built up a good list of clients and worked hard to keep them. The problem of pressure could have been dealt with at the broker level by regulating and licensing them, same way they did to us. A broker asks to push value, file a complaint and he's out.
It is laughable to think that the regulators would be able to enforce broker licensing so tightly that one complaint would result in the broker being out since unless the broker is dumb enough to put something in writing, any complaint would just result in a he said/she said argument in which the broker denied the allegation. Besides, it would never come down to that as the brokers who are bad actors would simply find and pick appraisers who are also bad actors and who are more than willing to play along.

In any case broker/loan officer selection of appraisers is not gonna happen anytime in the foreseeable future. Even if the regulations/laws were changed to allow it to happen, nobody in the secondary market is going to purchase loans (after what happened previously) where the appraised value was established by an appraisal performed by an appraiser selected by the loan officer or mortgage broker.


It should be noted that technically, allowing brokers and loan officers to order appraisals has not been allowed under banking regulations since 1992 when the original Interagency Appraisal and Evaluation Guidelines were published although this part of the banking regulations was not enforced until after the bubble burst in 2007-2008 and the HVCC was adopted.

 

[hastalavista]

There is one marketing opportunity which I think would be effective (and likely cause a lot of appraisers' heads to explode):

I would wager in the world where an appraiser has to sell their service to the individual borrower, designations (such as given by the AI) would make a difference.
An appraiser with a designation could direct the borrower to the AI website that promotes the designation qualifications and say....

"All the appraisers you speak with are on your lender's approved list. We all have been approved the lender. We'll likely have slightly different fees and slightly different turn-times. While some may be better than others, we all meet the minimum qualifications. However, I've taken steps to exceed those minimum qualifications which has resulted in my designation status. Here is the link to the Appraisal Institute, the largest professional appraiser organization in the country, where you can see what those higher qualifications are. When evaluating my service bid, I'd ask you to consider those qualifications in your decision making process."
​

UCBruin, maybe you should float this idea to those organizations that provide designations. It may get some traction with them.

 

[Ken B]

Those lenders who have turned a former expense into a revenue source will not allow appraiser roster management and appraisal assignments and reviews to be changed back to an expense.

 

[Eli]

From a free market standpoint, UC's point has merit because it would shift the balance of number of buyers and sellers somewhat.

In a totally free market trade structure, there are an unlimited number of buyers and sellers with very little resistance to entry into the market or exit from the market for buyers or sellers.

But UC, who is going to provide the list? The list would need to be exhaustive.

 

[George Hatch]

The other reason, and probably the biggest reason, is the lender's accountability for their use of the appraisal. The banking regs hold the lenders directly accountable not only for their use of the appraisals but also for their selection of the appraiser. As a practical matter the gov't can't hold the lenders accountable to this degree without giving the lenders the discretion to accept or reject. The further the lenders are able to distance themselves from these decisions the harder it becomes to hold them accountable for what they're actually doing.

From a regulatory standpoint, the use of appraisals is not intended to enable mortgage lending; it is intended to add an element of safe/sound to the lending decision as a means of offsetting risks. That means that a property that is valued too conservatively to enable a particular loan amount does not represent a threat to the gov't interest in safe/sound lending, and is therefore vastly preferable to an appraisal that is overvalued.


Moreover, the only intended use of these appraisals is to make mortgage decisions, and the only users of the appraisal that make those decisions are the lenders. That makes every other party in the transaction an off-label users, and every other use of the appraisal an off-label use.

So when a loan officer "uses" an appraisal (and an appraiser) their criteria for what is and isn't acceptable for that use is often in direct conflict with the use that's stated in the report. Same with the borrowers. These parties don't make the decisions towards which the appraisals are ostensibly aimed at, so if/when their interests are of effect on the results it is never aimed at promulgating the legitimate use of the appraisal within the context of its stated usage.

If all the action occurs at the margins it only takes a small percentage of bad appraisals to taint a loan portfolio. And IRL it takes a lot of performing assets to offset the loss from a single non-performing asset, particularly if that asset was grossly overvalued and consequently grossly overencumbered to begin with.

 

[timd354]

The other reason, and probably the biggest reason, is the lender's accountability for their use of the appraisal. The banking regs hold the lenders directly accountable not only for their use of the appraisals but also for their selection of the appraiser. As a practical matter the gov't can't hold the lenders accountable to this degree without giving the lenders the discretion to accept or reject. The further the lenders are able to distance themselves from these decisions the harder it becomes to hold them accountable for what they're actually doing.

Moreover, the only intended use of these appraisals is to make mortgage decisions, and the only users of the appraisal that make those decisions are the lenders. That makes every other party in the transaction an off-label users, and every other use of the appraisal an off-label use.

So when a loan officer "uses" an appraisal (and an appraiser) their criteria for what is and isn't acceptable for that use is often in direct conflict with the use that's stated in the report. Same with the borrowers. These parties don't make the decisions towards which the appraisals are ostensibly aimed at, so if/when their interests are of effect on the results it is never aimed at promulgating the legitimate use of the appraisal within the context of its stated usage.

If all the action occurs at the margins it only takes a small percentage of bad appraisals to taint a loan portfolio. And IRL it takes a lot of performing assets to offset the loss from a single non-performing asset, particularly if that asset was grossly overvalued and consequently grossly overencumbered to begin with.

Here is the other reason that loan officer/broker select is never coming back: For all of the flaws in the current system, vidtually everyone in the secondary market believes that overall appraisal quality is better today than it was under the loan officer/broker select system

 

[George Hatch]

To repeat, the purpose of obtaining appraisals is not to enable a mortgage loan, but to aid in making safe/sound lending decisions. Which is none of the borrower's business, and none of the mortgage broker business. With that said, we should be very enthusiastic in encouraging these other parties to obtain their own appraisals specific to their own other-than-lending interests if/when they desire to do so.

For all of the flaws in the current system, vidtually everyone in the secondary market believes that overall appraisal quality is better today than it was under the loan officer/broker select system

If the current system only cut into the biased appraisal situation by 10% or 15% that would still be more than enough to completely justify the changeover on the economic basis.

 

[J Grant]

To repeat, the purpose of obtaining appraisals is not to enable a mortgage loan, but to aid in making safe/sound lending decisions. Which is none of the borrower's business, and none of the mortgage broker business. With that said, we should be very enthusiastic in encouraging these other parties to obtain their own appraisals specific to their own other-than-lending interests if/when they desire to do so.
If the current system only cut into the biased appraisal situation by 10% or 15% that would still be more than enough to completely justify the changeover on the economic basis.

I do believe the current system has reduced the former bias to pick and engage number hitters. But I also, in recent past year plus, have seen what appears to be a resurgence of it, albeit done in silence, not overt as before. It is done by simply stopping the work flow to appraisers who fail to high a high value, be it a refinance or a sale price.

While the current system has removed, at least some of the overt assigning to number hit, it has so many of its own abuses, including low fees and assigning by scorecards, scores driven in large part by turn time, # of assignment accepted and low fee, that it has driven out many good appraisers and continues to do drive more out, while loading high volume of work on those willing to churn it out at speed, when based on seeing some of the terrible reports out there, they've not assigned it to more competent appraisers. It's inexcusable that the glaring faults in current system are not being effectively addressed.