New 1004

[djd09]

independent means not controlled by others...they should change the form number to 1984

 

[J Grant]

This is a tangent which leads us directly into a Chinese Finger Trap sort of dilemma. If the argument is that the regulation of the mortgage business is a necessary evil then that has us advocating for more regulation to further impede the lenders' proven ability and intent to cut corners. And/or use borrower-biased and overvalued appraisals.

Same with C&R. If the argument is that the only fix for how the appraisers get paid is for the govt to recast C&R into its original intent then that's another example of advocating for more govt intervention, specifically into the market for appraisal services.

OTOH, if we argue that govt regulation is getting in the way of commerce then that has us advocating for letting the lenders run wyld with all of their due diligence functions. Which from their wish list would include retiring the requirements to obtain appraisals.

Lenders could run wyld if they were lending THEIR OWN MONEY.

However, in the case of GSE loans, the lenders do not lend their own money. They are lending the investor's money, and the investor's money is backed by ourselves, the American taxpayer. Thus, they can not do anything they want, toubh they push the limits of what they are allowed to do wrt regulations. We see the way that usually turns out - over lending, over-valuing, exotic and predatory loans, foreclosures, and volatile housing prices.

The Fannie/Freddie move to WAIVERS instead of appraisals is the slickest end-run around regulations I have ever witnessed. Since appraisals are regulated, they simply developed a product that does not have those regulations and called it a WAIVER, now changed to VALUE ACCEPTANCE. A name change is usually a sign of guilt, like all those companies that go BK and rename themselves. After all, a Waiver as the name is too transparent, reminding people they waived the protections an appraisal offer, so now they use the word value acceptance ( but it is still a waiver ). The waiver is the former mortgage broker's wet dream- the lender estimates the value !! ( as long as it falls within the GSE AVM range ). or the sale price is the value! ( as long as it falls within the GSE AVM range ). What is the AVM range?? Nobody outside of Fannie or Freddie knows or, as far as I am aware, sees the AVM. But if fannie and Freddie say the lender;s own target value estimate falls in the AVM range, they green light th ewaive.r WOW! A mortgage lender or AMC does not even have to try to pressure the appraiser - there is no appraisal, the lenders' own value estimate is the property value !

IDk how the GSEs 's sold this to regulators - I suppose by saying it is a lower risk ( show me that over a period of years in the future), or saying the risk is not greater than with an appraisal and it saves the borrower money!! The borrower pays tens of thousands in loan origination points and mortgage fees, but they save $300 on appraisal ! See, the GSEs care so much about the borrower- because that $300 will save their doncomic life !! But teh thousands in loan fees are not touched, and the AMC's predatory fee splits are not touched. Only the appraisers are sacrificed to save money.

The loans themselves are too heavily regulated to budge much; though they keep trying to expand the credit and $ down amount, they still can not return to the predatory loan terms they would enact tomorrow if they could. Thus, they turned to the valuation end - eliminate or marginalized appraisals, and now the stakeholders can control the valuations and have fewer "low" values that might lose a deal - the investors and taxpayers have to blindly accept this, as do markets with no way to know how Waiver values impact prices.

 

[J Grant]

WRR the new 1004 form; much of it is like the old forms, but with one drop-down menu instead . Imo that blurs the line for appraiser expected and non-inspected valuations, and though a box is checked, they are all labeled 1004 so they can be sold that way to investors, mixed in a portfolio, the way C and D toxic loans were packaged with B and A credit loans.

There are more detail fields, making the appraiser more like a home inspector with energy ratings for appliances and more detailed component descriptions. Of course, the elephant in the room, AMC influence of choosing fast and cheap, is not addressed, so if the same less competent appraisers use a new form, the results will be the same -

 

[Tom D]

J Grant, your best postings so far. So, the new form has more detail fields. This minutia has nothing to do with the major factors in value that takes years to understand. Seems to me like it's becoming more of a vc checklist that any monkey can fill out. There is a reason behind these changes, and it is not good for current appraisers. The monkey's fill out the form, then CU or a desk jockey, does the grid. Or the desk jockey just reviews CU work. Maybe those people will be fannie employees. Not necessarily good appraisers, but check the check list on the review. AI now stands for Appraisal Intelligent software.

I predicted that certification, and hvcc, would cripple appraiser's income
I predicted that CU would become an appraiser

Here is my next, take it to the bank, prediction:
The new 1004 drop down checklist menu will be done by junior home inspectors, or the new unqualified Realtor's trained appraisers. Fannie avm will do the majority of value determinations.
Fannie will eventually blow up from being too big and thinking they do it right.
We will never do appraisals full time again, for more than 1 reason. Part time is fine for me. I have now transitioned back over to fix and flip. Easier work and bigger profits.

 

[George Hatch]

independent means not controlled by others...they should change the form number to 1984

Do you sell a service or do you unilaterally dictate terms?

Do you believe the users of appraisals have the right to define how much (beyond the minimums) additional SR1 and how much additional SR2 are sufficient for their usage?

 

[George Hatch]

One thing I think appraisers should keep in mind is that the GSEs aren't allowed to operate solely on the basis of profitability, but are being required to work toward social goals which a lot of Americans support including some of the members of this Forum. That's why a lot of the critics of the crackdown on verbiage believe they are being coerced to lie-by-omission in furtherance of liberal politics over nominal viability.

(personally, I strongly disagree that not using certain terms amounts to a lie-by-omission, but that's a different discussion).

My point is that when the legislative and executive and even the judicial branches of the federal govt are leaning on the GSEs to promote home ownership even when riskier to do so, that's an exercise of political interests, tied directly to the ballot box. It is the exact opposite of improving safe/sound lending or reducing the risks for loss via overvaluation.

BofA and Wells have a different mission statement and different priorities than VA, FHA and the GSEs. Comparing the performance of one group against the other is inherently unequal as a direct result of those differences.

 

[shrubberyvaluation]

the bottom line is the gse's are stealing our data...and using it against us...but the shills want us to trust them

Yea, I am a big advocate of varying from their non market standards as much as possible. Makes it harder to blindly just steal the data.

 

[Terrel L. Shields]

Lenders could run wyld if they were lending THEIR OWN MONEY.

Am I reading that right? You think a bank lending its own money will 'run wild" and lend inappropriately? Quite the opposite. They are far more conservative with their own money than with the money of taxpayer backed funds. I can name any number of bankers who were fired for making bad loans. One was fired twice. Another was fired by his own father who was President of the bank and asked him to find a job elsewhere because he wasn't working out. Made one lousy loan that cost the bank several hundred thousand.

I know another banker fined by the FDIC and banned for life from banking after he doubled down on a Mennonite borrower who lost a chicken contract. Under pressure from his own boss, the hapless lender lent another $1,000,000 to set the guy up as an independent producer and seller of eggs. It worked for a while until his egg market collapsed after Wal-mart undercut his price and cut him off, and he filed bankruptcy leaving the bank holding the bag. The loan was double or more the amount of collateral the guy had. The "old man" didn't take the fall, the loan officer did. He didn't want to make the loan but had to because the bank owner demanded he do so in an effort to salvage what was a losing proposition in the first place. This was only a year or so before the 90+ year old bank owner died and lost the bank and his business and land as well. Another banker at this same bank was likewise canned but not fined. Same issue. Lent more than the collateral was worth. And the Loan VP was dying of a rare disease (Myositis) when the FDIC agreed not to prosecute him for bank fraud.

 

[J Grant]

Am I reading that right? You think a bank lending its own money will 'run wild" and lend inappropriately? Quite the opposite. They are far more conservative with their own money than with the money of taxpayer backed funds. I can name any number of bankers who were fired for making bad loans. One was fired twice. Another was fired by his own father who was President of the bank and asked him to find a job elsewhere because he wasn't working out. Made one lousy loan that cost the bank several hundred thousand.

I know another banker fined by the FDIC and banned for life from banking after he doubled down on a Mennonite borrower who lost a chicken contract. Under pressure from his own boss, the hapless lender lent another $1,000,000 to set the guy up as an independent producer and seller of eggs. It worked for a while until his egg market collapsed after Wal-mart undercut his price and cut him off, and he filed bankruptcy leaving the bank holding the bag. The loan was double or more the amount of collateral the guy had. The "old man" didn't take the fall, the loan officer did. He didn't want to make the loan but had to because the bank owner demanded he do so in an effort to salvage what was a losing proposition in the first place. This was only a year or so before the 90+ year old bank owner died and lost the bank and his business and land as well. Another banker at this same bank was likewise canned but not fined. Same issue. Lent more than the collateral was worth. And the Loan VP was dying of a rare disease (Myositis) when the FDIC agreed not to prosecute him for bank fraud.

I meant it as if the GSE loan lenders owned their own money; then they could "go Wylde," and be reckless with it.

They are not lending their own money, yet they are acting more and more reckless with valuations- that was my point.

Banks/lenders using their own money are either far prudent with the process , or their loan terms are more onerous - larger % down, short-term finance, balloon payment due, etc.

 

[Terrel L. Shields]

larger % down, short-term finance, balloon payment due

That's risk management. I've known a number of bankers over the years. I borrowed money at 18% once. Since smaller loans were handled by my brother, his boss handled this much larger loan to avoid any conflict of interest, and the boss said that such were risky loans for them as it made the borrower more at risk to default. However, it was the policy of the bank (he and his brother were co-owners) to lend in the community. He pointed out that they could just put the funds available on securities or T-bills making 12-15% risk free. But they felt they were obliged to lend into the community as a means to support the growth and well-being of the community. They thought by investing outside the community, they would be using local money to make money at the detriment of the local businesses and borrowers.

So, while they worked on margins anyway, high interest rates only made their business riskier which was one reason they offered few loans over 10 years term, ARMs were preferred, and yes, they got a bit higher interest rates than secondary market.