hastalavista
Elite Member
- Joined
- May 16, 2005
- Professional Status
- Certified General Appraiser
- State
- California
Between 2004 and 2008, I personally did well over 500 reviews for (mostly) 3-clients (and my firm did another 250 reviews or so): A larger mortgage banker, a credit union, and a bank. In the San Francisco Area, I was effectively the bank's review department for 9-counties (and, yes, I have appraised in each county and had full MLS access to all areas I reviewed within). About half of these were field reviews; the remainder were desk. Almost all were pre-closing; some were post-origination. Most of the loans originated outside of the entity by independent mortgage brokers who hired their own appraisers.
None of these assignments were completed on the GSE review forms. I met with each client and wrote the SOW for their intended use to fit their requirements. Their requirements were simple:
A. Tell us about the quality of the work you are reviewing. If we get poor quality from the same source frequently, we want to know (the bank would stop taking loans from mortgage brokers who continually had issues). Some repeat offender appraisers were put on a "must review list" which effectively eliminated their opportunity to do business with these sources.
B. Tell us if you think the value is reasonable and supported. We don't expect these reports to be written as if you had done them, and we aren't looking for the "ideal" appraisal. If the quality is acceptable (the first step), then what we want to know is if we can rely on the value to make a lending decision.
C. If the appraisal is so poor that you cannot determine your own review value, then tell us that and we'll order another appraisal.
For two of the entities, the "poor quality/value not supported" ratio was somewhere between 13-18% (they tracked it and that rate was consistent with their other review sources).
For one of the entities, the rate was closer to 40% (for reasons I'll explain below... which are interesting).
The review process for them was meaningful and it wasn't a witch hunt. The bank executive would tell me (paraphrased),
Denis, everyone has a bad day, including appraisers. But if the appraiser does a bad report on that bad day and its in a loan package we are evaluating, we want the review process to catch it. The appraiser who has a bad day might be one of our best appraisers around. We are not worried about that appraiser, only the report on that bad day. Others, if we see a pattern, we want to know; those (and their sources) are not the ones we want to have a business relationship with. And, if you see something you think is fraudulent, bring that to our attention.
This was the attitude of the clients and it was the purpose/intended use of the report. That attitude created the environment in which the review was completed. I was approached by other clients who just wanted a rubber stamp (and effectively told me so). Others didn't tell me so, and when I disagreed with a report, they no longer used my appraisal review services (and I'm glad). I'm not trying to imply that I'm an ethical paragon (I'd like to think I'm as ethical as my peers), but I didn't have to be an ethical paragon with these clients because their expectations and requirements were ethical from the get-go.
While there are poor quality reviewer appraisers, IMHO, it requires two to make a poor quality review: the reviewer and the client whose expectations/requirements encourage poor quality reviews (be that a rubber stamp on an unsupported value or be that a witch hunt to push-back a loan with the appraisal as the reason for that push-back).
I agree with many that there is probably a new generation of review appraisers who think that any appraisal has shortfalls (I would agree.. no appraisal is perfect and certainly not mine) and, therefore, all appraisals can be rated "poor" or do not credibly support their value. I underscore credibly because (based on some of the posts I've read here) many appraisal reviews cite incredible reasons for challenging the credibility of the report under review.
I've said it before and I'll say it again: Although I'm against unnecessary regulation (and I find the majority of regulation unnecessary), I would be 100% in support of requiring that any appraisal review that is used to impugn the integrity of an appraiser to be delivered to that appraiser in its complete submission: this includes the SOW, the analysis, the conclusion, and the review appraiser's name. In some review situations, the original appraisal report is being held to an unreasonable standard. All I ask is that the review appraisal which makes such a determination be held to a reasonable standard, with the first step being disclosure to the alleged violator (the original appraisal/appraiser).
The concept of an appraisal review is very common sense and should not be eliminated. Unfortunately, the way it is used is leading to abuse. Do not throw out the baby with the bath water. Keep the baby, get rid of the dirty water reviewers.
Now, the rest of the story where I was at 40% rejection rate.
One of my clients was a credit union (one of the largest in California). This CU would specialize in offering 2nds. It outsourced its origination function to a mortgage banker (MB). The MB set up a deal with a large Savings & Loan (who is no longer in business) to provide 2nds on deals where the S&L originated the loan. The majority of the rejections I saw was from this S&L's staff appraisers, and almost always had to do with value (as opposed to a poorly written report). Since the CU was loaning, say, the last 15-20% on what was already an 80% 1st lien (so, my client was loaning 95-100% after the first 80%), there was very little (or any) margin for error.
The MB was furious that our rejection rate was so high, and we had a big pow-wow over the issue; they threatened to find another review company. I went back to the CU, spoke with its CEO and ask him if he wanted to transition to another review company. He said no, the MB can either live with it or find another source for its 2nds, and told me not to change a thing.
As a rule, I was able to speak directly with the originating appraiser who completed the appraisal I was reviewing. The S&L would not allow its appraisers to speak with me, so when I had a question on one if its appraisals, I could not verify anything with the original staff appraiser (they also used contract appraisers; those non-employees I could speak to).
On one deal, however, I not only received the original report but also the S&L's internal review report. And, this is the end of the story....
The original report appraised a property at $950k, which was fully supported (it was a well written report). However, at $950k, the deal would not qualify for a 2nd. The S&L's internal review department then did a review and valued the property at $1,000,000. The only reason it did that was so the new collateral value would allow the borrowers to qualify for the 2nd (don't ask me how I figured this out... you'll have to trust that I did).
This S&L was heralded as being a visionary in loan products and introduced many types of exotic loans into the market place in the early 2000s. They also had a good reputation in regard to their collateral valuation process. And I'm sure their reputation was warranted... when it came to protecting their 80% lien. But they had no problem playing loose with collateral values when the risk was going to be absorbed by someone else (my client, the 2nd lien holder). And, one of the mechanisms they used to do that was their review function.
(None of the above I posted is new... I've posted about this issue and similar issues over the years when they occured).
None of these assignments were completed on the GSE review forms. I met with each client and wrote the SOW for their intended use to fit their requirements. Their requirements were simple:
A. Tell us about the quality of the work you are reviewing. If we get poor quality from the same source frequently, we want to know (the bank would stop taking loans from mortgage brokers who continually had issues). Some repeat offender appraisers were put on a "must review list" which effectively eliminated their opportunity to do business with these sources.
B. Tell us if you think the value is reasonable and supported. We don't expect these reports to be written as if you had done them, and we aren't looking for the "ideal" appraisal. If the quality is acceptable (the first step), then what we want to know is if we can rely on the value to make a lending decision.
C. If the appraisal is so poor that you cannot determine your own review value, then tell us that and we'll order another appraisal.
For two of the entities, the "poor quality/value not supported" ratio was somewhere between 13-18% (they tracked it and that rate was consistent with their other review sources).
For one of the entities, the rate was closer to 40% (for reasons I'll explain below... which are interesting).
The review process for them was meaningful and it wasn't a witch hunt. The bank executive would tell me (paraphrased),
Denis, everyone has a bad day, including appraisers. But if the appraiser does a bad report on that bad day and its in a loan package we are evaluating, we want the review process to catch it. The appraiser who has a bad day might be one of our best appraisers around. We are not worried about that appraiser, only the report on that bad day. Others, if we see a pattern, we want to know; those (and their sources) are not the ones we want to have a business relationship with. And, if you see something you think is fraudulent, bring that to our attention.
This was the attitude of the clients and it was the purpose/intended use of the report. That attitude created the environment in which the review was completed. I was approached by other clients who just wanted a rubber stamp (and effectively told me so). Others didn't tell me so, and when I disagreed with a report, they no longer used my appraisal review services (and I'm glad). I'm not trying to imply that I'm an ethical paragon (I'd like to think I'm as ethical as my peers), but I didn't have to be an ethical paragon with these clients because their expectations and requirements were ethical from the get-go.
While there are poor quality reviewer appraisers, IMHO, it requires two to make a poor quality review: the reviewer and the client whose expectations/requirements encourage poor quality reviews (be that a rubber stamp on an unsupported value or be that a witch hunt to push-back a loan with the appraisal as the reason for that push-back).
I agree with many that there is probably a new generation of review appraisers who think that any appraisal has shortfalls (I would agree.. no appraisal is perfect and certainly not mine) and, therefore, all appraisals can be rated "poor" or do not credibly support their value. I underscore credibly because (based on some of the posts I've read here) many appraisal reviews cite incredible reasons for challenging the credibility of the report under review.
I've said it before and I'll say it again: Although I'm against unnecessary regulation (and I find the majority of regulation unnecessary), I would be 100% in support of requiring that any appraisal review that is used to impugn the integrity of an appraiser to be delivered to that appraiser in its complete submission: this includes the SOW, the analysis, the conclusion, and the review appraiser's name. In some review situations, the original appraisal report is being held to an unreasonable standard. All I ask is that the review appraisal which makes such a determination be held to a reasonable standard, with the first step being disclosure to the alleged violator (the original appraisal/appraiser).
The concept of an appraisal review is very common sense and should not be eliminated. Unfortunately, the way it is used is leading to abuse. Do not throw out the baby with the bath water. Keep the baby, get rid of the dirty water reviewers.
Now, the rest of the story where I was at 40% rejection rate.
One of my clients was a credit union (one of the largest in California). This CU would specialize in offering 2nds. It outsourced its origination function to a mortgage banker (MB). The MB set up a deal with a large Savings & Loan (who is no longer in business) to provide 2nds on deals where the S&L originated the loan. The majority of the rejections I saw was from this S&L's staff appraisers, and almost always had to do with value (as opposed to a poorly written report). Since the CU was loaning, say, the last 15-20% on what was already an 80% 1st lien (so, my client was loaning 95-100% after the first 80%), there was very little (or any) margin for error.
The MB was furious that our rejection rate was so high, and we had a big pow-wow over the issue; they threatened to find another review company. I went back to the CU, spoke with its CEO and ask him if he wanted to transition to another review company. He said no, the MB can either live with it or find another source for its 2nds, and told me not to change a thing.
As a rule, I was able to speak directly with the originating appraiser who completed the appraisal I was reviewing. The S&L would not allow its appraisers to speak with me, so when I had a question on one if its appraisals, I could not verify anything with the original staff appraiser (they also used contract appraisers; those non-employees I could speak to).
On one deal, however, I not only received the original report but also the S&L's internal review report. And, this is the end of the story....
The original report appraised a property at $950k, which was fully supported (it was a well written report). However, at $950k, the deal would not qualify for a 2nd. The S&L's internal review department then did a review and valued the property at $1,000,000. The only reason it did that was so the new collateral value would allow the borrowers to qualify for the 2nd (don't ask me how I figured this out... you'll have to trust that I did).
This S&L was heralded as being a visionary in loan products and introduced many types of exotic loans into the market place in the early 2000s. They also had a good reputation in regard to their collateral valuation process. And I'm sure their reputation was warranted... when it came to protecting their 80% lien. But they had no problem playing loose with collateral values when the risk was going to be absorbed by someone else (my client, the 2nd lien holder). And, one of the mechanisms they used to do that was their review function.
(None of the above I posted is new... I've posted about this issue and similar issues over the years when they occured).
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