Here is a copy of my letter. Anybody that wants to borrow, ammend, add can feel free. Any suggestions on changes would be appreciated too.
Regulations Division
Office of General Counsel, HUD, Room 10276
471 7th Street SW
Washington, DC 20410
RE: Appraiser Watch
HUD No. 02-081
Mr. Martinez,
I recently read the above mentioned announcement regarding “appraiser watch”. I am all for appraiser checks and balances, appraisal review and appraiser performance rankings. However, this new program directed at “default and claim rates” for appraisers is misguided and quite short sighted. The quote “faulty appraisals, whether intentional or not, contribute to the inability of home buyers to make monthly mortgage payments and to the instability of neighborhoods” is not supportable. The last time I checked, appraisers have nothing to do with the qualification, approval or disapproval of prospective home buyers.
Our duty is to estimate market value of properties and has nothing to do with the individual home owners. There lies the misguided and short sighted views of HUD. I agree that fraudulent appraisals are a hindrance to of the entire mortgage system. I perform field reviews for Freddie Mac and FNMA. The amount of fraud and misleading appraisals I see on a weekly basis is appalling. The substandard reports I review take so much work that I must charge above the typical fee for the field review because the work pertaining to the review is compounded by the false and misleading data. However, the only combatant for the fraudulent appraisal is a field review. This “appraiser watch” does not single out misleading appraisals, it singles out poor home buyers who were approved for home loans that they could not afford or handle.
The “appraiser watch” should be a “lender watch”. If you addressed the offending lenders, you would be addressing the offending appraisers at the same time. Take it from me, an honest appraiser, who gets chastised as being “too conservative” from numerous lenders. My problem is I require the FHA repairs that the HUD checklist entails and I only use sales out of the subject’s immediate market area. I do very few FHA appraisals because of this fact. There are numerous appraisers out there who ignore the HUD checklist and use sales outside the market area, because of lender pressure and coercion. If there was no lender pressure there would be very little appraisal fraud. The source of the problem is not the appraiser, so why should the appraiser be addressed as a source?
I visited the “appraiser claim and default rate” page at the HUD site before it was quickly removed again. I was not surprised that my default rate was higher than every appraiser I checked, You see, I only did 37 FHA appraisals and I had 4 defaults. I had a 13% default rate. Meanwhile, I checked the default rate for some of the appraisers notorious for “hitting the number” and for “ignoring repairs”. Their default rates were amazing low (2-5%). Then I saw that they had performed over 400 HUD appraisals and I know they did not inspect them all personally. So, my conclusion is that I, an honest appraiser, will do fewer FHA appraisals because I require repairs and give an honest value, but my default will be high because I do not conduct credit checks on borrowers before performing the appraisal. Meanwhile, the appraisers you are after will continue to “fly under the radar”.
As you can see, I have discovered the obvious. I am in danger of removal from the approved HUD list for performing honest, true appraisals. While the appraisers and lenders you should be after continue to get rich. If and when I get a notice about HUD removal I will be obtaining legal counsel and I will be seeking damages. I can defend any appraisal I perform, HUD or otherwise, but I can not defend myself against outside forces (borrower’s default and/or lender transgressions). I especially like the quote “any appraiser who receives such notice may meet with HUD officials to present evidence that factors beyond his or her control contributed to the excessive rates”. Isn’t every foreclosure out of our control? We do not issue the mortgage, check credit, interview the borrower or collect the mortgage payment. The intelligence in the whole program is questionable. This new system is so flawed it is almost humorous. Unless you are the honest appraiser under scrutiny.
I am contemplating not accepting FHA appraisal orders anymore without a seeing the borrower’s credit rating, debt ratio and mortgage application. I believe that is against some privacy laws. By the way, lets get serious about one issue. The only way to curb appraisal fraud is to actively review appraisals. This is not done. It is expensive, but I believe the cost of a review is much less than the cost of a default claim or any misrepresented “appraiser watch” program that does not do what it is intended to do. HUD should accept responsibility and take the appropriate action that any logical person with actual knowledge of the mortgage industry should see. How can only the honest appraisers see what is going on and everybody else turn a “blind eye” to the situation. Take away lender pressure and coercion and the majority inflated appraisals disappear. Surely HUD is not blind. If every appraiser thought every appraisal was going to be reviewed, things might change. Until this happens nothing will change, but you will lose one honest appraiser which should not be your goal.
Sincerely,
