Tim, I really did not want to start another appraisal report today so I took the time to go through your letter and tried to make it less personal in the hopes that others will take this, read it, ammend it to their own style, and above all SEND IT!!!! Is that address in the correct order and format for the Post Office? comments and suggestions please.
Regulations Division
Office of General Counsel, HUD, Rm. 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” program. Honest appraisers, myself included, are all for appraisal checks and balances, appraisal review and appraiser performance rankings. However, this new program directed at “default and claim rates” for appraisers is misguided and 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. Appraisers have nothing to do with the qualification, approval or disapproval of the prospective borrower.
This “appraiser watch” program does not single out misleading appraisals, it singles out poor borrowers who were approved for home loans that they could not afford or handle. The “appraiser watch” should be a “lender watch”. If HUD addressed the offending lenders, you would be addressing the offending appraisers at the same time. An honest appraiser who requires the FHA repairs from the HUD checklist and only uses sales from within the subject’s immediate market area is likely to perform very few FHA appraisals as compared to appraisers 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, it is the lender and there selection and reselection of appraisers who will commit fraud. Honest appraisers agree that fraudulent appraisals are a hindrance to of the entire mortgage system. The only way to curb appraisal fraud is to review all appraisals. Take away lender pressure and coercion, and review all appraisals and the number of fraudulent appraisals will decline. The cost of a review is much less than the cost of a default claim or any flawed and misguided “appraiser watch” program. The appraiser’s duty is to estimate market value of properties and not the individual qualification, approval or disapproval of prospective borrowers.
Under this “appraiser watch” program honest appraiser will be removed from the HUD roster. Take for example an appraiser who performs only 37 FHA appraisals and has 4 defaults resulting in a13% default rate. Meanwhile, appraisers notorious for “hitting the number” and for “ignoring repairs” have performed over 400 HUD appraisals (actual numbers from appraiser claim and default rate page at the HUD site before it quickly removed) with few defaults resulting in default rates of 2-5%. Furthermore it is unlikely these appraisers inspected all 400 properties personally. The obvious conclusion is that an honest appraiser will do fewer FHA appraisals, because they require repairs and give an honest value thus making lenders (and their agents and employees who collect a fee only if the loan closes) reluctant to feed this appraiser more work, resulting in a higher default rate
HUD has stated that “any appraiser who receives such notice (removal notice) may meet with HUD officials to present evidence that factors beyond his or her control contributed to the excessive rates”. Every foreclosure is out of the appraiser’s control. We do not issue the mortgage, check credit, interview the borrower or collect the mortgage payment. The reasoning of the whole program is questionable because it is based on the premise that it is the appraiser’s fault that the defaulting borrower was approved for the loan.
Sincerely,
