Wall St. Journal - "inflated Home Appraisals Drain Billions From Government Insurance Fund"

[Rick Stillman]

An article today in the Wall Street Journal.

https://www.wsj.com/articles/inflat...ons-from-government-insurance-fund-1542395411

I guess using the fastest and cheapest appraisers that "sign up" for AMCs isn't really working that well.

Who would have thought that?

No oversight. Nobody cares. And nobody is checking if ANYTHING resembles QUALITY or if any of the appraisers know what they're doing...

Sad - Sickening - and Pathetic. But the one thing this isn't, is new.

They must have SOME proof of some kind here. SUE the pants off the lenders that accept the garbage, and then sue the AMCs for promoting using the cheapest appraisers they can find on the planet.

A hundred million in fines will change their priorities real quick. If not - do it until it DOES.

 

[J Grant]

Have to laugh ( or cry). FHA years ago ran an indpendent panel, 100% free of mortage broker selection, then they caved to pressure and FHA became "lender select", and ever since then FHA has been the front runner in often the highest price sale ...due to low down, seller paid closing costs, and the darling of property flippers, so much so that FHA orders 2 appraisals for flipped properties within a certain time frame and now 2 appraisals for many reverse mortgages.

And the chief of FHA can't make the connection ? Really? Clearly profit driven to keep their lender clients "happy" AMC's are a fail in many cases as a firewall around value pressure, and their dumping volume on the low fee appraisers, well, where would that lead...either the appraisers need to be on a govt panel or state panel 100% free from lender pressure and no AMC needed, or the AMC is under govt contract with no % affiliation to lender and no involvement/profit from appraiser fees ( eliminating the low fee selection bias )

This guy cant figure it out? He doesn't want to, wants to collect his bonus and stock options let others such as pension funds take the losses, when the losses become too great he'll get a huge settlement package to leave.

 

[Meandering]

An article today in the Wall Street Journal.

https://www.wsj.com/articles/inflat...ons-from-government-insurance-fund-1542395411

I guess using the fastest and cheapest appraisers that "sign up" for AMCs isn't really working that well.

Who would have thought that?

No oversight. Nobody cares. And nobody is checking if ANYTHING resembles QUALITY or if any of the appraisers know what they're doing...

Sad - Sickening - and Pathetic. But the one thing this isn't, is new.

They must have SOME proof of some kind here. SUE the pants off the lenders that accept the garbage, and then sue the AMCs for promoting using the cheapest appraisers they can find on the planet.

A hundred million in fines will change their priorities real quick. If not - do it until it DOES.

Inflated home appraisals are fueling losses at the Federal Housing Administration, which said this week that it expects a $14.4 billion drain from its mortgage insurance fund in coming years. The shortfall stems from the FHA’s portfolio of reverse-mortgage insurance.


Okay,
I hate to be a bummer and not blame AMCs or fast and cheap appraisers,
But,
In a declining market,
those homes won't resell for what they appraised for in a rising price market.
And,
that is not the fault of appraisers or AMCs.
It's the fault
of
Predators trying to get senior citizens to encumber their equity
and use their home as a pension plan.
It's no secret that lenders
and governments
salivate over the numbers that boomers and older generation
will inherit, or hold in equity,
and they want that money, those assets, and everything else they can get.

That's why Tom Selleck is the spokes person selling them on TV. Us older folks remember he was Magnum P.I. so, as Tom says, you can "trust" him, it's the "right thing to do".

However, if you recognize that appraisals are a smoke and mirror cover for the predators, you'll just accept that it is the reason the "regulators" never enforced the Dodd Frank or TILA or IFR against any of the predators, but instead, loosened restrictions, parsed the language and let everyone off the hook, to be fined later.

.

.

 

[J Grant]

An inflated appraisal has a value inflated as of its effective date.

It has nothing to do with whether prices declined, appreciated, or remained stable afterward.

Reviewing an appraisal retro to its effective date and the data preceding that date, aka sales/comps 6 months - a year preceding the effective date, will show whether the value was inflated or not. Whatever happens after the effective date in the market does not change the contents of the appraisal. .

 

[Meandering]

And just wait until the government and the lenders are telling everyone what their property is, or is not worth.

Oh wait,

They are doing that now, that's how they claim the appraisals were bad.

But just keep right on fighting with each other, because the AMCs will just continue on feeding data to the monster, and you'll be applying for HELOCs while you try to figure out a new line of work.

.

 

[Meandering]

An inflated appraisal has a value inflated as of its effective date.

It has nothing to do with whether prices declined, appreciated, or remained stable afterward.

Reviewing an appraisal retro to its effective date and the data preceding that date, aka sales/comps 6 months - a year preceding the effective date, will show whether the value was inflated or not. Whatever happens after the effective date in the market does not change the contents of the appraisal. .

The only way the FHA loses money, is when they take the property back and try to sell it.

Otherwise, the appraisal, accurate or not, performed under any market condition does not make them lose any money.

Edit to add,
If they are ordering 2nd appraisals, because the first one did not agree with their AVM, I guess they are overpaying for those second appraisals, as they order them through AMCs that then order from the cheapest and fastest, and oh look, the number magically aligns with the AVM, Ghee, how did that happen?


.

 

[Meandering]

On Friday, the FHA announced that it will require a second appraisal on select reverse mortgage loans that have been flagged by the agency as having the potential for an inflated property valuation. As part of the new guideline, which takes effect Oct. 1, 2018, lenders must submit their appraisals to FHA to undergo a collateral risk assessment.


In a call with reporters on Monday, the FHA revealed its reasons for making the changes.

The FHA told reporters that out of the 134,000 appraisals inputted into its automated valuation model, approximately 50,000 (37%) were inaccurate by at least 3%.

Link to this article

They are establishing that their AVM is correct
and appraisers are wrong.

But go ahead and fight with each other over it.

Because when their AVM is the only "correct" valuation in the country,

you too can deliver pizzas.


.

 

[Elliott]

The Reverse Mortgage program is a flawed program. I just heard that Fred and Fannie reported like $5 billion of profits that they have to send the US Treasury. I'm sure FHA's regular loan program is similarly profitable. But every Reverse Mortgage appraisal I've done after the owner dies and the houses have been a dlapidated mess. The heir wants to buy the property, but "Mom" had no incentive to fix or update anything. The heirs tell me how frustrating it is to deal with the lender and getting information. Bad program that needs to be re-imagined.

I have a lease on a Volvo, at the end of the lease I can buy the car at market value. Because its a good car, I have the incentive to take care of it. Car dealers have figured out how to make lease programs work successfully. FHA hasn't.

 

[J Grant]

The only way the FHA loses money, is when they take the property back and try to sell it.
Otherwise, the appraisal, accurate or not, performed under any market condition does not make them lose any money.
.

Appraisals don't make or lose money for FHA /clients Appraisals provide information from which a client/user can make decisions about a property ( whether to lend, and how much to lend )

An appraisal is either "accurate " ( hate that word ), aka credible and supported value opinion as of the effective date, or it is not. Which can be judged by a review. If lenders instead start retroactively judging appraisals by an AVM rather than a review, nothing we can do about that.

Better appraisals at origination point would mean appraisers no longer beholden to client retention concerns as well as removing power of lender/AMC select, but the entities are not THAT interested , in preventing losses or sound lending to make that happen.

As far as why the Rev mortgage segment is more troubled than other segments, the program needs changing. One option is for FHA to reduce the $ % relative to equity for borrowers, since now if an owner lives long enough and or home over valued, it can end up in a negative equity situatin for FHA. Other option is put aside a reserve of $ from the loan for ongoing maintenance with owner to allow an inspection ever 5 years or so. But lower loan levels would decrease profits to lenders. FHA/Fannie can't decide if they are public trust programs or lender profit advocate programs. The hijacking of public trust or consumer protection programs ( seen in appraisals with corrupt AMC system ), repeat that in any of American life where duped citizens manipulated into believing protection of their interests is "Socialism", while protection of business interests is "free market"...

How's that working for the avg person...most Americans are still a paycheck away from BK and wages are always behind cost of living and inflation. Heirs of reverse mortgage , part of the desperate for cash citizenry, often pressure elder parents and relatives into a Rev mortgage and take the cash from the elders., leaving nothing for home maintenance.

 

[Meandering]

Word salad and circular reasoning...appraisals don't make or lose money for FHA /clients Appraisals provide information from which a client/user can make decisions about a property ( whether to lend, and how much to lend )

An appraisal is either "accurate " ( hate that word ), aka credible and supported value opinion as of the effective date, or not, judged by a review. If lenders instead start retroactively judging appraisals by an AVM, nothing we can do about that.

As far as why the Rev mortgage segment is more troubled than other segments, clearly the program needs changing but that is beyond our baliwick. FHA can reduce the % it extends so the amount the owners get is far less than now, where if owners live long ( or home is over valued, or both), the equity is a negative after they use the program long enough. Of course lower loan levels would decrease profits to lenders. FHA/Fannie can't decide if they are public trust programs or lender profit advocate programs. The hijacking of public trust or consumer protection programs in any facet of American life in favor of business profits...well look around at the results and it's clear whose interests are favored .

J,

Firstly I applaud you


I applaud you for your firm stance on rounding a value, in multiple fights with many highly respected appraisers on this forum, for many years, because when we recognize that a 3% variance is well within the range of "rounding" that others have tried to make you accept as the "right" thing to do, because YOU weren't good enough to opine less than needed for a loan, within 5%.

So good job J.

But,

If we just accept the AVM is accurate, how can we then accept that appraisals judged against it are not? Because we already know the database is back loaded with old appraisals that may or may not have been "accurate" and things change not just with the properties, and the neighborhoods, but with the markets every single day. Does an algorithm accurately portray current conditions for the neighborhood and the market, included current and expected changes that impact value? Or does the algorithm reflect something broad and heavily historic?

Acceptance is the worst form of rolling over and dying.

.