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

[J Grant]

When I did FHA Reverse mortgage appraisals (no longer do them), I was always conservative on my value. I knew if I wasn’t I could be putting the homeowner in a terrible position in the future.

Having said that a 3% difference is negligible. When I did RElO work if 2 appraisers came within 5% we were good! In fact the RELO company basis was that our appraisal should be within 5% of the actual sale price. That was the standard! And that was the basis for our scoring if we were to be used on a consistent basis.

So as far as I’m concerned this WSJ article is idiotic.

3% difference from WHAT is negligible? Judging it by RELO appraisal work is a bit different...purpose of RELO is to forecast a list price or price in the market as the value opinion, correct? Therefore from client standpoint, an appraised value that ends up within 5% of the sold price would be an appropriate benchmark for their use .

Of course a relationship to prices is one benchmark in appraisals of any kind. However, since purpose of appraisal is to provide a MVO opinion and not a price opinion, defaulting to a SC price as a benchmark of correct is problematical.

Also, in RELO appraisals, does the listing agent have access to the RELO appraisal? If so, or a listing agent for RELO property is expected to get a sale withi n X days marketing time, the listing agent for a RELO might price the property more reasonably and aggressively to sell faster, thus ensuring a price closer to an appraisal value than might otherwise be the case.

 

[Deleted member 128537]

Above as you describe, is still not a prevention, merely a slightly better way to clean up afterward. If there is found to be over valuations/investors suffering losses, then there will be fewer AMC;s or lenders to take the blame vs more mortgage brokers. Not much of an improvement, since it can mean billions in losses and thousands of good appraisers lost their livelihoods to allow the perspective of past time to see the fallout..

Why not take preventative measures, and make AMCs function as govt contract companies, let them bid for the contracts and no longer operate on a business model tied in to lender clients and appraisal fees/appraiser selection for greater profit to them or keep client happy result to lender.

Better yet, end reverse mortgages which are based upon a whole lot of assumptions many of which are fallacious. I think they are the worst scam in the lending industry and never advise someone to do them. If you can’t afford to live in your house then time to scale back. A senior would be better off selling and using the money from the equity to live comfortably by renting an apartment or owning a smaller more affordable house.

I’ve also seen the cost of some of these loans. They are outrageous. The poor senior is losing a ridiculous amount of money just in closing costs.

 

[Deleted member 128537]

Above as you describe, is still not a prevention, merely a slightly better way to clean up afterward. If there is found to be over valuations/investors suffering losses, then there will be fewer AMC;s or lenders to take the blame vs more mortgage brokers. Not much of an improvement, since it can mean billions in losses and thousands of good appraisers lost their livelihoods to allow the perspective of past time to see the fallout..

Why not take preventative measures, and make AMCs function as govt contract companies, let them bid for the contracts and no longer operate on a business model tied in to lender clients and appraisal fees/appraiser selection for greater profit to them or keep client happy result to lender.

Better yet, end reverse mortgages which are based upon a whole lot of assumptions many of which are fallacious. I think they are the worst scam in the lending industry and never advise someone to do them. If you can’t afford to live in your house then time to scale back. A senior would be better off selling and using the money from the equity to live comfortably by renting an apartment or owning a smaller more affordable house.

I’ve also seen the cost of some of these loans. They are outrageous. The poor senior is losing a ridiculous amount of money just in closing costs.

3% difference from WHAT is negligible? Judging it by RELO appraisal work is a bit different...purpose of RELO is to forecast a list price or price in the market as the value opinion, correct? Therefore from client standpoint, an appraised value that ends up within 5% of the sold price would be an appropriate benchmark for their use .

Of course a relationship to prices is one benchmark in appraisals of any kind. However, since purpose of appraisal is to provide a MVO opinion and not a price opinion, defaulting to a SC price as a benchmark of correct is problematical.

Also, in RELO appraisals, does the listing agent have access to the RELO appraisal? If so, or a listing agent for RELO property is expected to get a sale withi n X days marketing time, the listing agent for a RELO might price the property more reasonably and aggressively to sell faster, thus ensuring a price closer to an appraisal value than might otherwise be the case.

If you can get within 3% of the sale price of a home on a consistent basis then you are the best appraiser in the world. Market value and sale price ARE linked. The purpose of a MVO is to actually determine what a typically motivated seller and buyer would actually pay for that property. That’s sale price.

The point is still the same. 2 appraisers working independently within 5% of the actual sale price. The RELO company sets the price not the listing agent.

I tracked the RELO work I did. More often than not the RELO company would list the property slightly higher than our appraisal. In one instance they went with the high appraisal and over listed the property. It eventually sold for my appraised value.

So again I ask 3% from what. In the article they are referring to what it would actually sell for. Yes,that’s price. And I’m saying 3% is negligible. When I do review work if my opinion would be 3% different I don’t even think it is significant. NO APPRAISER IS THAT GOOD.

 

[J Grant]

If you can get within 3% of the sale price of a home on a consistent basis then you are the best appraiser in the world.

For relo work sure. But that is a small segment of appraisals and for the purpose of forecasting a rprice/market value opinon to get that price. It is a different issue than what I or Marion referred to

The point is still the same. 2 appraisers working independently within 5% of the actual sale price. The RELO company sets the price not the listing agent.

Again, RELO result is not the issue The issue is folks saying nobody is "that good" to come within 3% of a sales contract price on a MV purpose appraisal .
If a RELO company sets the price, are they relying on the RELO appraisal value ?If so, and or they price it aggressively, there is a high likelihood the sale price will be within 5% or less of the RELO appraisal $ value opinion.

d. More often than not the RELO company would list the property slightly higher than our appraisal. In one instance they went with the high appraisal and over listed the property. It eventually sold for my appraised value.
So again I ask 3% from what. In the article they are referring to what it would actually sell for. Yes,that’s price. And I’m saying 3% is negligible. When I do review work if my opinion would be 3% difference I don’t even think it is significant.

You are basing your conclusion on RELO work which is different-as you stated, a RELO property sale price is tied in to the RELO appraisal forecast of that price, / aggressive pricing, thus the RELO company lists the property to achieve that, making it highly probable the price and RELO appraisal MVO be within a close range...a generous 5%.

Of course, there are many times in a non RELO situation where the SC price is the market value...but let's not kid ourselves, it turns out to be that way more often than might otherwise, due to external and internal pressure and expectations to make that happen. Which circles back to the corrupt ordering system / party firewall . There are number ot ethical AMC;s and lenders who endeavor to provide a real firewall but they have to compete against other corrupt and lenders and AMC;s. The field should be level for lenders, AMC;s and appraisers. .

Appraisers ( as usual) are in a no win situation. Given some clients (silently) stop assigning work to appraisers who come in "low" except on rare occasion..

Recent papers by Fannie and FHFA suggest they /lenders don't consider appraisals reliable since such a high percent of appraisals ( over 90% per their figure ) meet or exceed SC price. FHFA paper listed options to correct. among which is a third party picks the point value , dropping appraisal s as valuation, or not providing the appraiser with the CS price. None of which bode well for appraisal profession. Absent from their options was correcting the corrupt ordering system .

 

[ucbruin]

@J Grant

"When I did FHA Reverse mortgage appraisals (no longer do them), I was always conservative on my value."

Did this sentence make the hairs on the back of your neck stand up????
Did I miss your comment that "conservative" is a crap (or whatever the term) word????

I'm not criticizing the poster of this sentence, just wondering if "conservative" irritates you as much as "support"????

 

[J Grant]

@J Grant

"When I did FHA Reverse mortgage appraisals (no longer do them), I was always conservative on my value."

Did this sentence make the hairs on the back of your neck stand up????
Did I miss your comment that "conservative" is a crap (or whatever the term) word????

I'm not criticizing the poster of this sentence, just wondering if "conservative" irritates you as much as "support"????

I noticed it...did not drive me nutz but I noticed it. A MVO should be well supported for whatever purpose, and should not change per assignment type. .

 

[ucbruin]

I noticed it...did not drive me nutz but I noticed it. A MVO should be well supported for whatever purpose, and should not change per assignment type. .

for not being driven nuts...

 

[Terrel L. Shields]

But ominously, there are papers by Fannie and FHFA saying they /lenders don't consider appraisals reliable since such a high percent of appraisals ( over 90% ) come in at SC price or above

It is what it is. In a rising market the appraiser should be trailing the market so to speak as past sales should reflect the market conditions then, and projecting an appreciation is discouraged by Fannie, et al, so most appraisers are reluctant to project higher pricing based on time...and should be, as the deviation from the mean is a good measure of the limits of how close an appraiser can be mathematically. And mere market 'noise' could be the apparent appreciation where none existed. We are not going to be better than the margin of error...a math oxymoron. When you take a series of cookie cutter homes, and if the variation from mean is 3%, then you cannot get any closer than that...the "right" answer is somewhere within that range.

Likewise, in a falling market, the tendency is still to look at the past sales (Cost is today, Sales were yesterday, and Income is tomorrow) again we are trailing the market from above. And we get the complaints then too.

The truth is the point value requirement is a joke technically speaking, but we are required to pinpoint a value to the dollar. No home has a value that is dead to nuts. Comparing the MV at an exact date by one person with the MV determined on any other date, or with any other appraiser on the same date will yield different results. So when I read about how these properties were "overvalued", it seems one real issue is who and how is that determined? Speaking of bullseye, if hired by FHA to determine if a property is overvalued, what percentage would you expect to be determined retrospectively to be overvalued? I would expect an extremely high percentage based on the anchor bias where the retro appraiser, with hindsight, is seeking support (confirmation bias) to the premise that the property was repo'd or reverse mortgaged, therefore must have been overpriced.

Once a house is sold in reverse mortgage, the owner has zero incentive to maintain anything not critical to living. Not painting, not new windows, not minor damage, not flooring, even know of one that plumbing issues were simply ignored by cutting the water line to the second bathroom where the leak was. The house was in horrible shape by the time the elderly lady died. Of course, it looked "overvalued."

 

[Mark K]

Once a house is sold in reverse mortgage, the owner has zero incentive to maintain anything not critical to living. Not painting, not new windows, not minor damage, not flooring, even know of one that plumbing issues were simply ignored by cutting the water line to the second bathroom where the leak was. The house was in horrible shape by the time the elderly lady died. Of course, it looked "overvalued."

If they want to make these often ill-advised reverse mortgages they should require annual property inspections and max LTV of about 50%.​

This is the issue much more than the "problem" of "3% of AVM..." nonsense. You would probably get the same results by running a large number of appraisals for any mortgage program.

The whole premise of the FHA reverse mortgage, the touchy-feely lets keep grandma from eating cat food guilt-trip, is nothing more than a vehicle for mortgage companies to rake in exorbitant fees by loaning far too many $ on sketchy loans. Really only slightly different from a regular FHA loan when you think about it.

 

[Deleted member 128537]

@J Grant

"When I did FHA Reverse mortgage appraisals (no longer do them), I was always conservative on my value."

Did this sentence make the hairs on the back of your neck stand up????
Did I miss your comment that "conservative" is a crap (or whatever the term) word????

I'm not criticizing the poster of this sentence, just wondering if "conservative" irritates you as much as "support"????

So some of your “hairs” stood up. Let me explain. I live in an area with lots of subjectivity in values. For example waterfront sites often can have a significant range of value within the credibility limits. So if I’m doing a typical waterfront home; I could easily have a range of value for the site that could range 20,000 to 30,000; especially when the data is often lacking. And for some waterfront sites it could even be more. On million dollar sites the values could have a credible value range +/- 200,000. The choice is often not easy and often highly subjective where one puts that value for that site and then makes it as a basis for an adjustment. I know for some of you this might seem odd, but I deal with it every single day.

You can comb your hair now.

By conservative I mean I’m going to make that site adjustment based upon the lower end of the spectrum. It’s still a credible value and supported.

Thus when I was doing a reverse mortgage I know the inherent risks if I come in too high. I could be jeaprodizing the homeowner in a very bad way. So I’m going to error on the side of caution.