Why Are Fannie And Freddie In Such A Hurry?

[Mike Kennedy]

But...but...don’t you know that because of the hybrid disclaimer certifications the appraiser (per USPAP current position) is insulated and cannot be held accountable?

I wonder..is a (modernized or not) hybrid (like most reports) sent along to the Borrowers which eventually end up with the Sellers seeing (esp when the deal tanked and borrower needs the report to get out of the contract) with the Appraisers E&O embedded in the report?

Alas, the Competency and Ethics Rules demand an Appraiser determine the proper scope of work to produce a credible appraisal report.

I suggest a Court would likely find " BUT BUT BUT - THEY MADE ME DO IT !!!" a ludicrous "defense".

 

[Evincere]

While the appraiser is not directly accountable for the inspection as an inspection, the appraiser is still accountable for the results of the appraisal....and since the appraisal results incorporates information from the inspection as a basis for value and other conclusions, guess what, we end up being accountable...which is the Achilles Heel of hybrid with inspection by others appraisals.

While Appraiser may use USPAP as a reflective shield, Angry Buyers, sellers, agents etc who believe they were damaged are not going to give one hoot about USPAP.

 

[RCA]

I am somewhat baffled. Fannie and Freddie are at warp speed getting into alternative valuation products.
Why? Could it be they and their cohorts want these things in place prior to a decision in Louisiana?
They are talking about a new 1004 form will take 2 to 3 years? A coincidence?

This is the problem. And it is not the fault of appraisers, - well not exactly. The reason appraisals are made for home loans is really to serve as the basis for estimating the FUTURE collateral value of the real estate. Traditionally they have used market value at the time of sale to estimate collateral value, roughly using the LTV, for example, assuming the future collateral value of a home is roughly 80% of market value at time of sale minus payments on principle. On top of the 80% (or whatever) LTV, we can suppose that underwriters may be doing some additional adjustments. The point is, the current market value is used for prediction the future collateral value.

The problem is that as we move forward in time, the simplicity of the "old" world is being slowly but surely replaced by increasing change and instability in the modern world. How useful is market value in predicting collateral value 8 years down the road - or even one year? It is not very good. You need a lot more data. Really complex stuff that is beyond the capability of most appraisers to deal with.

Look at it this way, appraisers are happy to get within 5% of the "true" value of a home. Let's say they can do that. But house prices surge 40% in one year or sink 15%, due to economic conditions. Where does that put the appraisers 5% accuracy?

I had my home appraised in June 2016 for $1.2M. According to Redfin, it was worth $1.34 in June 2017 and is now worth $1.548. The latter change is about 15% per year or 30% total in two years. Actually Zillow has it going from $1.2M to $1.75 in the past year (but, hmmm, they fiddle with their number back and forth). In any case, how much is that 5% accuracy worth?

Now, I can assure you that the best AVMs like House Canary, which does take into consideration economic information do better, but are still lacking.

I think that we are moving away from just market value to market value plus economic forecasting. Market value remains important. But, the required accuracy loses importance with the addition of economic forecasting - at least in traditionally volatile markets. Problems, Problems.

 

[Evincere]

I guess VA is joining the hybrid game:

This provision, which allows appraisers to engage a third party to perform the property inspection, originally was part of HR 3561, a larger VA reform bill that may be taken up by the Senate later this year.

The Appraisal Institute has advocated for the bill to impose limits on inspection allowances, including requiring appraisal trainees to operate under the supervision of a VA fee appraiser and limiting the application of the program to rural areas, consistent with the intent of the original provision.

https://appraisersforum.com/forums/...ie-in-such-a-hurry.220613/page-6#post-2856468

 

[TRESinc]

The reason appraisals are made for home loans is really to serve as the basis for estimating the FUTURE collateral value of the real estate.

no it is not. an appraisal is one person's (or two) opinion of value on one specific date. period. nothing more, nothing less.

The problem is that as we move forward in time, the simplicity of the "old" world is being slowly but surely replaced by increasing change and instability in the modern world. How useful is market value in predicting collateral value 8 years down the road - or even one year? It is not very good. You need a lot more data. Really complex stuff that is beyond the capability of most appraisers to deal with.

so first you say we predict the value but then you say we don't have the capability to predict the future value. can't have it both ways.

Look at it this way, appraisers are happy to get within 5% of the "true" value of a home. Let's say they can do that. But house prices surge 40% in one year or sink 15%, due to economic conditions. Where does that put the appraisers 5% accuracy?

nothing, because we are not predicting the value of a property at some point in the future. we are giving an opinion of the value as of the effective date. the market could go up 50% 3 weeks after an appraisal is completed but that would have no impact on the appraised value as of the effective date.

I had my home appraised in June 2016 for $1.2M. According to Redfin, it was worth $1.34 in June 2017 and is now worth $1.548. The latter change is about 15% per year or 30% total in two years. Actually Zillow has it going from $1.2M to $1.75 in the past year (but, hmmm, they fiddle with their number back and forth). In any case, how much is that 5% accuracy worth?

your mistake is comparing an appraisal to redfin or zillow or any other free home valuation site. if you don't know the difference between them, and apparently you don't as you are giving them equal credibility, you should turn in your license now. you have nothing to offer above what the free services already do.

I think that we are moving away from just market value to market value plus economic forecasting. Market value remains important. But, the required accuracy loses importance with the addition of economic forecasting - at least in traditionally volatile markets. Problems, Problems.

that may be true or it could be completely false. the fact though is that TODAY appraisers are not predicting the sale price of a house no matter how badly you want that to happen.

 

[J Grant]

Appraisers are not "predicting " price (unless a future price prediction is the purpose of the assignment. ).

While a limited degree of "forecasting" enters into the analysis/reconciliation, in the form of listings, pendings and awareness of economic and market conditions, it helps inform the AS OF effective date opinion of market value. It is not a predictive future price or even predictive back to the retrospective eff date prediction. The appraisal opinion of market value, in fact is ever so slightly retrospective for the as of effective date - which is why the MV definition does not read "what would the property sell for/transact for as of the effective date"

The MV definition conveys: " What is the most probable price the subject property SHOULD (per the appraisal) bring, assuming passing of title as of the effective date...the subject property had a consummation of sale, it CLOSED ( passed title, ) as of the effective date, the subject is not still active as of the effective date and awaiting a future sale price.

DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

The MV opinion is expressed "as of" to include the closed sale comps used up to and until the effective date. That is why it's"as of " the effective date and not "on" the effective date.

 

[RCA]

no it is not. an appraisal is one person's (or two) opinion of value on one specific date. period. nothing more, nothing less.



so first you say we predict the value but then you say we don't have the capability to predict the future value. can't have it both ways.



nothing, because we are not predicting the value of a property at some point in the future. we are giving an opinion of the value as of the effective date. the market could go up 50% 3 weeks after an appraisal is completed but that would have no impact on the appraised value as of the effective date.



your mistake is comparing an appraisal to redfin or zillow or any other free home valuation site. if you don't know the difference between them, and apparently you don't as you are giving them equal credibility, you should turn in your license now. you have nothing to offer above what the free services already do.



that may be true or it could be completely false. the fact though is that TODAY appraisers are not predicting the sale price of a house no matter how badly you want that to happen.

Someone requested we take this discussion off to another thread. USPAP doesn't define prediction, and it says very little with regard to that particular word. I don't have time to explain where and why you are wrong on every assertion. If your whole world is constrained to the world of Residential Appraisal, then I suppose most would allow you to say the things you do. But, to keep this short, lenders order appraisals because they are de facto using the homes as collateral in case the loan at sometime IN THE FUTURE goes into default; in which case they will foreclose and put it up for sale; in which case, the would like to be assured they will get a certain value for it; in which case common sense is that this value, a FUTURE value what they are really after; that the opinion of market value the appraiser comes up with is just a means to that end; although, as a mere appraiser, "most" appraisers do not need to concern themselves about what those real collateral values will look like N years down the road; that is below there grade - as the saying goes. I am not sure just who does this work - I once thought the so-called "Collateral Appraisers"; I am not so sure anymore. It's something I have come across in reading - but need to research it for exact current information. And some companies do better research than others; not all analysts are the same.

Of course, market value is of more direct use by others, such as buyers who want some assurance that they price they paid was "fair"; although buyers themselves are invariably concerned about the future value of their home; only they don't have the same tools as a collateral analyst at their disposal to turn a current opinion of market value into a range of future values. Further an opinion of value is an opinion of market value and market value is in essence most likely a hypothetical condition that fulfills the definition of market value which may not be the case for the real sale underway; so you are in essence doing exactly the same thing as another appraiser who is predicting a value.

... About this thread thing. I suppose we should go to another thread; even though many threads go off on tangents. But, yea it would be better if we had software that could create subthreads. Maybe there is a way with forum software. I just don't have time to look into it.

Something like this: https://www.corelogic.com/solutions/risk-management-and-monitoring-solutions.aspx

BTW, Collateral Appraisers/Analysts are the highest paid; I've seen some pretty good six figure salaries in this area for full time jobs.

 

[TRESinc]

USPAP doesn't define prediction, and it says very little with regard to that particular word.

finally we agree on something.

I don't have time to explain where and why you are wrong on every assertion.

because i am not, you are.

If your whole world is constrained to the world of Residential Appraisal, then I suppose most would allow you to say the things you do.

no one allows me to say anything nor do they need to. what i have stated are facts.

But, to keep this short, lenders order appraisals because they are de facto using the homes as collateral in case the loan at sometime IN THE FUTURE goes into default; in which case they will foreclose and put it up for sale; in which case, the would like to be assured they will get a certain value for it; in which case common sense is that this value, a FUTURE value what they are really after; that the opinion of market value the appraiser comes up with is just a means to that end;

a lender, or anyone else, using an appraisal for anything other than it's intended use does not change what the appraiser has done. we are not giving our opinion of what a value may be at some point in the future. we are giving our opinion of value as of the effective date, nothing more and nothing less. why can't you grasp this simple concept?

although, as a mere appraiser, "most" appraisers do not need to concern themselves about what those real collateral values will look like N years down the road; that is below there grade - as the saying goes. I am not sure just who does this work - I once thought the so-called "Collateral Appraisers"; I am not so sure anymore. It's something I have come across in reading - but need to research it for exact current information. And some companies do better research than others; not all analysts are the same. Of course, market value is of more direct use by others, such as buyers who want some assurance that they price they paid was "fair"; although buyers themselves are invariably concerned about the future value of their home; only they don't have the same tools as a collateral analyst at their disposal to turn a current opinion of market value into a range of future values.

so now you admit we are not appraising to a future value and someone else, whom you don't even have knowledge of, is taking our appraisal and using it to calculate a future value. thanks for finally admitting what i, and others, have been saying all along.

Further an opinion of value is an opinion of market value and market value is in essence most likely a hypothetical condition that fulfills the definition of market value which may not be the case for the real sale underway; so you are in essence doing exactly the same thing as another appraiser who is predicting a value.

no, i am not, in essence or any other means. we give an opinion of value as of the effective date. see above for others using a report for their needs.

 

[RCA]

finally we agree on something.



because i am not, you are.



no one allows me to say anything nor do they need to. what i have stated are facts.



a lender, or anyone else, using an appraisal for anything other than it's intended use does not change what the appraiser has done. we are not giving our opinion of what a value may be at some point in the future. we are giving our opinion of value as of the effective date, nothing more and nothing less. why can't you grasp this simple concept?




so now you admit we are not appraising to a future value and someone else, whom you don't even have knowledge of, is taking our appraisal and using it to calculate a future value. thanks for finally admitting what i, and others, have been saying all along.



no, i am not, in essence or any other means. we give an opinion of value as of the effective date. see above for others using a report for their needs.

Most of the assertions you are making take sentences of context and give them a somewhat different context.

But lets look at Fannie Mae's definition of Market Value: https://www.fanniemae.com/content/guide/selling/b4/1.1/01.html

Now, as many often state on this forum, the actual conditions for this particular definition of Market Value actually don't exist in reality, at least in many cases. For example, many on this forum believe that many buyers are in fact not "well advised" and are not "knowledgeable". It is not practical to deal with such issues. So, in fact, "market value" is an implicit hypothetical condition that is in fact so common and obvious it doesn't need explicitly stating. Look at the phrase "most probable" - and now you are in the realm of probability and statistics, which puts you in the same methodology as dealing with any kind of prediction.

In fact, your opinion of value of Fannie Mae's Market Value as of any point in time (effective date), is nothing more than a prediction, guided by "data points and support". And if you want to support the concept of "probable", then you should have some mathematics behind you.

 

[TRESinc]

Most of the assertions you are making take sentences of context and give them a somewhat different context.

But lets look at Fannie Mae's definition of Market Value: https://www.fanniemae.com/content/guide/selling/b4/1.1/01.html

Now, as many often state on this forum, the actual conditions for this particular definition of Market Value actually don't exist in reality, at least in many cases. For example, many on this forum believe that many buyers are in fact not "well advised" and are not "knowledgeable". It is not practical to deal with such issues. So, in fact, "market value" is an implicit hypothetical condition that is in fact so common and obvious it doesn't need explicitly stating. Look at the phrase "most probable" - and now you are in the realm of probability and statistics, which puts you in the same methodology as dealing with any kind of prediction.

In fact, your opinion of value of Fannie Mae's Market Value as of any point in time (effective date), is nothing more than a prediction, guided by "data points and support". And if you want to support the concept of "probable", then you should have some mathematics behind you.

no matter how many times you post it we are not predicting a future value of a property when doing residential appraisals for a typical mortgage transaction. period. we are simply giving an opinion of value as of the effective date we inspect the subject based on historical data. the house could catch on fire a week later and the value would be land only. someone like walmart could open a new factory in 8 months and the housing prices skyrocket due to sudden demand. a major employment center could close in 6 months and the housing values in the area will plummet. we do not know what will happen in the future which is why we don't value the subject at some point in the future.