The Truth about Running an Appraisal Management Company – Part I of V

1. It is the appraiser’s competition, not the management company, which determines the appraisal fee.
This is simple supply and demand. If appraisers are located in a rural market area where there are very few appraisers, the appraisal fee will be higher than in metropolitan areas where there are a lot of appraisers. When management companies are sourcing their orders, they determine the market fee for that particular area and pay their appraisers accordingly. When pricing contracts are involved, management companies lose money on some orders.

2. Although some management companies pay market rates to the appraisers, the three largest do not engage in this industry-promoting practice.
There are a handful of appraisal management companies, US Appraisal Group included, that pay market rates to their appraisers. The reason you don’t hear about them is because the three largest AMCs that handle close to half the mortgage transactions in the country, have adopted a 40% fee-split model, where the typical appraisal fee for a full appraisal is between $150-$200. The truth is that management companies can operate and be profitable with a full-fee model but it’s not in the best interest of the bank to do so if they happen to own the AMC.

3. Appraisers are selected based on geographical competence, not necessarily where they live.
A downtown Chicago leasing agent’s suburban address has no affect on his ability to accurately lease downtown office space. The same is true for appraisers. Where the appraiser primarily works, not necessarily lives, is the determining factor for market competency. Appraisers are typically selected based on their primary market area with a secondary coverage area assigned in rare cases.

4. Getting quality reports is not difficult.
Again, following the full-fee model, finding appraisers that can provide reports of impeccable quality is not difficult. Most appraisers are competent, educated, and ethical. As with any industry, there are good and bad players, but most appraisers just want to do a good job and, for some, working for management companies provides value protection that they would not have otherwise.

5. HVCC is not the cause of consumer’s problems.
Consumers should be blaming the housing market. HVCC was intended to “promote independence in the appraisal process and, thus, help ensure that appraisers and the appraisal process may be relied upon as part of sound underwriting for financial institutions.” While convenient to blame, HVCC is not the cause of low home values and the restrictions of financing.

HVCC Aftermath – What May Revealed about the Appraisal Industry

Over the past month, the residential appraisal market has been turned on its side from the Home Valuation Code of Conduct and the large proportion of appraisal orders that shifted from brokers directly to appraisal management companies. Aside from appraisers being swamped with refinance assignments, the appraisal industry has settled into the following:

Long Delivery Times – appraisal transactions are taking 4-5 days longer on average
This is the most significant aftermath as well as the most frustrating for lenders and homeowners. The extra layers of quality control, review, and administrative management, coupled with appraisers that are operating at full capacity, has increased the amount of time needed to secure a credible report.
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How the Home Valuation Code of Conduct Affects Realtors

The Home Valuation Code of Conduct was established by Fannie Mae, Freddie Mac and the Federal Housing Finance Agency. In short, the HVCC sets forth a series of guidelines that govern appraisal-related activity among mortgage companies for loans that are sold to Fannie Mae and Freddie Mac, in an effort to reduce the risks associated with the appraisal process. Most of the HVCC’s stipulations are focused around ensuring objectivity in ordering real estate appraisals by brokers. Fannie Mae and Freddie Mac will not accept loans on or after May 1, 2009 that do not adhere to the Home Valuation Code of Conduct.

What does this agreement mean for Realtors?
Individual realtors and licensed real estate agents cannot serve as the third party between a lender and appraiser. This includes selection, retention, and compensation of an appraiser. A third party, including realtors and real estate agents, can still ask appraisers for additional information, provide additional information to an appraiser, or ask for corrections of factual errors. Realtors that offer services as a lender must comply fully with the HVCC for all loans that will be purchased by Fannie Mae or Freddie Mac after May 1, 2009.

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How Much Money do the Big Banks Need?

Thanks to Mark Johnson at US Bank for this information.

The government announced its plan in late February to look under the hoods of the nation’s largest financial institutions to gauge their ability to withstand losses.

The results are now in: Ten of the nation’s 19 largest banks will need to raise a total of $74.6 billion in capital. In addition, the government estimated that losses could total $599 billion this year and next.

In the table below, see which banks stand to lose the most if the economy weakens further — and how much capital each is required to raise during the next six months.

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US Appraisal Group Integrates with Ellie Mae’s Encompass Mortgage Management Solution to Offer HVCC-Compliant Appraisal Services

US Appraisal Group, Inc., a leading provider of residential and commercial real estate appraisals and valuation products, AVMs, and BPOs, has integrated with Ellie Mae‘s Encompass Mortgage Management Solution, which utilizes ePASS technology to deliver HVCC-Compliant Appraisals to mortgage origination clients. By integrating with Encompass and participating in Ellie Mae’s Encompass Appraiser Directory, US Appraisal Group is providing its clients that use Encompass a way to fully comply with the Home Valuation Code of Conduct (HVCC) that goes into effect on May 1, 2009.

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US Appraisal Group Delivers HVCC Compliant Services

US Appraisal Group announces full compliance with the Home Valuation Code of Conduct (HVCC) for all residential appraisal services. Mortgage origination clients using US Appraisal Group are guaranteed compliance by May 1st with the following:

1. US Appraisal Group has written Policies and Procedures for HVCC.
2. Each report subject to the Code includes a Certificate of Compliance.
3. All orders are placed through a secure platform which ensures no communication between the lender and appraisers.
4. No estimate of value is provided to the appraisers.
5. The lender is unaware of the appraiser’s identity until the time of delivery.
6. Appraiser selection is performed at the sole discretion of US Appraisal Group and is based on performance metrics and geographical competency.

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Mortgage Applications Increase in Latest MBA Weekly Survey

Mortgage Applications Increase in Latest MBA Weekly Survey

WASHINGTON, D.C. (April 22, 2009) – The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending April 17, 2009. The Market Composite Index, a measure of mortgage loan application volume, was 1172.2, an increase of 5.3 percent on a seasonally adjusted basis from 1113.2 one week earlier. On an unadjusted basis, the Index increased 5.3 percent compared with the previous week and increased 76.9 percent compared with the same week one year earlier.

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Director of USAG Nominated to Serve as Regional Representative for the Appraisal Institute

The Chapter Nominating Committee met in person on Wednesday, April 8, 2009, at the Chicago Chapter office, to consider potential nominees for positions of Officers, Directors, Region Representatives and Alternate Region Representative.

In accordance with Regulation 8, and after extensive deliberations, the Director of US Appraisal Group, Dione N Spiteri, was nominated to serve a two-year term as a Regional Representative. As Regional Representative, Dione is committed to helping the Appraisal Institute further their objectives and always increase public confidence in appraisers and the appraisal profession.

New Frequently Asked Questions for the Home Valuation Code of Conduct

On March 31, Fannie Mae and Freddie Mac released an updated Frequently Asked Questions regarding the Home Valuation Code of Conduct that is set to take effect May 1, 2009.

www.freddiemac.com/singlefamily/hvcc_faq.html

www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/

Appraising is like Football – Block, Tackle, and Pass

Over the past 12-18 months I have heard the current real estate climate described many different ways:
depression-like, recession-like, anemic, soft and turbulent just to name a few. Suffice it to say that the national market is generally much less favorable than it was several years ago when the fraternity party atmosphere prevailed. Credit flowed like wine and all involved were happily attending the party. Buyers stuffed as much home as the could into “creative financing”, sellers cashed out or traded up and investors risk was mitigated by the rapid appreciation that even in a short time period paid dividends and made just about every deal worthwhile. The “you can’t go wrong in real estate” cliché’ became the staple notion.
One thing is for certain: today the market is clearly different. For practitioners such as brokers, agents, and appraisers, the normal market indicators are more important than ever. If these indicators are ignored or misread the likelihood of accuracy will fade. The good news is that what it takes to read and interpret the “good” market is also the same for the “bad” market: supply and demand, absorption, the principal of substitution and good old common sense. Unfortunately it seems as though some appraisers and realtors have forgotten about the basics. Existing supply of homes in relation to demand and in-turn local absorption rates are the foundation for existing market conditions. Coupled with price trending, absorption rates are the backbone of a good “micro analysis”, but it does not stop there. The principle of substitution is fundamental in determining what options exist for buyers in your market. Historical data (closed sales) is relevant to confirm trends and extract adjustments, but the recent and more current indicators of active and pending sale data is where the gold is. The reason is simple: why would a buyer pay your estimated ANTICIPATED SALE PRICE for the subject property when a less expensive alternative exists? Maybe you’re in a sub-market that does not yield a lot of very “truly” comparable listings, still if these are the only alternatives the market sees than it is all relative. Although ERC guidelines do not call for “adjustment” of competing properties, it can be a sound practice as a high benchmark “check” and some relocation companies have asked for such. The trend of requiring and adjusting listings is also becoming more common place in the lending environment. Clearly the times have changed. As they say though, “the more things change the more they stay the same”.

At Weichert Relocation Resources Inc, we require that the competing listings be adjusted. For the most part our appraiser panel is diligent and understanding in that exercise. I have been personally involved in cases where it is evident that this very basic concept is misunderstood. On those few occasions when I have questioned appraisers whose final value is well above all adjusted listings, I have received responses that concern me very much. “They are just listings” I am told or “they have not sold so they mean nothing”. They mean nothing? Actually, they mean something: that you the appraisal professional do not clearly understand the principle of substitution.

Appraisal is far from a perfect science. In fact, my favorite line in USPAP (Uniform Standards of Professional Appraisal Practice) is one I wish more users of appraisals would take note of. The comment to Standard 1-1 (c) reads: Perfection is impossible to attain and competence does not require perfection.
Believe it or not football can be like real estate. No matter how complex the situation is winning a game can come down to the execution of the very basics: blocking, tackling, and passing. I had a mentor who once told me “don’t be smarter than the market, let it tell you what is happening”. I have tremendous confidence in the appraisal profession. I see hundreds of appraisals via my current job responsibilities and speak with hundreds of students giving classes. Sometimes you have to offer something other than pearls of wisdom to make an impression so I will offer no such thing here. Just a plea to my fellow appraisal professionals: get back to the basics in real estate appraisal: the principle of substitution, your block tackle and pass concept.