US Appraisal Group, Inc.

The Hidden Risks of Delivering to Fannie/Freddie

admin — Wed, 03 Oct 2012 15:30:33 +0000

Are you approved as a seller/servicer with the Agencies? If not, then you are probably like most lenders that are either (1) planning to apply or (2) pending approval as a direct Seller/Servicer.

Everyone knows that selling direct includes benefits of price execution, building a servicing portfolio, expanded guidelines sans overlays, product liquidity, etc. What everyone doesn’t know are the hidden soft costs. Whether you are approved, almost approved, or thinking of applying for an Agency direct execution, you should fully consider the many risks of selling direct.
1. The costs of selling direct can outweigh the best execution and liquidity benefits:
a. Plan for more staffing, more audits, more consumer complaints and heightened scrutiny from regulators.
b. How much time and resources must be allocated to monitor QC for servicing/subservicing?
c. Here is a reason that investors have overlays and opening your guidelines can negatively impact the performance of your portfolio, which in turn increases servicing costs.
d. What is your budget for valuing the servicing portfolio and working with an accounting firm to report financial statements?
e. What is the cost of hedging your servicing portfolio?

2. What is your repurchase and/or indemnification experience? Have you negotiated with your investors on repurchase demands? Fannie and Freddie do not negotiate as easily as the large aggregators. This means more repurchase staff, more reserves, and more expenses.

3. Do you have 6 months with no post closing QC findings? Can you afford to have less than perfect originations? We often think of the aggregators (Wells, Chase, etc.) as a “free” QC buffer to the Agencies. They often identify loan manufacturing defect trends earlier in the process than the Agencies. Until you have clean report cards from your investors, you should hold off on selling directly.
The obvious reasons for exploring Agency direct executions are sometimes offset by the hidden soft costs of becoming a seller/servicer. There are many benefits to executing direct and we’re not looking to dissuade lenders focused on this delivery strategy. That being said, you should take all scenarios into consideration to mitigate future risk as an originator selling whole loans or service retained.

About the Author: Ben Madick is the President of Mortgage Quality Management and Research. MQMR is an independent company dedicated to the mortgage lending community. It works side by side with lenders and warehouse banks to manage risk, mitigate losses, and enhance the borrower lending experience. Its flagship product, Banker’s Performance, assists lenders in mitigating EPD risk and consumer complaints while enhancing their borrower experience. For more information about the company, please visit www.mqmresearch.com, bmadick@mqmresearch.com or 818-304-8395.
For further reading on this topic, please visit the following link: http://mqmresearch.com/the-hidden-risks-of-delivering-agency-direct

US Appraisal Group Makes Inc. 500 List for Second Year in a Row

admin — Tue, 04 Sep 2012 15:17:54 +0000

US Appraisal Group is pleased to announce that it has made the Inc. 500 List for the second year running – a rare feat in this prestigious company ranking system. “While many companies start out of the gates flying, maintaining the growth to make it onto the Inc. 500 list for two years in a row is uncommon,” says Jessica Edgerton, US Appraisal Group’s Chief Legal Officer. “We attribute our sustained success not only to having cultivated a devoted and growing client base, but also to the excellent team of executives, top appraiser panelists and dedicated partners that we have developed throughout the years.”

In addition to ranking among the top growing companies in the United States, US Appraisal Group also made the list as the 11th fastest growing real estate company in the country, and the 13th fastest in the Chicago Metro area. With 3-year growth at 1,177%, US Appraisal Group anticipates an exciting 2012-2013 cycle.

“We are looking forward to the upcoming year,” says Edgerton. “Not only are we continuing to build our name, our clients and our reputation in the real estate, lending and appraisal communities, we are also consistently working to develop cutting-edge offerings to service our clients beyond any of our competition. Our team never stops tapping into our stellar employee’s creativity and innovation to find new ways to ensure that US Appraisal Group stands well above any other Appraisal Management Company out there.”

US Appraisal Group attributes its continued growth to an unmatched quality control process and a dedication to individualized client attention from executive team members. “Our inclusion on the Inc. 500 list for a second year is just another testament to our clients’ satisfaction,” states Edgerton. “We are proud to be included in this honor, but it comes as no surprise. We work hard for this success. We work hard for our clients. This kind of growth is just a natural byproduct of having this kind of company, and this kind of team.”

US Appraisal Group President Admitted to MIT Program

admin — Mon, 23 Apr 2012 19:31:26 +0000

US Appraisal Group announced today that its president, Dione Spiteri, has been accepted into MIT’s prestigious Entrepreneurial Masters Program, sponsored by Entrepreneurs’ Organization (EO) and the MIT Enterprise Forum. The program accepts only 60 Chief Executives annually from a pool of applicants from all over the world. Applicants must be the founders of companies with at least $1 million in revenue.

Says Spiteri of her acceptance, “the EMP program is structured to help companies scale to $100 million, go public, and/or to develop industry-changing technology. In the next three years, US Appraisal Group will be positioned in additional market verticals and providing unparalleled value to our client base. The EMP program will provide me with new tools to help us – both myself and the rest of the USAG team – to achieve this goal.”

According to the EMP website, the program is designed “to identify and bring together the next generation of entrepreneurial giants – the next Bill Gates or Richard Branson” and “to provide the…intense blending of practice and theory that is necessary to excel in this era.”

US Appraisal Group, already hailed in 2011 by Inc. Magazine as one of the nation’s fastest-growing real estate companies, is poised at the beginning of Q2 2012 to continue its exponential growth throughout the remainder of the year. Spiteri expects another 300% of growth by the end of 2012, during which time the company will continue to streamline its internal processes, create strategic partnerships, and revolutionize its appraisal management technology.

Communication is the Key to Good Appraisal Management

admin — Sat, 18 Feb 2012 00:28:10 +0000

In many ways, the ultimate goal of an appraisal management company should be to truly master the art of communication. While any AMC’s basic functions include streamlining the appraisal process, ensuring that appraisal quality is maintained and making certain that all applicable rules and regulations are being conformed to, an exceptional appraisal management company does much more than this. The stand-out AMC serves as a seamless and carefully controlled conduit of information throughout the life of the appraisal. It allows communication to occur while ensuring that appraiser independence is always maintained. It makes sure that every person involved in the process gets the information they need when they need it, and it simultaneously serves as an impenetrable barrier to any illegal or improper communication. Unfortunately, the structure of some AMCs out there can make for confusing and roundabout communication paths, which in turn leads to a host of problems, including late closings and regulatory missteps.

The ability of an AMC to serve as a master communicator rests on its technology and, more essentially, on its people. Any AMC worth its salt must have a top-tier transaction management system in place. Beyond this, however, is the much trickier human factor. Lenders want to make sure that when they pick up the phone with a question or instruction, they’re speaking with someone who can tell them, quickly and succinctly, what they need to know. Appraisers want to make sure that they will be protected from undue influence.

US Appraisal Group’s philosophy is that smart communication is the key to a satisfying AMC experience. In furtherance of this belief, our company has in place the following key policies to ensure that our clients and our panel are not only in possession of the information they need, but that they are always, without fail, heard.

• All of our operations staff members are either appraisers or former loan origination officers, so everyone answering the phone is fully competent and knowledgeable.
• We empower our executives to make decisions that encourage communication and prevent the kinds of roadblocks that are often caused by unnecessary bureaucratic micromanaging.
• We conduct regular brainstorming sessions to encourage creativity and proactive problem solving in all company departments.
• We provide thorough training of all employees to ensure the accurate communication to outside parties of our business and emerging trends in the appraisal and real estate industries.
• We send out regular educational emails to our clients, vendors and other independent contractors.
• We conduct rigorous reviews of all materials published by US Appraisal Group, including marketing communication and appraiser updates.
• We are able to integrate with lenders’ current loan software, and multiple integration options ensure ease of communication, swift turn-time and high quality service delivery.
• Our TMS ensures that appraisal reports are always submitted in a secure format. Because appraisals are our core business, investment in our technological infrastructure and information security are among our primary concerns.
• Our company employees are rigorously trained to avoid any communication, either internal or external, that may constitute, or be construed as, undue appraiser influence.
• We regularly remind appraisers that they are not to speak directly with the lender. If the lender contacts them, they are to inform the lender that all communication must be though US Appraisal Group.
• One of our core values is to “relentlessly protect our appraisers from undue value pressure”. We take this seriously and incorporate the principle daily.

Customary and Reasonable Appraisal Fees

admin — Fri, 15 Apr 2011 12:41:54 +0000

New Appraiser Independence Regulations (AIR) protects appraisers from undue influence and pressure. Many banks now utilize independent third party vendors (Appraisal Management Companies) to manage their appraisal functions. Unfortunately, the cost of these services is often passed to both the consumer and appraiser. Rather than paying a separate and distinct fee to the Appraisal Management Company (AMC), the fee charged to the consumer for appraisal services is split between the appraiser and the AMC. In addition, some AMCs run rogue with abusive tactics towards appraisers, tainting the good name of reputable AMCs that provide independent important services to lenders. To maximize profits, abusive AMCs utilize bargain appraisers willing to operate in large geographic territories in which they posses, neither the necessary competence nor data, to perform efficiently. The Dodd Frank Act of 2010 provides some solutions by mandating state regulation of AMCs and the payment of customary and reasonable professional appraisal fees to qualified and competent appraisers. As the various federal and state bureaucracies grind on to formulate legislative solutions to the statutory mandate, both appraisers and AMCs remain tethered to the existing standard of business practice. Industry groups on all sides are calling for rapid resolutions, but in the meantime consumers continue to bare unnecessary costs for poor service, abusive practices and potentially inaccurate valuations.

Tax Season Update: What Every Residential Landlord Should Know

admin — Fri, 25 Mar 2011 21:17:20 +0000

Tax season is upon us, and if you own rental property, you’re going to want to give the following points a read before mailing off your forms. Why? Thousands of property owners across the country lose millions of dollars each year by overlooking some basic tax breaks. Landlords, here are a few deductions to look into:

1. Mortgage Interest Payments
As a landlord, interest is often going to be your most significant deductible expense. Typical examples of deductible interest include:

• Mortgage interest payments on loans used to acquire or improve rental property, and

• Interest on credit cards for goods or services used in a rental activity.

2. Depreciating Value
The actual cost of a rental property isn’t fully deductible for the year in which you paid for it. Instead, landlords get back the cost of real estate through depreciation. For tax purposes, this means deducting a portion of the cost of the property over the course of a number of years.

3. Maintenance and Repairs
The cost of repairs to your rental property (provided the repairs are necessary, ordinary, and of reasonable cost) are fully deductible in the year in which they are incurred.
In addition, when you hire someone to perform services related to your rental property, you may deduct payment, including salary, as a rental business expense. This is the case regardless of whether the worker is an employee or an independent contractor.

4. Travel Expenses
As a landlord, you’re entitled to a tax deduction whenever you travel for rental-related business. This even includes small trips, for example driving to your rental property to follow up on a repair, or paying for parking during a trip to the hardware store to purchase plumbing materials.
You have two options for deducting vehicle expenses:

• Deducting your actual travel-related expenses (including fuel and car maintenance and repairs), or
• Using the standard mileage rate. However, to qualify for standard mileage rate, a landlord is required to apply the standard mileage method from the first year you use the vehicle for rental related purposes. In addition, the standard mileage rate is unavailable to you if you have previously claimed accelerated depreciation deductions or have applied a Section 179 deduction.

If you travel longer distances for your rental activity, you may deduct airfare, lodging, and other trip-related expenses. Take note, however, that in audits, the IRS is known for looking closely at overnight travel deductions. More than one taxpayer has found themselves in hot water for claiming travel-related deductions without the necessary records for support. To avoid headaches – or more – make sure you’re properly documenting every phase of your travels

5. Home Office Deductions
In many cases, landlords may deduct home office expenses from taxable income. This break not only includes actual office space, but may also apply to, for example, a workshop used for your rental business. In fact, any work-related space may qualify.

6. Theft and Casualty Losses
Damage and destruction to your rental property may qualify you for a tax deduction for part or, in some cases, even all of the loss. Insurance coverage and the magnitude of the damage will influence your total permissible deduction.

7. Insurance Premiums
A landlord is permitted to deduct premiums paid for most rental-related insurance, including theft, fire, flood, and landlord liability. In addition, your employees’ health and workers’ comp insurance may qualify for further deductions.

8. Operating Expenses for Professional Labor
Finally, you can deduct any payments made to attorneys, accountants, management companies, real estate advisors, and other professionals as operating expenses, as long as the fees are paid for work related to your rental activity.

We hope these tips were helpful. As always, contact USAG with any of your real estate appraisal-related needs, including real estate consultation and advisory services. We look forward to hearing from you!

__________________________________________________________________

After graduating cum laude from Indiana University Maurer School of Law in 2004, Jessica practiced as a litigation attorney in Boston and Chicago. She is now the Business Development Manager for US Appraisal Group’s Attorney Services Division, and lives in downtown Chicago.

Email: jedgerton@usappraisalgroup.com

Mobile: 312-342-0880

Industry Analysts continue to Warn of a Pending Commercial Real Estate Crisis.

admin — Tue, 08 Mar 2011 19:33:50 +0000

Despite signs of recovery in the economy, some industry analysts are warning of a pending commercial real estate crisis. Over the next five years, about $1.4 trillion in commercial real estate loans will reach the end of their terms and require new financing. Commercial property values have dropped more than 40 percent nationally since their peak in 2007. In December 2010, $61.5 billion in commercial mortgage bonds were delinquent, the highest ever recorded, according to the research firm Trepp.” There is a commercial real estate crisis on the horizon, and there are no easy solutions to the risks commercial real estate may pose to the financial system and the public,” say a report issued in February by a congressional oversight committee led by Harvard Law professor Elizabeth Warren. Warren warned, “When commercial properties fail, the result is a downward spiral of economic contraction; job losses; deteriorating store fronts, office buildings and apartments; and the failure of the banks serving those communities. These are the same small banks that provide loans to the small businesses that create jobs and boost productivity. If hundreds more community banks go under the effect could be to dump sand in the gears of our economic recovery.” The panel calls for regulators to perform stress tests on the smaller banks to assess their health.
The Financial Accounting Standards Board plans to issue its final guidance on Troubled Debt Restructurings by the end of March, according to minutes from the agency’s Feb. 23 meeting. Currently, there are no clear guidelines to assist creditors in determining whether a loan or other debt modification meets the criteria to be considered a TDR, both for recording and disclosure purposes.
There are more than 10,100 troubled commercial properties worth more than $205 billion across the U.S., according to Real Capital Analytics.
US Appraisal Group is a commercial appraisal management company that provide compliance solutions for commercial collateral valuation. We offer valuation products including reviews to banks throughout the United States.

Sally Carothers, FRICS
Commercial Business Development Manager
200 S. Wacker Drive, Suite 3100
Chicago, Il 60606

Mobile: 614.634.6657

Toll Free: 888.580.604.4122
Fax: 888.604.4122
scarothers@usappraisalgroup.com

http://usappraisalgroup.com/

The Role of Valuations in Conservation Easements

admin — Fri, 18 Feb 2011 20:54:13 +0000

The creation of conservation easements, which are land preservation agreements between landowners and qualified environmental organizations or governmental bodies, is currently on the rise across the country. In fact, many environmental and tax lawyers are creating niche practices devoted entirely to structuring conservation easements for individuals and corporations alike. While the overarching purpose of this manifestation of restrictive covenant is an environmental one – specifically, to protect land from real estate development and industrial use - landowners electing to create conservation easements are often incentivized primarily by significant state and federal tax advantages that accompany suc arrangements. In addition, conservation easements allow landowners to reap these tax benefits while simultaneously retaining ownership of the property. Appraisers play a significant role in creating conservation easements, as the encumbrances and the tax breaks that often accompany them must be justified by detailed market valuations.

Tax Benefits Accompanying Conservation Easements

As mentioned above, landowners are often motivated to create conservation easements by the encumbrances’ attractive tax breaks. Not only may landowners qualify for a federal income tax deduction equal to the value of the easement donation, as determined by a qualified appraiser – in addition, a number of states offer income tax credits for conservation easements.

Finally, and perhaps most significantly, conservation easements can create a significant reduction in estate taxes for inheriting parties. Not only can a conservation easement reduce the value of an estate, and thereby reduce the associated inheritance tax; in addition, federal tax code allows for a further reduction (up to 40%) in “death taxes” for estates with qualified conservation easements. Because the tax breaks are significant, it is becoming a common trend for estate lawyers to present the option of creating conservation easements to property holding clients with tracts of qualifying land.

Where do Appraisals Fit In?

Two methods exist for appraising a conservation easement: The “before and after method” (which subtracts the value of the land post-easement from the value of the pre-encumbered land, and then divides that amount by the value of easement interests) and the direct comparison method, which takes into consideration the actual sales of easements, which are then directly compared to the easement being appraised. Both are discussed briefly below.

The Before and After Method

An appraiser using the before and after method values the property prior to the conservation easement and then again after the encumbrance of the property. The value difference represents the value of the rights within the conservation easement. In some cases, the resulting value may end up close to the full fee value of the property .

The after value may be estimated in one of two ways–either by considering sales that are encumbered by similar easements, or by considering sales that are encumbered in the same way, but under different theories – for example, zoning or access encumbrances. While the before and after method has historically been the accepted approach to easement valuation, many appraisers are now employing the direct comparison method.

The Direct Comparison Method

In the direct comparison method, appraisers compare existing market easement sales with the easement requiring appraisal. Appraisers employing the direct comparison method must consider a number of factors, including:

- The physical comparability of the real estate;
- Any motivating forces behind the easement sales;
- Interests transferred in the easement sale;
- Offsetting benefits and severance damages unique to the sales;
- Market opportunities for realizing economic potential;
- Availability of capital for easement purchases; and
- Public attitude toward the resource being protected.

If you or a client is interested in finding out more about the benefits of conservation easements, or would like to discuss in detail our easement-related valuation services, please give me a call at (888) 580-USAG (8724) Extension 705, or email me at jedgerton@usappraisalgroup.com.

______________________________________________________________
Jessica A. Edgerton, Esq.
After graduating cum laude from Indiana University Maurer School of Law in 2004, Jessica practiced as a litigation attorney in Boston and Chicago. She is now the Business Development Manager for US Appraisal Group’s Attorney Services Division, and lives in downtown Chicago.
Email: jedgerton@usappraisalgroup.com
Mobile: 312-342-0880

True Commercial Appraiser Independence

admin — Tue, 15 Feb 2011 21:57:32 +0000

In the last twelve months “appraiser independence” has been codified into various rules and regulations. Appraisers, compliance officers and other industry experts may read the words but fail to recognize the philosophical significance. Appraisers, appraisals, the appraisal function and collateral valuation must be independent (and therefore not dependent on) a loan transaction. A professional appraiser is responsible for providing an independent opinion of value. They should be paid a customary and reasonable fee for the appraisal assignment based upon a clearly communicated scope of work.
How the individual appraiser or appraisal firm manages that assignment is a professional business decision and may fall under state appraisal regulation. How a lender manages its appraisal function is a compliance decision based upon federal and state law. It is contrary to the philosophy of appraiser independence to expect an appraiser or appraisal firm to manage the appraisal function of a lending institution. Yet, this is exactly how many lending institutions manage their commercial appraisal function, despite the catastrophic losses of the last three years. The traditional rotation of a “seasoned” small list of commercial appraisers is rife with incestuous malfunction. Simply put, a handful of appraisers can create a market and perpetrate it into the future. Data is rare and sales are limited. Income, expenses, cap rates, discount rates, absorption rates, vacancy etc. cannot be calculated, forecast, supported or verified through a recorded, open and public source. The “appraiser panel” controls the cost, quality and time-frame.
In contrast, independent management of the commercial appraisal function protects the integrity of the real estate collateral and lending institution. A commercial appraisal management company can build a firewall to promote quality, service and independence. Technologically efficient systems track and manage valuation reports; a diversified group of qualified professionals provide independent and accurate values; and an appraisal management team oversees continual compliance review and oversight.
USAG is committed to promoting the ultimate commercial appraisal management experience. By devoting the necessary resources, correct tools, unparallel technology and expertise; we empower our customers to maximize the efficiency and compliance of their appraisal function.

I look forward to working with each of our commercial client users to design their custom commercial valuation solution.

Sally Carothers, FRICS
Commercial Business Development Manager
200 S. Wacker Drive, Suite 3100
Chicago, Il 60606

Mobile: 614.634.6657
Toll Free: 888.580.604.4122
Fax: 888.604.4122
scarothers@usappraisalgroup.com

http://usappraisalgroup.com/

The Role of Attorneys in the Appraisal Process: An Unnamed Audience For the AI’s Recent “Helpful Tips” Release

admin — Fri, 11 Feb 2011 21:24:35 +0000

Earlier this year, the Appraisal Institute issued a paper titled “Helpful Tips for Consumers”. The stated purpose of the release was to help guide home buyers and sellers through the sometimes convoluted appraisal-related steps in the process of buying or selling a home. In reference to the article’s publication, the AI’s president, Joseph Magdziarz, stated that “too many consumers in this struggling real estate market face problems with appraisals when attempting to buy or sell a home. But rather than passively enduring delays in closing a sale, homeowners and buyers can take proactive steps to avoid pitfalls.”

Yes, they can, and they should. As an attorney, however, I felt that this AI release would have been more elegantly – and more usefully – aimed at attorneys whose clients are in need of appraisal services, rather than speaking directly – or, at the very least, exclusively – to the buyers or sellers themselves. Among the tips set forth in the AI’s article, homeowners and buyers are encouraged to:

• Understand the role of appraisals;
• Make sure their lender hires a qualified appraiser;
• Request a copy of the appraisal report from the lender;
• Examine the appraisal report and ask questions;
• Appeal the appraisal if appropriate;
• Ask the lender to order a second appraisal by a qualified and designated appraiser; and
• File legitimate complaints with appropriate state board or professional appraisal organizations.

All of this is excellent advice, of course. My problem with the manifest, however, is twofold. First, how many private homeowners and buyers will actually see these tips? Is the AI planning on sending a “helpful hints” packet to homeowners across America? Probably not. And second, of those who do read the tips, how many people going through the already discombobulating process of acquiring or selling a home will have the wherewithal and proper understanding of the process to correctly follow through on each of them? Not many. Who does? You – their real estate lawyer.

This is what we, as attorneys, are here for. We guide our clients through convoluted processes; we act as the translators of murky governmental and bureaucratic procedures. We “file complaints with appropriate state boards” and we appeal that which needs appealing. We wrangle with lenders in order to ensure that they are using unbiased and well-qualified appraisers, and, when our client needs an appraisal report, we make darn sure that the appraiser knows what he’s doing. And when that final appraisal report is issued, we don’t toss the unopened envelope into our client’s lap. We are the reviewers, the question-askers. We stand between our clients and the chaos into which real estate transactions can so easily devolve.

So yes, good advice from the AI. They just missed the target a bit on their most important audience – you.

For more information on how to help your client navigate the appraisal process, please give me a call at (888) 580-USAG (8724) Extension 705, or email me at jedgerton@usappraisalgroup.com.

________________________________________________
Jessica A. Edgerton, Esq.

After graduating cum laude from Indiana University Maurer School of Law in 2004, Jessica practiced as a litigation attorney in Boston and Chicago. She is now the Business Development Manager for US Appraisal Group’s Attorney Services Division, and lives in downtown Chicago.
Email: jedgerton@usappraisalgroup.com
Mobile: 312-342-0880