Appraisal Management Company Expands National FHA Appraisal Compliance Platform

Appraisal Management Company Expands National FHA Appraisal Compliance Platform

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Coester Appraisal Group, Global DMS Integrates with RealEC

Coester Appraisal Group, Global DMS Integrates with RealEC

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Rich Dad Conspiracy of the Rich

Mark To Market Valuation

With the new market-to-market valuation set to take place, you are going to see a drastic change in the way banks approach lending, appraisals and risk valuations. The reason is simple, with accountability come conservativeness and change. If the banks are going to have to value there portfolio and then adjust capital reserves to account for losses or devaluation of the asset essentially the entire banking system is going to be dependent on a credible upfront valuation and collateral assessment to determining a lending decision. Your going to see banks now be much more conservative when it comes to lending due to ratios having to be met throughout the life of the loan and a constant upkeep of capital reserve to maintain a adequate spread on the assets underlying value.

This will help ensure investor, regulators and consumers that the financial stability of the financial institution is not overstated.

Example:

ABC Bank makes 100 loans for $80,000(risk) with LTV of 80%(20%spread). All of these homes appraised for $100,000 (underlying value).

Based on these numbers a bank would have to keep at least 10% of cash in reserves based on the $8,000,000 in loans with a 20% spread and a total valuation of $10,000,000.

Now 2 years later the market takes a down turn (yes that can happen) and now after AVM's, BPO's or Appraisals are ordered a portfolio receives a value of $7,000,000 meaning now the risk or spread went from 80% to 110%. The new mark - to market laws would require an increase in capital reserves to cover the increased risk and maintain an adequate risk spread on the collateral.

Banks love this when the market is going up as it doest the exact opposite. Now with the market set to take another hit, banks are shaking as there 10% typical reserve ratio would almost double just to be on the safe side and prevent any fuzz from the FDIC and regulators.

The Challenge in the Real Estate Market

As everyone is well aware there is a great challenge we face as a nation. No challenge or recovery is greater than the recovery of the financial markets. From the stock market to real estate the entire financial system has turned upside down. Right now one of the biggest challenges is finding sustainable regulations that allow an efficient market between conducts and markets. The solution would go beyond the traditional patchwork done by regulations as there is an underlying fundamental problem that must be solved. The problem solving becomes especially challenging as intuitions are constantly being forced to implement government regulations almost overnight with no clear picture as to why and for how long the law or regulation will be in place. You are seeing major players on the side line waiting for the dust to settle before they begin commerce again.

I guess the question that should be asked is, What should or mortgage market look like?

We at least know it shouldn't look like it currently does. The rate of bank failures is astonishing and still growing. In 2000 there was a total of 2 bank failures, 2002 -11, 2007 - 7, and as of 8/26/09 there have been 92. So a total of 20 over the past 8 years and we have already had almost 100 in less than a year.

The reason for up evil has been simple. Too much weight has been placed on housing and the warranties placed on risk. Essentially the matrix's that were used were wrong. This fault has come from a lack of education on housing, the markets and how they work. Underwriting the risk of real estate is more than just housing but what aspect of housing and the expectation and market shifts expected to take place. On top of the misunderstanding there was an array of fraud, inflated appraisals, predatory lending prices and lose underwriting practices.

Due to this the government has not choice but to get involved. With FHA, Fannie and Freddie in control the government is currently involved in over 90% of all mortgage transactions. The treasury has purchased over 100 billion in Mortgage backed Securities, the Fed 1.25 trillion. Simply put without the government there would be no mortgage market.

The market has gotten so bad banks face ruthless defaults where the homeowners makes regular payments and then justs walks away. This causes huge frustrations for hedging risk as you are stuck guessing what payment increase or LTV is the walk away number.

So the question is how do we fix this?
Is the HVCC going to help or hurt?
Is the new RESPA laws going to help or hurt?
How should the appraiser and broker relationship be structured?
What should our mortgage market look like long term?

To be honest I don't know, however we will shortly find out.

Convertible Appraisal - Conventional and FHA

In today’s lending environment it’s challenging to know what type of appraisal to order from the very start. With values always in question and various programs available, the decision to go FHA or Conventional is sometimes a tossup.

Due to this ordering appraisals can sometimes be a guessing game. Do you order an FHA appraisal in hopes the property meets FHA minimum standards and that the value isn't high enough to go conventional? Or do you order the conventional appraisal through the third party then pray it comes in high enough to meet the GSE's guidelines?

What happens when the you order a conventional appraisal and value isn’t high enough for conventional but the property does meet FHA's guidelines? 

In the above situation you basically have two options:

1. If the appraiser is FHA approved, the appraiser or management company could charge an "upgrade fee" usually $100 - 200 to go back, reinspect the property to meet HUD's standards, rewrite the report for HUD and be on your way. If the management company or appraiser refuses to change or accept the upgrade you would have to order an entire new appraisal which is not cheap and can take several days to a week to complete.

2. If the original appraiser isn’t FHA approved you are forced order a full new appraisal and pay the additional full cost.

What if there was a better way?

What if there was a way to get both upfront?

There is a better way! We have the idea of a convertible appraisal. Essentially it’s an appraisal done by an FHA approved appraiser, the inspection, the report and all reporting requirements are completed as if it was FHA, but the only difference is that it doesn’t have to be FHA and doesn’t cost as much as an FHA product.

It’s an either or type situation. The scope of work from the appraisers prospective is:

"Appraisal for FHA or Conventional financed will be based on a final determination and underwriter approval"

It can either be FHA or Conventional. All it takes is a phone call and an e-mail. You can really have it your way!

MORE IMPORTANT NOW THEN EVER

As FHA adopts the HVCC this is going to be vital now more than ever before. No one wants to order two appraisals and pay for two for the same property. With the convertible appraisal no one has to ever!

There is no "upgrading" when it comes to most management companies. Changing the defined scope of work based on the original assignment means more money from your borrower and appraisal fees upwards of $600.00 for one appraisal. With the convertible appraisal this will not happen.

So what’s the advantage?

You will pay a little more upfront than a regular conventional appraisal. However, if the case ever arises where it needs to be switched, it won’t be an issue. The original scope of work was defined as an appraisal with conventional or FHA financing which means it’s just a few simple changes and you’re off to the closing tables.

The advantage is clear. With flexibility of Conventional or FHA it enables both the lender and the loan officer to offer the best product to the customer at the most affordable price.

FAQ:

Aren't FHA's values less?

No. FHA does have stricter property standards and require repairs before financing can take place. However, the comparable selection, listing, and general reporting requirements are very similar, and almost identical to a conventional appraisal.

What is the difference between an FHA and Conventional appraisal?

They are very similar. Except, FHA requirements are a little above the conventional reporting requirements. There are some required repairs by FHA that must be done.

How much extra is the Convertible Appraisal?
$15

FHA Announces Several Policy Changes. Adopts HVCC Guidelines

The Federal Housing Administration (FHA) today announced several significant policy changes that are intended to improve their exposure to risk.  The changes, effective January 1, include:

• Modification of Procedures for Streamline Refinance Transactions
• Adoption of Home Valuation Code of Conduct Guidelines (some not all)
  
• Updated Appraisal Validity Period
• New Appraisal Portability Regs
• New Requirement of Lenders to Submit of Audited Financial Statements for Review
• Adjustments to the Approval Process for Participation in FHA Loan Origination
• Increased Net-Worth Requirements for Lenders

Grabbing the attention of mortgage professionals was FHA's decision to adopt language from HVCC appraisal guidelines. The HVCC, which has been the subject of heated debate within the industry, was implemented by Fannie Mae and Freddie Mac on May 1, 2009. At that time the FHA decided not to adhere to the policy. This undoubtedly increased demand for FHA loan products as originators quickly learned of the multitude of problems associated with HVCC. The new requirements will prohibit any commissioned based lender staff member from ordering an FHA appraisal.

FHA will not require the use of AMCs or other third party organizations for appraisal ordering, if lenders do use AMCs and/or other third party organizations FHA-approved lenders must ensure that:

• FHA Appraisers are not prohibited by the lender, AMC or other third party, from recording the fee the appraiser was paid for the performance of the appraisal in the appraisal report.
• FHA Roster appraisers are compensated at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.  
• The fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal.  
• Any management fees charged by an AMC or other third party must be for actual services related to ordering, processing or reviewing of appraisals performed for FHA financing.
• AMC and other third party fees must not exceed what is customary and reasonable for such services provided in the market area of the property being appraised. 
  

FHA issued five new mortgage letters explaining the policy changes. Here are links to each mortgagee letter:
Mortgagee Letter 09-28: Appraiser Independence
Mortgagee Letter 09-29: Appraisal Portability
Mortgagee Letter 09-30: Appraisal Validity Periods
Mortgagee Letter 09-31: Strengthening Counter Party Risk Periods
Mortgagee Letter 09-32: Revised Streamline Refinance Transactions
Here are a few other notable changes...
(Excerpts taken directly from Mortgagee Letters)
Appraisals
In cases where a borrower has switched lenders, FHA did not allow a new appraisal to be ordered. Instead the first lender was required, at the borrower’s request, to transfer the case to the second lender.  This guideline generally slowed the loan process as the original lender often times was unwilling to transfer the case in a timely manner.
The new guideline, effective January 1, allows a second appraisal to be ordered by the second lender under the following limited circumstances:

1.    The first appraisal contains material deficiencies as determined by the Direct Endorsement underwriter for the second lender.
2.    The appraiser performing the first appraisal is on the second lender’s exclusionary list of appraisers.
3.    Failure of the first lender to provide a copy of the appraisal to the second lender in a timely manner would cause a delay in closing, posing potential harm to the borrower.

Potential harm includes events outside the control of the borrower such as loss of interest rate lock, purchase contract deadline, foreclosure proceedings, and late fees.
FHA also reduced the length of time that an appraisal could be considered valid for collateral underwriting. Previously, FHA considered an appraisal written within the last six months to be an acceptable property valuation.  Today's announcement reduces that period from six months to four.
Advertising
FHA-approved mortgagees must use their HUD registered business names in all advertisements and promotional materials related to FHA programs.  HUD registered business names include any alias or “doing business as” (DBA) on file with FHA.  FHA-approved mortgagees must keep copies of all advertisements and promotional materials for a period of two years from the date that the materials are circulated or used to advertise. 
Who can work with FHA and FHA originated loans
A lender or mortgagee shall not have any officer, partner, director, principal, manager, supervisor, loan processor, loan underwriter, or loan originator of the applicant mortgagee who is:

(1)  currently suspended, debarred, under a limited denial of participation (LDP), or otherwise restricted under part 25 of title 24 of the Code of Federal Regulations, 2 Code of Federal Regulations, part 180 as implemented by part 2424, or any successor regulations to such parts, or under similar provisions of any other Federal agency;

(2)  under indictment for, or has been convicted of, an offense that reflects adversely upon the applicant’s integrity, competence or fitness to meet the responsibilities of an approved mortgagee;

(3)  subject to unresolved findings contained in a Department of Housing and Urban Development or other governmental audit, investigation, or review;

(4)  engaged in business practices that do not conform to generally accepted practices of prudent mortgagees or that demonstrate irresponsibility;

(5)  convicted of, or who has pled guilty or nolo contendre to, a felony related to participation in the real estate or mortgage loan industry—

(i) during the 7-year period preceding the date of the application for licensing and registration; or
(ii) at any time preceding such date of application, if such felony involved an act of fraud, dishonesty, or a breach of trust, or money laundering;

(6)  in violation of provisions of the S.A.F.E. Mortgage Licensing Act of 2008 (12 U.S.C. 5101 et seq.) or any applicable provision of State law; or

(7)  in violation of any other requirement as established by the Secretary.
Streamline Refinance Transactions
At the time of loan application, the borrower must have made at least 6 payments on the FHA-insured mortgage being refinanced.

At the time of loan application, the borrower must exhibit an acceptable payment history as described below.

1)    For mortgages with less than a 12 months payment history, the borrower must have made all mortgage payments within the month due.

2)    For mortgages with a 12 months payment history or greater, the borrower must have:

a)    Experienced no more than one 30 day late payment in the preceding 12 months,

AND

b)    Made all mortgage payments within the month due for the three months prior to the date of loan application.

The lender must determine that there is a net tangible benefit as a result of the streamline refinance transaction, with or without an appraisal.  Net tangible benefit is defined as:

• reduction in the total mortgage payment (principal, interest, taxes and insurances, homeowners’ association fees, ground rents, special assessments and all subordinate liens),
• refinancing from an adjustable rate mortgage (ARM) to a fixed rate mortgage,

OR

• reducing the term of the mortgage

If a credit score is available, the lender must enter the credit score into FHA Connection.  If more than one credit score is available, lenders must enter all available credit scores.

If subordinate financing is remaining in place, the maximum combined loan-to-value ratio is 125 percent.

• For streamline refinance transactions WITHOUT an appraisal, the CLTV is based on the original appraised value of the property.
• For streamline refinance transactions WITH an appraisal, the CLTV is based on the new appraised value.

Revised Streamline Refinance Transactions WITHOUT an Appraisal

The maximum insurable mortgage cannot exceed:

• The outstanding principal balance  minus the applicable refund of the UFMIP,

PLUS

• The new UFMIP that will be charged on the refinance.

Revised Streamline Transaction WITH an Appraisal

The maximum insurable mortgage is the lower of:

1)    Outstanding principal balance minus the applicable refund of UFMIP, plus closing costs, prepaid items to establish the escrow account and  the new UFMIP that will be charge on the refinance;
OR
2)    97.75 percent of the appraised value of the property plus the new UFMIP that will be charged on the refinance.

Discount points may not be included in the new mortgage.  If the borrower has agreed to pay discount points, the lender must verify the borrower has the assets to pay them along with any other financing costs that are not included in the new mortgage amount.
Further Changes Currently Being Considered:
Modify Mortgagee Approval and Participation in FHA Loan Origination

Lenders seeking approval to originate, underwrite, or service an FHA loan must meet the eligibility criteria for a supervised or non-supervised mortgagee. Mortgagees with this approval status must assume liability for all the loans they originate and/or underwrite. Loan Correspondents (mortgage brokers) will continue to be able to originate FHA-insured loans through their relationships with approved mortgagees; however they will no longer receive independent FHA approval for origination eligibility.
These policy changes will require the FHA approved mortgagee to assume responsibility and liability for the FHA insured loan underwritten and closed by the approved mortgagee. These changes align FHA with the GSEs and will potentially increase the number of loan correspondents (mortgage brokers) who are eligible to originate FHA-insured loans while providing for more effective oversight of loan correspondents through the FHA approved mortgagees.

Increase Net-Worth Requirements for Mortgagees

The FHA plans to propose to increase the net worth requirement for approved mortgagees to meet industry standards. The requirement is currently at $250,000 and has not been increased since 1993. HUD is proposing an initial increase of approximately $1,000,000 that would be in place within one year of the enactment of this rule. To maintain consistency with industry standards, HUD may propose that the net worth requirements be increased further in future years to a level comparable to those required by GSEs and other market institutions. These changes will help to ensure that FHA lenders are sufficiently capitalized to meet potential needs, thereby permitting HUD to mitigate losses and decrease risks to the FHA insurance fund.

Local Appraiser = Most Accurate Value Possible

For the labor day weekend me and my wife decided to take a vacation to the west coast, for the destination good old San Francisco, CA. As we picked up our rental car and drove into the bay area I was immediately struck by the unique architecture and construction techniques. Personally as an appraiser I have been allot of places and seen over 100,000 homes, however I have never seen properties built like this in person. Its one thing to see them on an appraisal or in a photo but you really dont understand what your looking at until your standing right in front of it.

Homes right on the edge of a cliff, half way up a mountain and on a 45 degree angle and not just one rows of them. There were homes built on stilts, homes built literally on top of each other. There was an endless variety of homes and just when I thought I have seen it all we drove down Lombard Street. Lombard steet the famous "windy street" was a humorouse experinces as there is homes built literally on the most windy street in the world.

Right from the start I knew something was different about the city and it was more complex than first glance. As we got more and more into the city and stayed  longer I realized how much real estate does different area to area. This makes me even more think about how important it is to have local appraisers experienced with the area complete appraisals.

Homes on hills, in front of trolley stops, on top of the hill, on the bottom, some on flat land, some on slopped, some with views and some without. I knew it would be EXTREMELY complex to even try and accurately value a property in San Francisco with out YEARS of experience. There are just too many variables, literally 1,000's and its too much to account for from an inexperienced appraiser.

Even though appraising is a step by step process and a science, there is certain point where you just need to know what’s going on. The only way to accurately value to the property would be to really know the market area and really understand the market area which is something you get from experience, research and training.

After much contemplation it made me really think about all of the controversy surrounding the HVCC and the need for accurate appraisals and local appraisers within the market area completing the report.

I sent an e-mail to my operations manager re-emphasizing the fact that the appraisals must be assigned to local appraisers and that reviews must be ordered on questionable appraisals.

The reason is simple, bad decisions get made with bad appraisals and the most accurate appraisal possible is vital to the success of all business. When I say all business I really do mean ALL. The real estate appraisal business affects EVERYONE. From the taxes you pay on your house, the bridge you crossed to get to work, the toll you paid, the road, the hotel, your gym membership EVERYTHING had an appraisal some where along the line or something similar to an appraisal. Everyone wants to know what’s its worth or what’s its going to be worth an appraisal is the most effective way for someone to get an accurate assessment of there property.

At the end of the day everyone knows want to know what its worth and what they can expect. An accurate appraisal is the really only way to know for sure exactly what your getting, and when money is involved especially big money knowing the most accurate value of the collateral is the only way to know for sure.

Dont be cheap get an appraisal that’s done right the first time and save everyone time and money. Buy Coester.

The Creature from Jekyll Island

See how the FED'S Work. I highly recommend this book also.

Using an Appraisal Management Company Vs. Self Managed Software

National Appraisal Company Vs. Self Managed Appraisal Software

Set-up Cost

AMC:
Typically Free Set-up, No Monthly Cost or overhead expenses. Only cost typically would be cost of integration(if even needed). Most appraisal management companies are already integrated with key tech companies like Real EC and FNC so it essentially becomes a plug and play.

Self Managed:
Initial Set-up can go from free to $10,000 or as high as $200,000 depending on size of business. Overhead is an issue as costs don't fluctuate with volume.
Vendors Typically national appraisal firms will have an extensive list of "paneled" appraisers they use frequently. Some may have staff appraisers that work just for the company or contract appraisers that have been working with them for years. Adding or removing appraisers is relatively easy however if they are on staff fit could oppose a problem

If you are just getting started and don't have a list of quality vendors this can be very time consuming and frustrating experience. If attempting manage a national fee panel it can take several years until relationships are established in all key markets. A benefit is that if you only cover a very small area and only have a few appraisers you can easily manage the panel. Adding or removing appraisers is easy.


Appraisal Cost :

AMC:
Usually the same as what a normal appraiser would charge. Sometimes fees can be higher to cover the cost of paying the appraiser as the company does need to make some money off of the appraisal. Depending on volume fees can often be negotiated to a "flat fee" nationally or at least by property type. This can be greatly beneficial when quoting appraisal fees to borrowers.

Self:
Appraisal fees are what the vendor wants as it is going directly to them. Given that typically your orders will represent only a small percentage of the appraisers business and thus fees can sometimes be a little tough to negotiate. This can be challenging when trying to quote fees in multiple states.

Turnaround:

AMC:

Competitive turnaround, sometimes can be delayed a few hours or a day due to internal review's and QC Controls. The benefit of having the appraisal reviewed by a staff appraiser before it gets to the underwriter is a value added benefit. Most AMC's will have a licensed appraiser on staff which can easily cost 100k or more a year.

Self

Usually standard for the industry the only negative is if you panel gets busy you might be stuck waiting longer to get appraisals done and adding more "new" appraisers can be a shot in the dark. Unless a staff appraiser is there to review the appraisals the underwriter sees the appraisal first and will responsible for QC Control as well as panel management due to them being the only person who is qualified to appropriately review the appraisal.


Quality:

AMC:

Appraisal quality can vary from company to company and appraiser to appraiser. A good appraisal management company will ensure the appraisal is done properly and the value of the property is reflective of the subject's market area and marketability. If there is a problem with the quality of the appraisal the appraisal management company will very often have access to the MLS the appraisers use as well as the ability to review the appraisal from an expert standpoint and communicate potential issues. Most AMC's will order a second appraisal free of charge if the appraisal is poorly done.

Self:

Quality will be very similar with hit or miss appraisals. Unless a review appraiser is on staff going back to the appraiser to get something changed can be challenging as your not speaking the appraisers language. If there is a second appraisal that needs to be ordered this would be at a direct cost to the company and can become a big expenses on top of the overhead.


Scalability:

AMC:

Most appraisal management companies companies can handle upwards of 5,000 appraisals per month and new vendors can always be added. With technology portals like Real EC and FNC rotating 5 or 6 vendors can be easily done and the scalability is essentially limitless.

Self

This can be as small or as large as needed. The more orders obvious the more staff. If significant volume is done (100 or more). Staff must be added as things get more busy a full office with 30 - 50 people may be necessary which is a direct expense of the company.


How quickly you can switch:

AMC:

Depending on the set-up or service level agreements in place. Switching can take a day or until the contract expires. Either way it can be done relatively easily and with all of the appraisal companies competing for your business you can have the pick of litter.

Self:

This can be overnight but then your stuck with nothing. If volume decreases to the point where layoffs occur and then picks back up your staff may be overloaded and overall quality will suffer. If trying to switch to a third party vendor there can be some lag time and overall frustration with the switch as well as a moral shift since layoffs are occurring.


Coverage

AMC:

Most Appraisal management companies cover the entire united states if the companies is only regional multiple companies can be approved to ensure full coverage.

Self:

To have a panel the covers the entire united states will take a relatively large staff. Unless your volume is over 1,000 per month its not practical to have staff on board to have legitimate full coverage.

Service Level

AMC:

Since you can approve multiple appraisal companies. You can have them compete against each other for work and for quality. Matrix's can be in place to see who gets the most orders and can cause heavy competition among vendors and thus better service.

Self:

Since this would be your operation the service level would be directly reflective of what type of time and money you invest in the service.


Practicality:

AMC:

For most companies choosing a nationwide appraisal company is the most practical solution. It is relatively easy to implement and can easily be changed or custom fit to meet your companies needs.

Self:

Not practical for must companies as it is a big expenses and doesn't add much value to the overall operation and workflow process. For smaller companies with only a few appraisers and lower volume it can be very easy to manage and maintain.


Logistics:

AMC:

With technology this is one of the easiest things to do and can very easily be implemented often within 24 hours or even less. For larger operations it could take as long as a month or more but once in full motion will be easy to maintain.

Self:

Setting the entire operation up will be time consuming since you are essentially creating a new company. it can be successfully done however is not going to be something that can be done overnight or even in a few weeks.

History Of Appraisal Management Companies

Get your own - Open publication

HVCC Suspension - Not Gonna Happen

Throughout the news the HVCC has been bad mouthed, talked bad about and i am personally waiting for someone to scream "bloody murder". Most of the controversy has been centered around perceived lower values, increased turnaround, high fees and overall poorer quality of appraisals. You hear the stories of the appraiser driving 200 miles to a town he has never been to do an incompetent appraisal, or the appraiser who is trying to feed his family but only gets $200.00 per appraisal from the big bad management company and is forced to foreclosure on his house due to the HVCC.

This post is to set the record straight and to go into the truths about the HVCC. Whats really going on and also why the HVCC will not be suspended.


Whats really going on:

Road trip appraisals: It is 100% true that there are some appraisers who will very often drive 100, 200 or even 300 miles to do one appraisal. It might also be true that they have never been to this town, maybe never even heard of it nor can properly pronounce its name. However, due to the fact they are the only appraiser within 500 miles this is a very normal thing for him.

The truth is not all areas have an abundance of appraisers and unless the lender doesn't require an appraisal, they have to get it from somewhere. Very often after 30 or 40 calls to appraisers in the area, after calling real estate agents and the state appraiser boards. If you get one guy who says yes you are so happy that you want to dance.

We do appraisals for HUD and we just recently had a case come across our desk in which the asset company was trying to find an appraiser to do an appraisal on a HUD owned property for over a year! that's right over a year. The reason they said they haven't been able to find anyone is because in this part of rural Nebraska know appraisers will complete a residential appraisal and the cheapest they could find someone to do a residential appraisal for was $2,500 (the estimated REO value was only 22k for the property).

This might be a little extreme example however is still very real. We have over 22k appraisers in our system, that is 1/3rd of all the appraisers registered and we still don't have 100% coverage in all possible areas of the US. At least weekly i will get an e-mail or a phone call from someone indicating they have spent over 50 calls to appraisers and no one will do an appraisal in this area. When we do finally find someone we don't care what they charge we are just happy we found someone and can get it done.

Out of these long appraisals we do, the vast majority of appraisals are very well done and are very well put together. The very, very small percentage that are bad, are not caused by the HVCC as they are just bad appraisers which will be in the system no matter what you do.

Perceived Lower Values:What they are really arguing is the fact the appraiser didn't use the highest sales in the neighborhood. The majority of these complaints are from loan officers trying to get refinances done, if it is a purchase it is typically known by everyone that the buyer is paying too much and it is no surprise to anyone the value didn't come in.

We do 1,000's of appraisals per month and out of the purchases we do maybe 1 out of 100 the value will be lower than the contract. The reason is because typically the contract price is reflective of the most probable sale price of the subject and not the highest value.

What the nation is screaming about is when there are 2 or 3 higher comparable that sold in which the appraiser didn't use for whatever reason and the value could have been 10 - 15k higher which would have made the deal work. The reality of the situation is those 3 highest sales aren't probably the best reflection of the subject's "market value" and please remember that the appraisal is going for market value and not anything more or less.

The appraisals job is to have 100% non-bias opinion of the property and the market value. His job is not to be too high nor too low but rather reflective of the properties marketability and overall market value.

Increased turnaround:I will admit this has been a big drawback of the HVCC, however what else would you expect to happen when the entire industry changes the way it does business?

The first few months were hell, however turnaround times are no much more so improving and shortly will be back in line with the acceptable turnaround times.


Increased Costs: Most appraisals management companies charge about what the typical appraiser charges however not much more. The thing that has increased the cost of the appraisal is the 1004MC form which has increased the work from an appraiser by about 1 hour.

Also underwriting guidelines have tightened and an appraisals now require 5 - 6 comparable as well as a whole bunch of other information that wasn't required only a few years ago.

a few years ago it was 3 comparable, maybe 4 and that's it. I have seen underwriters request as many as 4 additional comparable on appraisals with no mercy, as an appraiser your essentially asking for a new appraisal in which they have full right to charge for it instead of charging the client a new appraisal fee they just raised there fees and called it a day.

Poorer quality appraisals: With all of the extensive underwriting requirements to say the appraisal quality is down they have unrealistic expectations. Appraisers are killing themselves to try and get these appraisals done in a professional manner. The real problem is the lenders requirements are too strict and the underwriter is just checking off a list and not actually being a professional. Lenders having requirements for appraisal's that are unrealistic is a much bigger problem. Like Providents requirements that three comparable must be within 90 days or a desk review is required. As an appraiser having one comparable within 90 days you might do a dance let alone three. There are some areas in the us where there are no sales in a county within 3 months let alone within a mile or even 30 miles.

Poor Dan the appraisal man who only gets $200: only if that was true, amcs would be making billions. The truth is vast majority of appraisers wont do an appraisal for less than $300 which means at most the AMC is making a 25% gross profit from a $400 appraisal.

Now don't get me wrong we do have appraisers who only gets $200 per appraisal what is not typically mentioned in the article (how convenient) is that the appraiser might get 50 - 60 appraisals a month from us and he only does appraisal for us. What we do and what most amc's do is approve a panel of appraisers that are good and reliable and bring them on board as the go to appraiser. That's it...calling an appraiser on a spot deal to do 1 appraisal for $200 you will get hung up on.. after 20 - 30 a month you can have some serious pull and be 100% justified as its a good business decision for both and makes sense for both the appraiser and the management company.

Why the HVCC will not be suspended:

Its simple, the world doesn't have faith in US real estate. Without the feds buying mortgage bonds the entire real estate market would freeze. The HVCC wouldn't be an issue at all because there would be no appraisals being done or loans being made.

What the HVCC will slowly do is start rebuilding trust in the US and the integrity of the mortgage bonds.

This above all will be something that will help turnaround the US economy. Without this we would have no MBS markets, brokers and mortgage bankers would be gone and all loans would be done by your local FSB or credit union like it was back in the 70's.

New Appraisal Rules Backfire in downmarket...

New Appraisal Rules Backfire in Down Market

By Jack Guttentag
Saturday, August 1, 2009



Enacting rules to curb abuses that arose during a housing bubble, but which don't take effect until the succeeding financial crisis, can easily do more harm than good. This is the case with new rules requiring that property appraisals be insulated from pressures exerted by any of the parties with a financial interest in an appraised value. Those parties are primarily lenders, mortgage brokers and real estate agents.

Appraisals are informed judgments regarding the value of specific properties. They are not perfect because appraisers must work with incomplete information. Further, appraisers are subject to bias, especially when less-than-complete information is available to them.

During periods of rising house prices, such as 2000 to 2006, many appraisers erred on the upside because they were part of a community that expected further price increases. This tendency was sometimes reinforced by pressures exerted by lenders, real estate agents and mortgage brokers. None of them wanted to see deals torpedoed by appraisals below the prices buyers had agreed to pay.

In late 2007, New York Attorney General Andrew M. Cuomo sued the appraisal subsidiary of title insurer First American for allegedly conspiring with Washington Mutual, a major mortgage lender at the time, to inflate appraisals. Because WaMu sold a large portion of its mortgages to Fannie Mae and Freddie Mac, Cuomo embarrassed the agencies into issuing a Home Valuation Code of Conduct, or HVCC. The code declared that the agencies would purchase only mortgages supported by an "independent" appraisal.

The objective of HVCC was to insulate the appraisal process from influence by any of the parties with an interest in the outcome. Mortgage brokers and real estate agents could no longer order appraisals, and lenders had to obtain appraisals in some manner that prevented them from exercising any control.

The problem with this well-intentioned rule is that it was issued in December 2008, to become effective May 1 of this year, squarely in the middle of the worst housing market since the 1930s. With house prices declining, the upward bias in appraisals that had prevailed during the bubble morphed into a downward bias. Many deals are not getting done because appraisals are coming in too low, and the HVCC is seriously aggravating the problem.

To protect themselves from liability, most lenders are ordering appraisals from appraisal management companies, which act as intermediaries between lender and appraiser. The appraisal management company selects and pays the appraiser, receives and evaluates the appraisal, and passes it to the lender, which has no direct contact with the appraiser.

Because the management companies operate nationally but do not have appraisers everywhere, more appraisals are being done by people who are not familiar with the local market. Appraisers working for management companies are also paid less per appraisal than independents, which may induce them to invest less time. Less knowledge by appraisers means more scope for bias, and in a declining-price market, the prevailing bias is toward lower values.

Intermediation by appraisal management companies also lengthens the period required to complete purchase transactions. People involved in the process tell me that it can add an extra week. In an increasing number of cases, the paperwork doesn't get done by the due date specified in the contract or before the buyer's mortgage lock expires, potentially derailing the transaction.

The objective of the HVCC was to prevent pressure being imposed on appraisers to raise values. But the code also prevents the loan officers, mortgage brokers and real estate agents who work with borrowers from pressuring appraisers to get work finished in time to meet a deadline. Further, they can no longer keep their clients informed about the status of an appraisal because they are no longer in the loop.

Loan officers, brokers and real estate agents used to have access to informal value opinions from the appraisers with whom they worked. Such opinions allowed them to abort house purchases and refinances that clearly would not fly because of inadequate property value. With this source of information now unavailable, deals that previously would have been screened out early are now going through the system, only to be rejected later, imposing needless costs on everyone involved.

The HVCC has also pretty much eliminated the ability of a borrower to use the same appraisal with multiple lenders. Before the code, mortgage brokers could use one appraisal with any of the wholesale lenders with which they dealt, and lenders sometimes accepted appraisals ordered by others. Today, brokers are out of it and lenders using appraisal management companies will not accept appraisals ordered by other lenders because they cannot be sure that the other lenders are following the HVCC rules. The upshot is that borrowers often have to pay for more than one appraisal.

In sum, the HVCC "cure" for the appraisal problem of overvaluation has been implemented in a market in which the problem has become undervaluation, and the code is making that problem much worse. It should be scrapped. When markets return to normal, there will be time to reconsider how appraisals can be made independent without disrupting business relationships that have served borrowers well.

Note: I am grateful to Kevin Iverson for his insights.

Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania. He can be contacted through his Web site, at http://www.mtgprofessor.com.

© 2009, Jack Guttentag


Distributed by Inman News Features

Senator Barbara Mikulski Contact's Coester Appraisal

US Senator Barbara Mikulski responds to Coester Appraisal Groups letter regarding the national real estate market and the role of the appraisal industry.

Please see letter below:

"Dear Mr. Coester:

Thank you for contacting me about recent housing legislation and programs. It's great to hear from you.

I appreciate hearing your ideas and views about this issue. The foreclosure crisis is at the heart of the economic downturn. Without the right policies, the effects of foreclosure can be devastating not just to the homeowner, but to their communities and the entire nation. This problem requires creative solutions and targeted initiatives that address the housing sector directly and help families keep their homes.

I have always been on the side of smart and strong regulations. Our financial system went off a cliff and we need common sense reform to restore confidence in our economy. Over the past 10 years, there were too many scams and schemes. Now we need to protect consumers to make sure it never happens again. Mortgages should be transparent and easy to understand, and consumers should get the most affordable interest rate. I also know that we can't impose requirements on lenders and appraisers that prevent them from doing their business. I want to protect the good guys in the housing industry.

I have always fought for consumers and against unfair and abusive practices in the marketplace. I will only support housing legislation that puts consumers first. Knowing of your views is helpful to me and I will keep your views in mind as the Senate continues to consider housing legislation.
 
Again, thank you for contacting me. Please let me know if I can be of help to you in the future.

Sincerely,
Barbara A. Mikulski
United States Senator


Please do not respond directly to this e-mail. The originating e-mail account is not monitored.
If you would like to get in touch with me again, please visit my Webform at http://mikulski.senate.gov/Contact/contact.cfm"

FHFA Reinforces HVCC

On July 22, 2009 FHFA released a notice reinforcing the role of the HVCC in restoring the real estate market as a whole. In a short but very straight forward letter the agency addressed some very key points about the negative press the HVCC is receiving by the industry. The agency emphasized that the HVCC is not the cause of all the bad press about it but is rather a process that is helping restore the real estate industry as a whole. It addresses key points in respected to the use of AMC's, Increased Cost of closing and turnaround times.

In conclusion they emphasized the "critical role" of the HVCC and how important accurate appraisals and quality appraisers are to the underwriting process. To view the full letter click here

The TRUTH about the HVCC (From a Broker)

Since HVCC reared its ugly head, I have one less job to do as a mortgage person. I don't need to CANNOT order appraisals.

You see, I am forbidden from talking to appraisers (obviously my amazing ability to brainwash appraisers coupled with my ruthless quest for a commission render me completely inappropriate for this job).

Realtors, congratulations. I guess now YOU have the job of talking to the appraiser.

And since you didn't hire the guy (the bank did) you can't fire him if he doesn't give you the right value.

But you can still "INFLUENCE". Kind of like I used to do?

And you ARE an interested party...are you not? Just like me? We are both earning commissions if the appraiser will just give us the right #&*$% freaking value!

I keep wondering this: Why can Realtors (who also have a vested interest in the transaction) talk to appraisers, but mortgage people can't?

Wait. Should I even CARE?



Want to know a secret? I'm glad the appraisal monkey is off my back.

I used to get stuck paying for appraisals when deals fell though.
I used to get yelled at by Realtors and clients when "my" appraiser came in with a value too low.
I used to be the one who had to send all the paperwork to order the appraisal.
I used to ALWAYS take the time to discuss comps, values, and to answer any questions from the appraiser.
I used to be in the middle of problems getting the appraiser into the house.
I used to need to print the appraisals out on the color copier to hand them in to my processor.
I used to try to calm down agents and clients who were nervous about VALUE before the appraisal was done

I used to get e-mail after e-mail from the Realtors about when the appraisal would be done...needlessly reminding me of the appraisal contingency date.
Not to mention the bank, who would call me directly to discuss the appraisal (when doing their review)
And I never thought twice about how much time this took away from my day, because for so long it was just PART OF THE JOB.

Don't get me wrong. I am against HVCC because it is BAD for borrowers.

But is it BAD for me? Anything that is bad for our industry and our clients is bad for me.

But has HVCC saved me time, energy and frustration?

Yep.

An unintended (and rather sweet) consequence.



Written by Janet Guilbault, Mortgage Banker/Broker Based Out of the San Francisco Bay Area

Wholesale Lending is down and brokers consildate

The HVCC is causing some major shifts in the entire industry. One of the smaller things that is happening is slowly mortgage brokers are disappearing. As the months go by and they realize the HVCC is not going to go away they either have the option of putting up with being a pawn in the lenders business model or become a lender themselves. Currently you are seeing a combination of the two. Essentially you are seeing loan offficers move from mortgage brokers to lenders or banks, and you are seeing the broker owners consolidate there offices to one large office or open a branch office for a bank, lender or net branch like Allied, WestStar or Eagle.

Regardless you are going to see major changes in the mortgage industry and the way originators do business. The reason is because as a broker they just simply cant compete and be successful. Industry statics show the defalt ratio on a brokered loan is 50% higher than on a retail organited loan. The reason is simple, with no skin in the game its much easier to make the loan work.

Lenders have recongized this and they are taking steps to ensure they are protected. The HVCC is just one of many changes that are going to take place over the next few months and coming years that will limite the lenders exposure and increase the brokers. This is coming late as the mortgage industry is in shambles and banks are losing there shirts.

Would the real AMC's please stand up?

With the HVCC in full swing you are seeing a huge backlash from mainstream media, appraisers, realtors and mortgage industry on the negative impact the HVCC is having on the mortgage industry and US real estate as a whole. Obviously all of the alegations are not justified however some of them are and some are a legitimate concern for the lending world.

Bottomline is that most AMC are dropping the ball, and need to step up and preform.

Most National Appraisal Companies are not providing anywhere near the service that is expected by clients and that is reasonable for the industry. There are several large national AMC's that sprung up as off springs of other companies to capitalize on the HVCC. Through there high level connections and brand name they were able to capture some major clients and it has been an absolute disaster. This is first hand knowledge from the mortgage companies themselves and they are currently looking for my company to step in and take over operations.

Basically these companies hired inexperinced staff to try and handle the increased volume. This has not only caused confusion but extremely long delays. An appraisal is no easy task to complete and often needing an expert opinion to assist in the completion or addendum's which simply put most companies aren't equipped to do. This is something that is totally unacceptable and should be considered a discrace to the industry.

An AMC should be the lenders lifeline and should be the person they want to call to get there orders done the right way. Currently the industry is treating them as the exact opposite instead of a trusted advisor there more of person they regret having to call because its like calling to get tech support from AOL (alot of holding and no resolution.

The reality is that management copmanies need to be run by appraisers and mortgage professionals seasoned in the industry. Not by people who are just starting another business or are just trying to cash in on the HVCC.

The reason is simple there's no way anyone can have an idea of what's at stake and what needs to be done to get the appraisal is and approved without having first hand knowledge of the process.

From my personal experience, investing in experinced professional staff to deal directly with the appraisers and clients has been the best investment i have ever made. Someone with first hand experince on the front end can talk to someone differently then a someone who is just working in a call center. This business is not a call center business or an automated business and it never will be.

At the end of the day someone is still going to have to inspect the property, write up the report, select comparables, revise the report and finish it. Due to all the steps involved you are constantly going to need someone on the back end pushing the orders through. This is where an experinced staff is going to pay divendeds. They are organized, professional, understanding, demanding and simply more effective. Now i am all for automation however there is a difference between leveraging technology to have talented, experienced employees be more effect and using technology to try and make an unexperienced, lazy person effective. The second is exactly what most companies are attempting and falling to do.


As a mortgage lender you have every right to hold your appraisal company to a high standard.

So what should you expect?

1. You should expect the borrower to be contacted within 48 hours of the order being place.

2. You should expect a same day response from the management company and follow-up calls until you get what you need done.

3. The appraisal turnaround from initial order to receipt of final report to be in the 5 -10 day range. Anything significantly more should be questioned.

4. You should expect a goto person that you can be in constant contact with and that knows what's going on with your files. (Having notes in the file is not enough as there is no action being taken with the looking up the file)

5. You should expect your appraisals reviewed and checked for quality. A good AMC will ensure the value is not to low but also not to high. There aim should be market value and they should communicate that to you on the front end and explain how they do business.

If an AMC can provide that above for you. You are in good hands and stick with them.

TAVMA Pushes Back on NAMB HVCC Claims

PITTSBURGH (June 30, 2009) – The Title/Appraisal Vendor Management Association (TAVMA) has sent a 3-page letter to the National Association of Mortgage Brokers (NAMB) to protest that organization’s “inaccuracies and mischaracterizations of appraisal management companies (AMCs)” in what TAVMA calls an effort to undermine the HVCC.

“Everyone in the industry knows there were serious problems with the collateral valuation part of the business,” said Jeff Schurman, TAVMA executive director. “Maintaining an arms-length relationship between the loan originator and appraiser is the centerpiece of the HVCC. To characterize AMCs as the centerpiece of the Code is simply false.”

While Schurman admits that the HVCC is not perfect in that it upends long-standing appraiser/client relationships, he said that attacks levied against AMCs are baseless. These organizations ensure an arms-length transaction between loan officers and appraisers. They are the best way to assure an arms-length relationship between appraisers and their clients.

“AMCs are not the problem and there is no tangible data to suggest that they are,” Schurman wrote in the letter. “The NYAG, Fannie Mae, and Freddie Mac determined that loan originators, including mortgage brokers, whose compensation depends upon the loan closing, were exerting improper influence on appraisers’ work. Moreover, appraisers themselves vehemently accused loan originators and mortgage brokers of exerting improper influence.”

In its letter, TAVMA calls the NAMB’s efforts a “smear campaign” and asked NAMB to take its grievances with the Code to its authors, the GSEs and the Attorney General of New York. A number of politicians were copied on the letter, including Barney Frank, Paul Kanjorski, Christopher Dodd and New York Attorney General Andrew Cuomo.

About TAVMA
Headquartered in Pittsburgh, The Title/Appraisal Vendor Management Association (TAVMA), is a non-profit professional organization that represents more than 50 companies engaged in the real estate settlement services industry. TAVMA promotes the vendor management industry and presents its members’ positions to government and media, protects its members’ rights to do business without unfair and anticompetitive legislation and regulations and provides useful information about issues impacting the real estate settlement services industry. For more information about the organization, visit the website at www.tavma.org.



Editor’s Note: For a copy of the original letter, contact Jeff Schurman at 412-849-1261, or go to http://www.tavma.org/index.php?option=com_content&task=view&id=184&Itemid=30

HVCC Compliance and Non - Influence Certificate

The mandate by Fannie and Freddie for HVCC Compliance has caused the appraisal and lending industry to make some major changes to the way they do business. One of the most important aspects in ensuring the appraisal was done in compliance with the HVCC is that no influence of value was place on the appraiser who inspected the property and the appraisal was ordered through and delivered from the correct management company.

One way to ensure authenticity of the appraisal and compliance with the code is to have the national vendor attach an HVCC Compliance Certificate to the appraisal to guarantee it was delivered from the appropriate vendor and the appraisal was done in full compliance with the HVCC.

Fannie Mae and Freddie Mac clearly state the responsibility of assuring the appraisal was done in compliance with the HVCC falls 100% on the lender. However the majority of lenders are looking for a little assistance with the ensuring the appraisal was delivered in compliance with HVCC for the loan file. The HVCC Compliance and Non-Influence Certificate can be one way of achieving this. The certificate can be placed in the reps and warrants and attach to the loan file as a guarantee that the appraisal is fully compliant with the HVCC.

So what should an HVCC Compliant certificate include?

Things to remember: This should be a custom certificate that is specifically for the property and borrower, a standard "stamp" certificate is not a sufficient security measure.

1. The borrowers name, address and date of the appraisal.
2. A unique original key code that is specific to that compliance certificate. Similar to a what you use to register new software on a computer.
3.A link to the original appraisal that is on the vendors website. This will assure you have a copy of the original unaltered appraisal directly from the vendor.
4. Link to a copy of the original request that was sent to the appraiser.Having a copy of the request that the appraiser was sent will be proof that no pressure to "hit the number" was put on the appraiser and that truly no influence occurred.
5. Copy of the e-mail log from the appraisers office. This will allow the underwriter, compliance coordinator and investors to see the communication back and forth from the appraiser and assure there is no undo influence on the appraiser to hit the number or threats to get a higher value.


The above is a starting point for most companies as to what to look for in an HVCC Compliance Certificate. If you would like to see a copy of ours. Please e-mail bcoester@coesterappraisals.com and I will send you one.

HVCC Compliance - Top 5 must for a headache free solution

HVCC Compliance is causing major headaches and massive delays within the industry. Currently the industry is scrambling for a headache free solution which will enable them to get the best possible service and for the client and the customer to be satisfied with the overall transaction. Currently there are very few companies which offer a totally HVCC Compliance solution that meets any reasonable customer service expectations.

As always its not just about getting the appraisal done but "how" the appraisal gets done is just as important as the appraisal document itself. Most borrowers and loan officers aren't in total illusion to the market and most understand that property values are declining and that the majority of homeowners owe more than there home is worth. What they don't understand is why it takes so long to get the appraisal scheduled, inspected and final report delivered. Another compliant throughout the industry is that if the appraisal is going to take as long as it does why does the appraisal have errors and seems as if the appraisal was just "thrown" together. These are valid concerns as typically once the appraisal is ordered its pretty much a done deal if the value is sufficient to support a loan.

Back to Basics

Its essentially about communication,attention to detail,service and pull through. Everyone claims they have the best customer service, the latest technology and the most experience. But where they drop the ball is the effectiveness in which these processes relate to each other and how they leverage these technologies and process to enable a better overall deliver and a quality product done in a timely and professional manner.

So what is are the 5 must for a headache free compliance solution?

1. Its not in the size of the company but in the relationships with the vendors that make the difference. Look for a company that has truly established relationships with vendors throughout the nation that can get your appraisals done fast and correctly. Without the relationships you have nothing,its really that simple. An appraisal company could have a staff of 50,000 customer service representatives but if the appraiser thinks the person is not knowledgeable about the business and is just a CSR in a call center making a routine call you can forget about the vendor wanting to deliver and preform.

2. Vendor Fees - A company that will pay the appraiser a reasonable fee for there work will not only have better vendor relations but much better appraisals and apprasiers on there fee panel. Regardless of what USPAP requires and standard underwriter requirements. The cheaper the appraiser the worse the quality of the work will be. Having minimum's for vendor payment as well as a clear pricing structure will ensure that when things do get busy all of your work isn't pushed to the side in replace of higher paying FHA or attorney work.

3. Experienced Staff is just as important as the appraiser doing the appraisal the reason is simple, respect. Having staff who are in contact with the vendor who are experienced, knowledgeable, organized and proactive will make sure the vendor understands that this is serious business and that we are in no position to try and pull anything or slack off because these guys are pros. We often get complements from our lenders and appraisers that when someone has a question there is always someone in our office who knows the answer or can get the answer very easily. This will incentive the appraiser to do a better job but also the lender will truly feel as if they have a person and a company they can rely on.

4. Team focused account management - As they say when you chase two rabbits you lose both. This goes for the appraisal world just as much. A typical appraisal requires a minimum of 30 - 45 minutes of hands on work. Some more complex propeties might take up to a 8 hours of work one on one with the vendor. This can be collecting payment, assigning the appraisal, scheduling the appraisal, checking on the stauts, communicating revisions, review, invoicing and final delivery. All clients have a different way of doing things and a different way there account should be managed. Without having a designated team to manage the account things will slip up and slip up fast. The reason is simple, focus and extreme focus is what is needed for properly managing the appraisal process from start to finish.

5. A written, signeed, service level agreement. A document outlying the entire process, expectations, assignment, delivery, billing, QC, review, turnaround, vendors, customer service and pull through is vital to a win-win relationship. This is one of our main focuses when starting with a new customer. Hammering out the details will let the customers really figure out what they want but also assist you in managing your expectations to what good service really is and what the default resolution procedures should be for the account management process.

All of these are very important and focusing on the above 5 when choosing a vendor to work will enable your company to be successful.

Coester Appraisal Group in route to 2009 America Credit Uniion National Association

Coester Appraisal Group, goes to BOSTON!!

The Hynes Convention center is the hose to the annual CUNA conference held in the historic town of Boston, MA. Coester Appraisal Group will be attending in our continual effort to service our clients to the best of our ability. Newly appointed National Sales Director, Brian King will also be in attendance and we both are looking forward to a great trip, meeting with some great clients and seeing the great historic city. Please look for updates and photos soon.

Brian King named National Sales Director of Coester Appraisal Group

The hard working dedicated team at Coester Appraisal Group would like to welcome Brian king to the team. Brian, is a seasoned veteran with over 18 years of experience in the industry and brings a wealth of knowledge and insight on the industry. Brian will be acting as our national sales director and ensuring our clients get the best service possible.

He has extensive knowledge in Prime, Alt-A and Sub Prime product sales, design, implementation, performance, profitability and liquidity analysis. He has over twelve years specializing in risk management and product development. Brian was the Vice President of Correspondent Lending for Emax Financial Group. His primary role was to develop the conduit platform to purchase non-prime assets from originators nationwide. Brian also worked as Manager of Credit Analysis for Luminent Mortgage Capital. He was responsible for credit decisions surrounding new investments for the REIT as well as surveillance on Luminent's credit sensitive bond portfolio. From 1991-2006, Mr. King was employed with PHH Mortgage where he held various management positions in trading and product development. He was responsible for trading, deal management, daily pricing, loan sales and pipeline management for well over 65 "Specialty" products including Alt-A, Sub Prime, Agency and Bond/Community Lending. Brian's understanding of the whole transaction will ensure that our client’s expectations are always exceeded

If you need to contact Brian he can be reached at 888-485-1999 ext 2 or at bking@coesterappraisals.com.

HVCC Compliance

The importance of properly understanding HVCC compliance is more important now then ever before. By understanding what it takes to effectively manage the appraisal process will empower you to make an educated decision regarding your appraisal needs and your HVCC Complian solution.

There are multiple way to become compliant but ultimately it comes down to just two. Either you:
1. Handle HVCC Compliance internally or
2. You outsource the process to a third party vendor.

Answering this questions of what to do really depends on your business model. Also what your goal as a company is should be considered heavily.If your a small bank completing loans in only one or two states with relatively low volume (50 or less)it might be feasible to keep the compliance process in house. However once you get into multiple states with multiple offices and a larger volume hiring a third party vendors becomes the best option by far.

The reason is simple, experience and money.

To efficetively manage an office moving 100 or more units per months its going to take a team of at least three people. Two admin and I staff apprasier for Quality Control. These three people alone would cost upwards of $200,000 as an expense to the company.

A third party vendor could handle the exact same thing for no cost. Also by hiring a third party company it allows you to not only get a HVCC Compliant solution at no cost but also enable the spirit of compeition among vendors and customer service.

From what I have experinced and the industry leaders I am in contact with the third party management company is the best option for most companies. The appraisal process is a very involved process and hiring a professional third party firm to manage the process is extremely effective way and the best way.

Our clients love working with us because they know that we are experinced, responsive and timely. Having a go-to company with a strong realtionship is not only vital to your sucess as a company but to the sucess of your loan officers and your customers.

Best Pratices for Working with an AMC

Obviously the HVCC has caused a major impact to the mortgage industry. An entire industry is dealing with a new workflow and delivery process and people are still getting adjusted to the changes. From what was once just a simple vendor management (block and tackle) operational procedure, now is much more complicated as people deal with multiple offices, various delivery requirements, rapidly changing legislation and on top a distressed market.

There are various options that a lender can choose to be compliant with the HVCC. One of these being hiring a third party appraisal management company to facilitate the process and ensure HVCC compliance.

There is no best option, but only an option that fits your companies needs the best.

Depending on what type of business model you have will determine the best solution for you and your business. Banks, correspondent’s, mortgage bankers or wholesale lender involved in TPO business all have various compliance needs and requirements. To effectively manage the appraisal process they must work hand and hand with the appraisal management companies to ensure a quality delivery process.

What your business model is will help determine what type of solutions an AMC will offer you. This will also determine the scope of work necessary to commence commerce.

If you do decided to use and AMC understanding what they are is extremely important to an effective relationship.

So what is an AMC?

An AMC typically doesn't do the appraisal, but rather finds the best appraiser to complete the appraisal for the transaction. They establish relationships with vendors nationally and are able to ensure a quality products delivered timely. For some companies they might even manage a panel of appraisers and assign orders on a random or rotating basis working from a list.


What an appraisal management company does is manage the valuation process for you.


Things to remember:
They aren’t the appraisers, nor do they always have access to all of the information the local appraiser have.

Many offer a variety of products such as AVM’s, BPO’s, Review, and other various services that should be taken advantage of.

What are the best practices to work with an AMC?

CRITICAL SUCCESS FACTORS:

From our clients relationships we have found the more time invested upfront will enable a better overall relationship and better fulfillment from both companies.

Outlying exactly what is expected and what is required is best for both business relationships. Having a service level agreement outlying the entire process from start to finish is vital to a establishing a win-win relationship that will last.

Problems, and major problems will occur and having procedures in place to prevent thing is extremely important to long term success.

Things to consider, and that must be addressed:
1. Review & QC Procedures
• Helping the AMC with what you require and expect for appraisal quality is important if you expect the AMC to perform to your standards. Thinking they will “know what to do” is not a good approach as different clients have very different management processes and procedures and by letting them do what they want and what is expected is extremely important.

2. Panel Management
• Other than just simply appraisals most AMC’s will offer some appraiser panel management specifically for your company. Managing your Approved or “do not use” vendors and ensuring the appraisals are sent or not sent is something you should consider letting the AMC do. We handle panel management for some banks and lenders we work with, and have had great success with the process. By setting it up so you only have specific approved vendors you limit the amount of exposure your company has to dealing with, too many vendors. Also if your company requires appraisers with specific qualification criteria or appraisals written in a certain way this will aide in the process of ensuring all appraisals are done right the first time.

3. Escalading and default resolution procedures
• Everyone knows problems will occur and having a procedure in place for addressing these issues beforehand is critical for a long term working relationship. Just as simple as what to do when the appraiser doesn’t show up, or if they feel the value is way too low or the appraiser goes MIA is extremely important to have. By having these procedures in place it will ensure that rather than just pointing figures at each other steps are taken to resolve the issue and continue commerce.

4. Compliance and reporting procedures
• Staying in compliance with the HVCC is a must for all Fannie Mar and Freddie Mac sellers and knowing that the AMC is responsible for and what your responsible for is extremely important. Most AMC’s will include a “compliance certificate” on all appraisals. This is not the same certification of compliance you as a lender will have to provide to Fannie Mae and Freddie Mac, but more to ensure the report ordered is completed by an appropriate vendor and not someone impersonating the vendor.

5. Delivery Process
• There are various web portals that can handle the delivery process for lenders. Companies like GlobalDMS, AppraisalPort, and Real EC all offer compliant delivery process for lenders to manage multiple national vendors all with a customizable delivery process.

6. Borrower Delivery
• The borrower is now required to get a copy of the appraisal 3 days after completion which means that someone is going to be responsible for delivering the report to them. E-mail is usually the best way and providing the AMC with the e-mail address of the borrower is extremely important. Yes and AMC can call and get it however some AMC’s process 100’s of orders per day and calling all of the borrowers as well as ensuring delivery can be near impossible if the representative of the company is trying to track down a borrower to get an e-mail address.

7. Secondary review and QC procedures.
• After the initial appraisal is done typically its not a one and done process. Underwriters will have conditions and questions and having an expected turnaround as well as “best effort” procedure In place is extremely important.

8. Billing Arrangements
• This is probably the single most preventive delaying process of all. Having the loan officer collect payment from the borrower or a charge card number before the actual appraisal is scheduled or ordered is a huge time saver. Many often appraisals get delayed several days or even weeks trying to collect payment from the borrower.

9. Certificate of compliance.
• Even though Fannie and Freddie require the lender to ultimately be compliant with the HVCC. A lender involved in TPO business has appraisals coming from multiple channels and sometimes it can hard to say who the appraisal was from really. We have had issues with people saying the appraisal was done by Coester Appraisal Group however we did not do the appraisal they just put an invoice with our name on it. We issue a certificate of compliance on all of our appraisals. This allows a security measure in place that you know the appraisal was done by us.


From an appraisers prospective:

Allot of appraisers think that all an AMC wants is an appraiser that will do an appraisal for peanuts. This may be true with some companies however the majority are looking to pay an appraiser a fair fee for their work and just want a quality appraisal done right in a professional timely manner.

Critical Success Factors;

1. Communication
2. Updating the web and online portals daily
3. Being reasonable with the fees
4. Thinking win - win for a relationship
5. Responding to conditions and revisions quickly and thoroughly.


The ideal vendor

Someone who will deliver on their promises, and not flake out. Be a "go to person" for the company. We all want the same thing, to make money and work with great people. The better the relationship and product, the more work you will receive. It’s not about being on "the list" we have 22,000 vendors on our list we only use maybe 1,000 on a regular basis. We get over 100 calls a day from appraisers looking for work but very few that are looking to do business together with a win-win relationship in mind.

HVCC and the Secondary Market

The Home Valuation Code of Conduct as talked about many times on this site and many others has brought many changes to the mortgage industry more so than any regulation in the valuation of real estate history. However one topic that has been mentioned very little or from what I have read not mentioned at all. Is the impact the HVCC is going to bring to the secondary market or MBS market over the next few months and years.

Currently there is no secondary market. The world has lost faith in U.S. real estate and has turned a blind eye to the GSE's Fannie and Freddie. Without the Treasury purchasing Mortgage Back Securities the entire economy would be in an even bigger disaster.

There are many reason the world has lost faith in the United States real estate. One obviously being the inflated values being put on homes and the market now being in a major slum.

One of the most vital pieces of the secondary market puzzle is the integrity of the collateral or the value. The accuracy in which a property is valued is the most important aspect of the security and without faith in the value the security has nothing. In the whole loan market the collateral is everything!!

So what will the HVCC do to the secondary market?

With the removal of pressure to "hit the numbers" on appraisals you are going to see lower appraisal values. This is not because the appraiser was throwing the value in the first place, but because there is a gray area on appraisals and typically most appraisers will go on the high end of the gray area to the "highest justifiable value" to make the deal work or appease the client. Now with no estimated value and that influenced removed you are going to see a lower value of about 3- 7% on appraisals across the board.

This will no doubt kill some deals however the deals that are made will be cleaner and will hold much better pricing.

These cleaner numbers will allow the mortgage banker to put more weight on the collateral for pricing when the loan is sold. This will not only allow more deal flow but also limit exposure to buy backs which will allow a more agressive stance to warehouse lines.

When the loans are sold the appraised value will more than likely be in line with the secondary market valuation whether BPO, Drive-By or AVM.

Once the world realizes the U.S. Real Estate market is trustworthy again your going to see the 1,000's of global investors on the sidelines start to invest in the U.S. Real estate again.

This is obviously going to take some time however the move is already slowly happening. You are seeing more and more companies proactively approaching the code as this was something long time coming and needed to be done.

Although I still do believe the code will be modified the spirit will remain the same and the world will once again believe in the United States real estate.

Impact of the HVCC

The Home Valuation Code of Conduct is no doubt in full effect. Now the question is... what is going to happen? it seems that the majority of lenders and banks are not ready for the switch as most are still scambling around. We are still in talks with major lenders that are simply not ready for the switch and did not take the requirements as serious as it is.

For a lender it is a major workflow prcoess as well as a logisticaly nightmare for delivery, review and payment process. If they are doing any sort of TPO business you can just imagine where there they are.

The issue is not that it can not be done its just something that should be phased in over a months, NOT OVERNIGHT.

For us to get properly set-up with a lender and workout all the details about delivery, review, billing, reporting, and reporting standards takes about a week.Its relatively easy to do but does require some work and to get everything in the open so everyones compfortable with the new process a few days of test runs and were off to the races.

Problems occur when this is phased in overnight and the lender doesnt communicate the set-up and were kind of bootstrapping the entire process.

This causes problems with payment, scheduling, delivery and review and can delay the appraisal process several days. What usually happens is the lender finally see whats going on and steps in to have the meeting that we asked for while getting this set-up and everything smoothes over.

The Home Valuation Code of Conduct is a great step in the right direction for the industry and will bring a much needed change in the industry. Thinking back to the way things use to be,the idea of having the person who is lending the money be responsible for selecting the person valuing the collateral is common sense and should have been implemented long ago.



This is not to say that the current Mortgage Meltdown would have not still occured however, at least the intergrity of the collateral would have been assured.

So what are the best practices to work with an AMC?

1. Remember an appraisal management companies is exactly that, an appraisal management companies, there not the appraisers inspecting the property and writing up the report. There in the business of finding the best appraiser for the job and to manage the process for you. From order, inspection, review, and final delivery.

Have 150 properties throughout the nation that all need to be done in a week? Then an appraisal management company is the right move for you. A good one will be able to get all of them assigned, scheduled and delivered in 5-10 days.

2. Be proactive, the more you work with them, the more they will work with you.
As you are well aware of the appraisal process is something that is not the easiest thing in the world and anything you can do to assist the process will ensure a better delivery and a better product.

- Some tips
a. Tell the borrower someone will be calling for the management company to collect payment for the appraisal, or better yet collect the credit card information from the client and send it with the request. This alone will save at least a day or two of calling the borrower and trying to collect payment before the apprasier comes out.

b. Please enter ALL of the contacts information. Have an e-mail address? We will take it. Additional contact information? We will take it please.

c. Utilize the online portals to order the appraisal. This sounds like a no brainier but you will be surprised. A management company might process 30 - 500 orders per day and manually entering orders is tedious and very time consuming. Not to mention that orders can get easily lost and this can take several days to correct.

d. Be Patient, patience is a virtue and managing your expectations is one of the most important things for you to do. Most companies will do everything in there power to get your appraisal done as fast as possible. Sometimes there back is against the wall.


3. The more time invested in the process, the better the process. From our experience, the more time we invest in figuring out exactly what a client needs, the better the results. By nature conflicts will occur and having things worked out before hand as to what happens when the value comes in way low, or the borrower doesn't pay or the 100's of other things that may occurs is essential to enabling a working relationship. Whenever problems occur having a process in place and open communication for a resolution is crucial.

4. Remember this is not the same as your appraiser doing the appraisal, its better. The valuation of the collateral is one of the most important things in the entire process. Without an accurate valuation the integrity of the entire loan file is compromised. This will severely affect pricing on the secondary market and also affect the quality of loans sold and essentially the MBS market as a whole. An appraisal management company will ensure that no influence of value is placed on the appraisal, they will conduct an internal review of the appraisal for quality and consistency to ensure the value is not to high nor to low, but the most "probable" value. They will manage, pay and filter hundreds and even thousands of appraisers to search out and find the best appraisers for you and your business.