See how the FED'S Work. I highly recommend this book also.
Saturday, August 29, 2009
Wednesday, August 26, 2009
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.
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.
Sunday, August 23, 2009
Sunday, August 16, 2009
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.
Saturday, August 1, 2009
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
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
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