LenderNews by Rob Chrisman
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Sep. 24: Notes from appraisers and AMCs – how many retire every year? Should real estate agents read agency appraisal guidelines?

September 24, 2016

Another reason to avoid social media…The magazine Wired reports hackers have found a way to trick facial recognition logins using photos from Facebook and 3D rendering. Oh, and passwords? They’re worthless if someone really wants to get into your computer. Between this and the election, maybe it is time to stock up on beans and rice, guns and ammo, gold bullion and drinking water, and go off the grid…
 
Lenders are saying that appraisals have backed up their flow worse than a dog’s innards after eating a block of cheese. But appraisers, and those related to them, have their own tale to tell.
 
“I really enjoyed reading all these comments. I have been married to an appraiser for 35 years, he has had his own company for decades now. You can imagine all the stuff he has been through. He is college educated, state certified and keeps all his educational requirements current. He took a 50% pay cut with the onset of AMCs a few years back, ironically it was to keep the loan officers from ‘arm twisting’ all it really did was transfer the arm twisting to the AMC.
 
“Appraisals have gone from 3 comps and outside photos to an average report of about 40 pages, interior photos, 6 comps, listings and appraisers still fielding questions from underwriters and reviewers. All appraisers are ‘graded’ by their customers as well. If you miss something minor, you are downgraded and your earning potential can suffer. In addition to all the hoops appraisers have had to jump through (because the financial crisis was their fault, they should have known a downturn in values was coming, right?), he pays unbelievable E&O rates even though in 30 years has never been sued once, never been on FNMA or FHLMC’s black list. There are still good upstanding appraisers out there, ones that just take the amount of work they can turn in a reasonable time frame and for a reasonable fee.”
 
And Sam Heskel, president of AMC Nadlan Valuation in Brooklyn writes: With regard to your recent mention of increased appraisal turn-times and costs… turn-times for appraisals in many areas have certainly increased, but I think it’s mainly due to the booming real estate and mortgage markets as opposed to TRID. Add to that the fact that quite a few appraisers have left the business and aren’t being replaced, and it’s easy to see why turn-times and fees are increasing. Colorado is experiencing a real slowdown in appraisal turn-times, as are parts of New England. We’re seeing delays and increased fees in a few counties in Massachusetts, Northern New Hampshire and Maine.
 
“Lenders and brokers are understandably getting upset when it can take two weeks or more to get the appraisal back. Appraisers have more than enough work, and many are asking for higher fees in order to accept the work and turn it around in a timely fashion. What’s the solution? At Nadlan we’re recruiting more appraisers and we’ve hired more back office staff to manage and follow up with appraisers. In today’s busy market, appraisers are taking three or four days to simply give an answer on whether they will accept or turn down an appraisal job. Our back office personnel are aggressively following up with appraisers to find out whether they will accept the appraisal, and if so, what their turn-time is. In some cases, appraisers are asking for an extra $50 or $60 to turn an appraisal around promptly.”
 
Joe Bryant, President of Triserv Appraisal Management Solutions, sent, “There’s obviously been a lot of discussion recently around appraisals and appraisal turn times. I recently published an article on this subject. With loan volume as high as it was in 2007 and with approximately 30% less appraisers now than then, we have a perfect storm. There’s tons of agitation in the market as borrowers, Realtors and LOs are going crazy for the extended turn times. That’s a natural reaction…. on the face of it. Regardless of whether the AMC industry exists or not, however, we’ve had a fundamental paradigm shift on the appraisal side and I don’t see any significant changes in the intermediate term at best. 34 years on the lending side, with several years being COO of two top-5 lenders, I’ve always been a big believer in ‘managing expectations.’ LOs and real estate agents are jumping up and down and screaming about turn times. When faced with a daily barrage of comments and complaints about turn times on orders I try to provide some information under another one of my favorite idioms – ‘facts are our friends.’ Turn times are what they are. LOs and agents in many, many markets are going to have to understand that a 30-day closing is a thing of the past. Over, done with. Current turn times are running from 5-6 weeks in Washington and Oregon to 5 weeks in Colorado to three weeks in many parts of the country. It’s Economics 101: supply and demand.”
 
Joe’s note wrapped up with, “Obviously something needs to be done on the appraiser licensing side.  Its’ crazy how long it takes to become a licensed or Certified appraiser.  The education requirements are off the charts. Think about this: in 2007 there were 1057 apprentice appraisers in Illinois. January 1 of this year there were 53. Every year 3%-4% of the appraiser population retires or turns in their license. It’s a trend that’s going to continue until something is done. The only thing we can count on right now it that appraisers are making more money now than they ever have. The dearth of new entrants into the market might start changing fairly quickly as smart young people figure out that a career making significant income compares to many, many other jobs is the way to go.”
 
Certainly expectations should be set up front, and aren’t, whether it is the real estate agent or the LO not telling the borrower the current time frames. The latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey reports that, “The share of home purchases that close on time has declined significantly in recent months with many real estate agents pointing to delays caused by slow appraisals.” But what is “on time” and are LOs afraid of losing the deal by giving realistic time expectations up front?
 
“Just before the start of the spring home buying season, the on-time share of closings was at high levels for mortgage-financed home purchases. Some 76.6% of purchases in April with a low down payment mortgage guaranteed by Fannie Mae or Freddie Mac closed on time, based on a three-month moving average. The on-time closing share has declined for four consecutive months for Fannie/Freddie mortgages with private mortgage insurance, hitting 63.6% in August.
 
“Other loan types have shown similar trends. In August, 59.2% of home purchases with an FHA mortgage closed on time, down from a 65.6% share in April.
 
“Tom Popik, research director for Campbell Surveys, noted that…appraisal issues account for a growing share of closing delays. Appraisal issues caused 10.7% of delayed closings in April. In August, appraisal-related issues that prompted delayed closings of home purchases increased by nearly 50% to a 15.6% share.” Heck, according to this survey that means 85% of delayed closings are caused by something else.
 
“Cash transactions, which are less reliant on appraisals to close, haven’t seen the same trends in missed closings that mortgage-financed homebuyers have experienced. Some 79.1% of cash transactions closed on time in August, up from a 77.2% share in April.”
 
Blame a large inventory under contract and a lack of appraisers. “When closings were delayed, Fannie/Freddie mortgages with private mortgage insurance faced 17.0 extra days to close in August, on average, and FHA mortgages took an extra 18.6 days to close, on average.”
 
And this from an Arizona appraiser. “We have deadlines that many times are not reasonable in this environment, at the mercy of the borrower’s time schedule, and may have only one or two days before the report is due after inspection. Normally, you would think that is reasonable, but when you have ten to twenty appraisals on your desk and you have to go out on inspections all day and then come back and write reports, it can take longer to sit down and get to the report that you inspected two days ago. 
 
“We also come into situations where the property is not what we anticipated, meaning more complex and still are expected to turn the report in on the due date. If we do not, then we are seen as being untimely and there is more pressure. We have to keep our clients happy in order to keep their business but are barraged with emails telling us to update the system for every step of the process. For example, I can get an appraisal order at 10AM on Monday and will receive an email or call as to the status the same day. I will set the appointment and get another email on the status before the appointment is even performed. I then get an email within an hour (one client sends an email one hour before I have inspected the house. They are on a different time zone and fail to note that I am in Arizona) to update them as to inspection and when the report will be in.
 
I receive phone calls and emails all day long on status. I spend more time updating status when I could be writing a report. I will even get phone calls as early as 7AM and as late as 8PM to update or ask me to do another appraisal. I work from as early as 4AM and finish up at about 8-10PM. I do not have a lunch break and work 7 days per week. You can suggest that I take less work.  I have tried, but will get phone calls pushing me to do more work.  
 
“Furthermore, with these time constraints it is almost impossible to have an error-free report. We do not have time to really scrutinize every item in the report. We also get ridiculous clarification requests, such as commenting on the distance of a school over a mile from the house, on the health and safety of swimming pools, and on items that have no relation to value. The FHA wants us to crawl around the attic area of houses in 110 degrees, and lenders are attempting to make us home inspectors.  They want to place the liability on us.
 
“Finally, the most important issue is complaints. We are constantly on guard for real estate agents and home owners who believe they know more about appraisals than ourselves. I perform in depth review of over 40-50 houses per month, have performed appraisals since 2001, and yet I am questioned constantly. I have a four-year accounting degree and had my CPA. I would think I would be somewhat credible over a home owner or agent who does not analyze houses to the degree of an appraisal.
 
Real estate agents many times give us comparables that are not even remotely comparable and expect us to value the house at what they want. They are not working for their clients. If they are on the buyers’ side I believe they should be as accountable as an appraiser. We are always worried of receiving a complaint when we do not ‘come to value.’ I had an agent give me comparables that were in PUDs when the subject was an infill with no HOA. She then gave me a house 13 miles away on an acre lot with septic and well water to compare to the subject which is a 10,000 sf lot in an area with water and city water. This an example of the ridiculous data we are given. We then have to address it so to try to avoid a complaint. 
 
I would like to see real estate agents take an appraisal class and read over Fannie Mae guidelines. Most agent I come across have no idea what Fannie Mae guidelines include. I hate to say it but most agents in Arizona are un educated to semi educated buffoons. I realize that is a disparaging remark, but reflects the quality of people I have met over the years. Many have no formal education and if they do, it was not in finance. I met an agent who was a landscaper turned agent that was selling million dollar houses during the boom. I think he may be in jail now as he did some things that were unscrupulous. I will end here, hoping I have given you a small glimpse into our lives. You can maybe understand why no person in their right mind would enter this field. Too much liability and stress.”
 
 
On military rank…
During training exercises, the Lieutenant was driving down a muddy back road when he encountered another car stuck in the mud, with a red-faced Colonel at the wheel.
"Your jeep stuck, sir?" asked the Lieutenant as he pulled alongside.
"Nope," replied the Colonel, coming over and handing him the keys, "Yours is!"
 
 
If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “The Fed’s QE: Help or Hindrance to Lending?” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.
Rob
 
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