HR 3044 18 Month Moratorium On HVCC WILL NOT Cure The "Low Appraisal" Disease

[Bill Cobb]

http://www.realestateappraisertips.info/ - HR 3044 18 Month Moratorium On HVCC WILL NOT Cure The "Low Appraisal" Disease Issue

I'm reading this morning from the Mortgage New Daily Email about "HR 3044: To Impose 18-month Moratorium on HVCC". The reasons given for the moratorium are these below as directly quoted:

"In the period of time since its implementation, the HVCC has increased costs to consumers and decreased the quality of appraisals and has provided a level of uncertainty in an ailing housing market. Tens of thousands of consumers have already been robbed of their opportunity to enjoy historically low rates by Attorney General Andrew Cuomo's rule."

However, according to the media generated buzz, the outcry in the past 3 weeks hasn't been so much been about HVCC but the media issue of "Low Appraisals". Just look at these recent headlines:

Bloomberg: Home-Price Recovery May Be Undermined by Appraisals

Christian Science Monitor: Are low appraisals slowing US home sales?

CNN Money: Appraisers wrecking builder sales?

The Tennessean: Low appraisals nip real estate deals

Steamboat Pilot, CO: Appraisal rules wreck real estate deals

and my favorite of all:

Joe Weisenthal: The NAR's Appalling Fight Against Honest Appraisals

Yes, it's true that if the Appraisal Management Companies (AMC) are sending appraisers from 2 hours away to perform an appraisal on a home just because they must use appraisers from a rotating roster, an appraiser that doesn't know the market in the subject's neighborhood, then that's a problem and could result in a "low appraisal". However, wouldn't the interpretation of if an appraisal is "low" or not be based on "market expectation"? And, couldn't the expectation by the seller, buyer, agent and lender be unrealistic in so many of the declining markets across the U.S.? Absolutely!

I like Ben Goheen's response to the irresponsible comments NAR's Chief Economist, Lawrence Yun, made this past week blaming appraisers for the lack of a housing recovery, and I quote:

"Mr. Yun is now insisting that appraisers ignore market conditions so houses can sell – isn’t that convenient?

Since every market is local, nobody can rightfully make generalizations about how foreclosures should or shouldn’t be used as comparables in an appraisal. They may be inconvenient, but they are real and often can’t just be ignored. As a Realtor you just have to be aware how they effect your market when writing an offer."

An 18 Month Moratorium WILL NOT make the Fannie Mae 1004MC Addendum disappear - the 1004 MC is the chief determiner of housing "sub-market" direction and quantification. An 18 Month Moratorium WILL NOT keep appraisers from interpreting housing markets properly. An 18 Month Moratorium WILL NOT all of a sudden give appraisers a set of rose-colored glasses to view their local housing markets. An 18 Month Moratorium WILL NOT keep appraisers from applying "declining markets adjustments" when they are obviously evident and provable by a simple MLS chart. An 18 Month Moratorium WILL NOT keep appraisers from applying the mandated "listing-to-sales-price-ratio" to the 3 current listings they are now required to use in their reports. No, an 18 Month Moratorium WILL NOT keep appraisers from obiding by USPAP, lender guidelines, general appraiser liability issues and/or erase common sense. When an appraiser studies a housing "sub-market" and sees a chart like this below, the appraiser has to do what they have to do - apply declining markets adjustments if warranted.

Bill Cobb is a Louisiana State Certified Residential Appraiser operating as Accurate Valuations Group in the Greater Baton Rouge Market. Bill has 17 years experience as a residential appraiser and carries on the family appraisal career tradition as a third generation appraiser. To learn more about AVG, visit: http://www.batonrougerealestateappraisers.net/


BY THE WAY, I KNOW THAT "LOW APPRAISALS" ARE A MYTH.......BILL

[Mark Lindsay]

I would agree HR 3044 would not do much to address the Realtor's concerns. The issue here again comes back to the appraisal profession and the need to maintain public trust. All the regulations and requirements that are set forth for appraisers are designed to lead us to "a credible opinion of value" that is well supported in the appraisal.

The 1004MC is a starting point for the analysis that a reasonably competent appraiser can use to illustrate a value trend and a set of market conditions, but there are flaws in the 1004MC design and possibly only the more experienced appraisers (10+years) are skilled enough to know when the market and the 1004MC are giving mixed signals - what a reasonable alternative study of the market should look like. With historically low sales volumes mixed with distressed sales - the sales and listing data can be difficult to decipher. Does one sale make a market in a three month period? I say 10 plus years for apprraisal experience to capture several housing and economic cycles - licensees with less than 3 years have only worked since mid 2006 - nearly the peak of the market well before the major declines in most areas. So the combination of a chaotic market and a less experienced appraiser is akin to sending soldiers from boot camp to battle - its helps to have some experience and perspective.

Returning to the realtor's concerns - one solution is to have the buyers stipulate in the purchase contract that a local and experienced appraiser be used in the transaction. My suggestion is to at the minimum request an appraiser from within the county and with at least 5 years or more experience - exceptions for geography and markets of course. The lender (or its AMC) may not be under direct obligation to acknowledge the request but the suggestion is rooted in the need to carefully handle a real estate transaction. Home sales are vitally important but the higher need is for the parties involved to be experienced enough to trust each other.

[Bill Cobb]

Hi Mark,
I agree with you on the 1004MC issue and requesting on the P.A. for local experienced appraiser. Great Advice and Wisdom!!!! Thank you for helping us all to understand these issues better.
Bill

[Cynthia]

Great picture Mark!

I think the moratorium would help alot for several reasons and Mark hit several right on the head. Just at a time when appraising is more complex than I have seen it in the 18 years I have been appraising real estate agents are dealing with out of the area appraisers they have no relationship with and are often very inexperienced as often in our area we see the least experienced appraisers willing to work for the very small fees many of the larger AMC's are paying. I have local realtors I have worked with for years asking for an appraisal so they can gauge the market as they do not trust what they are getting and often for very good reasons.

Here in the Sacramento area we have inexperienced appraisers coming from San Jose with no knowledge of our area to do work (full appraisals) for $150 and often missing important factors in our market as they cannot or do not spend the time necessary to understand our markets.

Forcing the HVCC which has caused such uncertainty in our industry as there is much misinformation out there in this challenging market is creating LESS trust and confidence in our industry not more. I still believe it is ill conceived and poorly executed. Rather than the mess we currently have if the offices that are responsible for overseeing appraisers in each state were given proper staffing and better oversight we could increase trust and confidence rather than asking all parties to work blind because they are not "trusted to know each others opinion"? That is just so nuts to me. As a professional appraiser I believe we should be able to hear anothers opinion of value or other factors and still do our job competently. How can we help them to understand our reasoning if we are not allowed to even hear what theirs is? One way communication or no communication is slated to fail in any envirionment.

Let the AG of NewYork find another way to make his name so he can run for higher office.