NMP - September 2016 - 24

N A M B P E R S P E C T I V E What Has Gone Wrong With Appraisals? By John Councilman, CMC, CRMS SEPTEMBER 2016 n National Mortgage Professional Magazine n NationalMortgageProfessional.com 24 Recently, more and more originators are complaining that appraisals are taking a month or even two months to process. If you want an appraisal in several weeks, appraisers are charging as much as twice the normal rate. It isn't happening everywhere yet, but an ever-increasing portion of the country is experiencing an appraisal shortage for mortgages. To understand why, we cannot just send someone off to some classes and create new appraisers. We have to understand what it takes to be an appraiser. When the Savings & Loans crisis blew up in the late 1980s, Congress passed legislation that created appraisal licensing. That legislation was called the Financial Institutions Reform, Recovery and Enforcement Act of 1989 or FIRREA for short. FIRREA created an entity known as The Appraisal Foundation (TAF) and the Appraisal Subcommittee (ASC), which oversees the work of The Appraisal Foundation. TAF has two boards, the Appraisal Standards Board (ASB), that sets the standards of what is acceptable appraisal practices and the Appraisal Qualifications Board (AQB), that sets the qualifications for licensed and certified appraisers. The really weird part of all of this is that these boards have no direct power over appraisers. States still regulate appraisers, not these boards. But, states are required to create regulations that adhere to what the ASB and AQB promulgate. If they don't, the ASC has the ability to prevent FDIC institutions from lending on real estate in those states, a pretty big stick. The controversial part of all of this is the ASB and AQB are primarily composed of appraisers. Appraisers believe that their profession should be set on par, not dissimilar to CPAs, professional engineers, etc. These professions require a degree and stiff examinations. Over time, the AQB has steadily increased the requirements to become an appraiser to the point where it is somewhat difficult to enter the profession. Not only do certified appraisers need a fouryear degree and pass a tough exam, they must have an internship of 2,500 to 3,000 hours. Getting an internship or "trainee" position is difficult, if not impossible, since no appraiser wants to train a competitor. The net result of all of the qualifications currently required is a serious shortage of certified appraisers in an ever-increasing numbers of states. A third category that could act as a slight pressure valve, the Licensed Appraiser, is shut out from FHA work so they are often not included on appraisal panels. Still, a mere license requires significant education and testing and 2,000 hours of trainee work. www.nationalmortgageprofessionalmagazine.com As if the exclusionary qualifications of the AQB weren't enough, Fannie Mae and Freddie Mac were pressured into the HVCC in 2008. HVCC was forced on the government-sponsored enterprises (GSEs) by then New York Attorney General Andrew Cuomo who had close ties to an appraisal management company (AMC). The HVCC prohibited anyone in the origination side of a mortgage company from ordering, selecting, or even speaking to an appraiser. Although lenders could still create panels, the firewalls more or less forced them to use AMCs. Shortly after the HVCC went into effect, the FHA created similar appraiser independence rules. Eventually, the DoddFrank Act codified nearly all of the HVCC, giving enforcement over to the Consumer Financial Protection Bureau (CFPB). For fear of repurchasing loans that violate the appraisal independence rules, AMCs have become an engrained feature of the mortgage industry. Many appraisers complained that the pressure to over-appraise was replaced with pressure from AMCs and lenders to under-appraise. Prior to HVCC, an appraiser could have numerous sources of assignments. With the advent of HVCC and appraiser independence rules, appraisers must work for an AMC if they intend to have any volume of business. Essentially, an appraiser has less chance of having independence than prior to the prevalence of AMCs because there are fewer employers. Some AMCs are notorious for paying appraisers less than half of the appraisal fee. Appraisals that cost $250 to $350 prior to "appraisal independence" now cost borrowers $450 to $600 or more. Up to now, Fannie Mae, Freddie Mac and the FHA have not pressed a single claim of underappraising or price-gouging of consumers. The CFPB has been notoriously silent. Meanwhile, the most experienced appraisers are either retiring or doing work for entities other than AMCs. The result is what we are seeing at an alarming rate, excessive turn times and borrowers being ripped off to get an appraisal in a reasonable amount of time. As someone who was a practicing appraiser, as well as a mortgage broker prior to FIRREA, I sympathize somewhat with the appraisers. We can return the appraisal profession to an enjoyable, well-paid profession. We need to re-evaluate the use of AMCs. We need to reconsider the qualifications for appraisers, especially the Trainee issues. Regulators need to reconsider the regulations that strangle the industry and result in far greater costs to borrowers. There are many reasons the inappropriate behavior of the last decade is unlikely to happen again. Mortgage originators were not licensed and had no ethics training. There were no criminal background checks for originators or appraisers. Fannie Mae, Freddie Mac and the FHA have all instituted sophisticated automated valuation models (AVMs) that nip fraud before the appraisal is even finished. Breaking the law regarding appraisals now carries felony charges. What is NAMB doing about it? First, NAMB has an open dialog with the appraisal trade associations like The Appraisal Institute. I serve on the Appraisal Foundation Advisory Council (TAFAC) and particularly on the AQB Issues Committee. The good news is the Appraisal Foundation realizes that entry into the industry needs a relook. Wholesale lenders will be discussing appraisal issues with a top Foundation representative and AMCs at the Wholesale Summit in Las Vegas in September. You can help by joining NAMB or getting others to join so our legislative efforts are magnified. If you would like to become more involved, contact our office or come to the NAMB booth at NAMB National in Las Vegas. We need every originator on board to win battles like this one. John Councilman, CMC, CRMS of AMC Mortgage Corporation in Ft. Myers, Fla. is past president of NAMB-The Association of Mortgage Professionals. He may be reached by phone at (239) 267-2400 or e-mail JLC@AMCMortgage.com. http://www.NationalMortgageProfessional.com http://www.nationalmortgageprofessionalmagazine.com

Table of Contents for the Digital Edition of NMP - September 2016

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