ACTION ALERT: Call Congress About Fannie/Freddie’s Risky Appraisal Waiver Program
Freddie Mac & Fannie Mae have embarked on programs that waive appraisal requirements in first purchase and refinance transactions, using propriety models and generally unreliable data from MLSs and public records for collateral risk decision making.
According to Fannie & Freddie, this is being done to lower costs and shorten closing time for consumers. While Fannie Mae has indicated the appraisal waivers will represent only 5 percent of their loan portfolio, Freddie Mac has thus far being unwilling to provide estimates, indicating that as much as one-third of their portfolio may be offered appraisal waivers.
These programs will create unnecessary and unacceptable risks for taxpayers and homeowners, and they come at a time when markets are at all-times – when risk mitigation should be tantamount.
Congress is once again turning housing finance reform, and as they deliberate, they should hear from appraisers on why appraisal waivers are a bad idea and a risk to taxpayers.
Please click here and insert your zip code in box to retrieve the contact info for your Members of Congress, and talking points for your call.
ICAP (and 35 other industry groups) signed a Letter To The Committee on Banking, Housing and Urban Affairs Over The New Appraisal Waiver Programs
ICAP along with 35 other industry groups signed a letter to the Committee on Banking, Housing and Urban Affairs to raise concern over the new appraisal waiver programs recently implemented by Freddie Mac and Fannie Mae (the “Government Sponsored Enterprises.”)
The letter states that these programs will create unnecessary and unacceptable risks for taxpayers and homeowners, and they come at a time when markets are at all-time highs – when risk mitigation should be tantamount. The letter calls on the Federal Housing Finance Agency (FHFA) to prevent the Enterprises from implementing the appraisal waiver programs until they can demonstrate the appraisal waiver program:
- is consistent with safe and sound operation of the Enterprises;
- does not bring harm to the consumer, especially the affordable housing sector;
- is properly monitored by FHFA and tested with independent appraisals; and
- integrates proper safeguards to prevent fraud.
The letter recognizes that the Enterprises have, since 1994, been exempted from appraisal requirements established by Congress on the basis that their requirements exceeded those established by Congress and that they would continue to make responsible decisions. These new programs call this privilege into question.
Third Quarter President’s Message
By P. Barton DeLacy, SRA (among other designations)
July 7, 2017
Appraisals? They don’t need no stinkin’ appraisals!
Many of you saw Ken Harney’s syndicated column1 which ominously warned, “For Fannie and Freddie, appraisals are not always necessary.” See the link below. Harney cites quiet policy changes at both government sponsored enterprises allowing transition to “appraisal-free” mortgages. This change is intended to streamline home lending processes and save consumers time and money.
The conventional wisdom seems to be that residential appraisals have now been rendered obsolete by a buoyant market and big data. To paraphrase the bandit in Treasure of the Sierra Madre, they might as well be saying, “appraisals? We don’t need no stinkin’ appraisals!”
Renowned economist and iconoclast, the late J. Kenneth Galbreath famously railed against the term he coined, the “conventional wisdom” of things. He explained how intervening events, not so much ideas, inevitably thwarted such accepted bromides. Conventional wisdom, seen by many as mere prudence, in our context means the stifling conformity of elite opinion.
So, all of a sudden, in the elite opinion of the country’s two biggest enablers of mortgage financing, Freddie Mac and Fannie Mae, appraisals are no longer worth the cost and inconvenience to the almighty consumer.
How soon they forget. Both enterprises are charged with facilitating and expanding the U.S. housing market, and particularly so-called affordable housing. Property values, as confirmed by appraisers in the field, provide the only tangible security for this trillion-dollar industry. It was through no fault of appraisers, but irresponsible underwriting and commoditization of sub-prime rate loans that caused the housing market to collapse, not even a decade ago. But here we go again.
Today, conventional wisdom finds that big data renders the field appraiser redundant. Fannie Mae claims its database of more than 23 million appraisals, together with “proprietary analytics,” is sufficient for reliable value estimates. Of course the database of confirmed sale transactions was harvested from the reports prepared by those very same field appraisers.
Yes, in our smartphone era, Google Maps and Zillow-type services provide leverageable tools, unimaginable even a decade ago. Does this mean the residential appraisal career will disappear like the family doctor making house calls?
But, then, is today’s appraisal report just a regulated commodity – or a professional service requiring highly specialized training, experience, and most importantly, learned judgment?
A seasoned appraiser and ICAP Board member from Peoria, put it best: Valuations are opinions of value and do not lend themselves to a scientific approach. While data is important to the development of the opinion, it is not the only factor. Accurate valuation is a three-legged stool; the opinion of value is only as good as the data, experience, and reasoning used to support it. An AVM [automated valuation model] uses only data and eliminates the other two footings.
Perhaps our regulatory scheme that mandates appraisals for any lending transaction, and blames the appraiser if anything goes amiss, should be more flexible. If a lender feels an appraisal is an unnecessary expense, let her put the onus on the borrower- look to a family’s creditworthiness for collateral, for instance, rather than the property.
Valuers can appear self-serving when insisting on appraisals for every transaction. Perhaps thresholds are appropriate for low loan to value refinances. Again, the underwriting should be based more on the borrower’s ability to pay than the collateral.
As Valuers, we need to raise our profiles as professional advisors to our clients. This may mean being more selective in the work we do. Turbo-tax did not put accountants out of work. They simply pursued higher and better (and more profitable) uses of their time. Eschew the commodity box and charge for your time.
So if the conventional wisdom maintains that appraising is a dying “industry;” question the premise and add the type of extra value to your service that only the appraiser is uniquely qualified to provide.
P. Barton DeLacy, MAI, AI-GRS, CRE, FRICS
2017 ICAP President
Video: See What David S. Bunton Has To Say About ICAP
See What David S. Bunton President of The Appraisal Foundation Has to Say About The Illinois Coalition of Appraisal Professionals (ICAP).
David S. Bunton is President and serves as an Officer and a member of the Board of Trustees and has overall responsibility for the business affairs of The Appraisal Foundation.
ICAP was established in 1994 to be a unified voice for Real Estate Appraisers in Illinois.
Watch the video here
ICAP’s Collinsville Seminar Is Approved For 7 Hours Of CE in Illinois, Missouri, and Michigan (pending in Wisconsin and Indiana)
Non-Member pricing includes a pro-rated ICAP membership for the remainder of 2017.
1000 East Port Plaza Dr.
June 12, 2017
Click here to register, don’t delay…reserve your space today.
8:00am – 8:30am Registration and Continental Breakfast
8:30am – 8:45am Welcome & Introductions from 2017 ICAP President Barton DeLacy, ASA, MAI, AI-GRS, CRE, FRICS
8:45am – 9:45am Regulatory Update
Brian Weaver, Appraisal & AMC Coordinator, Illinois Department of Professional & Financial Regulation
- New CE requirement changes in the state of Illinois
- Other regulatory news
9:45am – 10:00am Morning Break
10:00am – 11:00am State of the Illinois Apartment, Office, Retail, and Industrial Markets Thomas Mason, CoStar Group
- St Louis market (focusing on Metro East) economy & demographic trends
- St Louis market (focusing on Metro East) market fundamentals (supply, demand, vacancy, rent growth) for each property type
- Sales & Investment
- Five year fundamentals forecast
11:00am – 12:00pm Economic Conditions & Agricultural Market Paul Stoddard, Ph.D,
- Farmland as an investment
- Update on ag land values
- Farm leases and economics of producing farmers
12:00pm – 1:00pm Lunch
1:00pm – 2:00pm Marketing Your Appraisal Firm in the Digital World Michael Hobbs, MAI, SRA, LEED GA, President, PahRoo Appraisal & Consultancy
- Market analysis of the clients you serve
- Highest and Best Use of your time
- Valuation process – how to monetize your digital presence
2:00pm – 3:00pm Springfield Update Shaw Decremer, ICAP Lobbyist, Shaw Decremer Consulting, LLC
- Status of ICAP bills and other bills of interest
- What we can expect in near future for these bills
- Update on process/state of Springfield and what that means for appraisers
3:00pm – 3:15pm Afternoon Break
3:15pm – 4:15pm Valuation Consulting, a Primer to Diversify your Practice Barton DeLacy, ASA, MAI, AI-GRS, CRE, FRICS, Principal, DeLacy Consulting, LLC
- Identify and discuss non-lender sources of business, particularly allied professional service firms
- Crafting a phased engagement
- Understanding when the deliverable may be something other than an “appraisal”- the emergence of Valuation Consulting
- Tracking and charging for your time
4:15pm – 4:30pm Closing remarks