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Reader's Rants

Editor’s Note: WRE receives many Letters to the Editor that do not fit in the print magazine due to their length. This space is reserved for such submissions. We will post new “Reader Rants” periodically. The opinions expressed are not necessarily those of this magazine. (Find more at Reader’s Respond.)

“There is no mechanism for the collective opinions and power of the dedicated real estate appraiser to be heard. No appraisal organization or guild has taken the initiative to push back and be proactive. It is sadly apparent that the thing that is missing from this picture is the will and intestinal fortitude to do what we all know is right.”
- Frederick E. Hankins, III

What is Missing from this Picture?
by Frederick E. Hankins, III  
 

May 5, 2008

On April 3, 2008, the Collateral Risk Network (CRN) met in Washington DC to discuss the recent agreement between New York Attorney General Andrew Cuomo and the Office of Federal Housing Enterprise Oversight (OFHEO). CRN is a group of 90 chief appraisers and senior risk management.  CRN is represented by retail lenders, wholesale lenders, GSEs, Wall Street and appraisal management companies (AMCs). What was missing was representation by residential real estate appraisers.

It is interesting that those in the profession most affected by the changes proposed in the Cuomo/OFHEO agreement, the appraisers themselves, were not included in these discussions. The agreement represents the most sweeping and controversial changes to our industry since FIRREA was instituted in 1989.  The sponsors of the CRN event included LSI, Transunion, Fiserv, and Zaio among others. Not only were appraisers missing from the CRN group, but the sponsors lacked any appraisal organizations (i.e. NAIFA, Appraisal Institute, NAREA, etc.) and also missing from the picture was the Appraisal Foundation.

On March 3, 2008 the Home Valuation Code of Conduct agreement between Cuomo and OFHEO was signed. What was missing from this picture was:

1.   Any input from residential real estate appraisers.

2.   Any measured consideration of the consequences and logistics of implementation of the agreement.

3.   Any thought as to the paradoxical fact that the impetus for the agreement was the threat of a lawsuit by Cuomo based on allegations of misconduct by First American/eAppraiseIT (an AMC) and the Code agreement places the sole responsibility for the ordering of appraisals exclusively in the hands of AMCs.

4.   Any consideration as to how this agreement will affect appraisers’ livelihood. Gone forever is the possibility of full fees for appraisals.  No bargaining can be done; if an appraiser is unwilling to work for 60% or 70% of an appraisal fee, then the AMC will “find someone else to do it.” Appraisal management companies that stand alone have a place in the lending community that has been copied by large regional or national lenders who use the business model to create a profit center within the lending institution. The profit comes from paying appraisers less than the full appraisal fee.

5.   No mention was made of the valuation problems associated with less than full appraisals. Drivebys, 2055’s, 2070’s, broker opinion of values, AVMs, etc all belong in a class of less than full appraisals with interior inspections. Is it possible that some of the problems associated with the recent valuation problems are as a result of inadequate valuation products?  What about those “collateral valuation products” that simply use a tax assessment as a value determinant? What is missing in this picture is the fact that the AMCs received an appraisal fee as part of an application fee, and only applied a portion of it if the “underwriting process” determined that a less than full appraisal would suffice for their needs.  Did the AMC refund some of the appraisal fee collected if, say a 2070 form was ordered instead of an interior inspection?  Is it possible that some of the abuses perpetrated would have come to light if a full appraisal were conducted?  What is missing from the Cuomo/OFHEO agreement is the elimination of inadequate appraisal products.

6.   Missing from the Code of Conduct is any reference to the relatively high threshold of $250,000 for a loan that does not require an appraisal. Any prudent investor should examine the collateral to the fullest extent possible. To ignore loan values less than $250,000 helped to create the atmosphere where abuses were easily perpetrated.

7.   Another thing missing from the Cuomo/OFHEO agreement picture is the fact that they are attempting to “lock the barn door after the horse is out.” The culprit has been determined to be the appraiser, and a shoddy, haphazard, untenable agreement will wreak havoc on the appraisal profession and lending community with the public paying the eventual price. Was this agreement the only way to ensure appraiser independence?  We may never find out.


I am proud of my profession. I have been an independent real estate appraiser for over 32 years. I am not proud of those few who have spoiled things for the rest of us. They are criminals who committed fraud and should be put in jail. The public put their trust in us and for the most part we have behaved in a professional manner and helped millions of hardworking people achieve their goal of homeownership. Those who abused the system should be held accountable but missing from the big picture is the outrage and dedication to root out those responsible for the fraudulent appraisals.

The most glaring missing item from this picture by far is the appraiser. Not the grassroots level independent residential appraiser. Not the small appraisal office or even the large regional appraisal offices. What is missing is the united voice of the appraiser. We are highly trained, tightly regulated, independent, educated professionals working in a challenging and rewarding environment that is essential to the wellbeing of our country from a financial and personal standpoint (both Wall Street and Main Street need our services), and yet we have allowed very important decisions to be made without murmur or dissent. 

Any change in policy we accept with a minimum of questioning, any change of forms or format we agree to with no problem. We have no unified method for bringing the full force and power that we have as real estate appraisers to bear on the various problems we encounter in our profession. Plumbers have their unions, auto workers and truckers and electricians too- the list is endless. However, we remain silent and quietly acquiesce to the inequities that have occurred and are about to be perpetrated.

What would happen to the banking community if residential appraisers went on strike?  What would happen to the real estate industry if all appraisers decided at the same time that they wanted more of a say in the new regulations that will govern the way we conduct our business? What would happen to the people across the nations who simply want to sell their house or buy a home if we all agreed, en mass, that we would like to be paid fairly? There is no mechanism for the collective opinions and power of the dedicated real estate appraiser to be heard. No appraisal organization or guild has taken the initiative to push back and be proactive. It is sadly apparent that the thing missing from this picture is the will and intestinal fortitude to do what we all know is right.

Frederick E. Hankins, III- Hankins Appraisals- Fredhankins@earthlink.net