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Editor’s Note: Last issue, Richard Hagar, SRA, explained how and why some appraisers get into trouble.  It’s not about making competent and ethical appraisers “sweat the small stuff” of USPAP, he says, but about keeping them out of trouble. The problem, Hagar says, is that appraisers have much more to worry about than USPAP.  Also, find more below on the $25 billion landmark foreclosure settlement last week between banks and consumers. Hagar gives an insider’s take, including some good news for appraisers.

Liability Follow Up: Sweating the Small Stuff?
By David Brauner, Editor

According to Richard Hagar, SRA Fannie Mae and Freddie Mac are recovering upwards of $1.5 billion each month, according to their financials*, from lenders, mortgage brokers, borrowers and appraisers. Hagar, who wrote last issue’s 1,000 Appraisals a Year, says that this is something every appraiser should know.
 
It is not about making competent and ethical appraisers “sweat the small stuff” of USPAP in court, he says, but about keeping them out of trouble.
 
 Some readers point out that issues highlighted in 1,000 Appraisals a Year as getting appraisers in trouble in court are not even violations of USPAP.  So what’s the problem?
 
 The problem, Hagar says, is that appraisers have much more to worry about than USPAP. “There are other issues that come into play in addition to USPAP; Fannie Mae requirements, Interagency Guidelines, state and federal laws and the Certification appraisers include in every report,” Hagar says.  “If you’re only focusing on USPAP, you need the kind of education we’re presenting (in the Webinar Series- see below).”   
 

Hagar says some of the comments posted to the story show that certain appraisers are not fully aware of the high standard they are being held to. And he insists this is not “his take on things” but opinions of the courts and that many appraisers need to be made aware. The bottom line is learning how to be the kind of appraiser who does not get sued.

“When a lender, any lender, including Fannie Mae discovers a bad report, even if it’s years later, they have the right to sue the appraiser for the bad product,” says Hagar. “By the time our consulting firm is brought into the picture, the bank has selected the bad loans/appraisals, filed the lawsuits and determined how much money they have lost due to the bad loan. Who do they blame? Well, they don’t blame themselves. They blame the appraiser and since the appraiser signs a Certification fully accepting liability for their work, they get sued and they get sued for BIG BUCKS.  In the example I provide (in 1,000 Appraisals a Year), every appraisal I reviewed was bad. The bank chose to sue the appraiser for only ten appraisals out of hundreds.”

Hagar continues, “What matters is the quality of the appraisal, the information gathered and the process and analysis utilized in its creation. The value conclusion is NOT the only thing.  Yes, some banks and AMCs have failed to follow the rules and should be held accountable. But appraisers are responsible for the quality and information contained in their work.”  

Hagar says, please don’t “shoot the messenger.” “My point for the article and Thursday's webinar (see below) is to warn appraisers, help them understand the system, their liability and the massive toll these lawsuits take on the professional and personal lives of appraisers. All due to poor appraisal practices. The webinars will attempt to convey the lessons I’ve learned over the last 30 plus years appraising and as an expert witness in dozens of lawsuits.”

* Fannie Mae Financials
*Hagar's Webinar: 1,000 Appraisals a Year: Realities of Appraiser Liability

Don’t Believe Everything You Hear: $25 Billion+
By Richard Hagar, SRA

The settlement announced on February 9, 2012 has costs and benefits far greater than $25 billion.

I received my phone call from the Washington State Attorney General’s office sometime before midnight the night before the announcement. The AG invited me to be part of “a big announcement” that would take place the following morning. For years I’ve been communicating with the staff of several State Attorneys’ General. We’ve profiled what was wrong with the foreclosure process and supplied real world examples of bad policies and procedures. In addition, I’ve supplied training regarding the foreclosure “rescue,” short sale, loan modification scams that harm home owners and lenders.

After the announcement a select few of us were given a personal two-hour briefing concerning the details. Allow me to share some of my insider’s information:

1. While $25 Billion is the public figure, the cost to the banks will be far greater, likely to hit $45 billion.

• There are additional costs for enacting major changes in bank policies and procedures.

• Increased time for foreclosures to be processed, including costs associated with additional notifications and time for borrowers to modify their loans.

• Banks will hire and train hundreds, if not thousands of people to handle the new foreclosure process and eliminate robo-signing.

• New office space, phones, desks, supplies.

• Payments to attorneys representing the banks.

• Costs associated with oversight by a new special “headmaster.”

• New reviews of foreclosure files, by better, more expensive attorneys.
 

2. The $25 billion is only applicable to approximately 20 percent of all residential loans; loans that are held by these five banks. Issues regarding the other 80 percent of the residential loans, held by Fannie Mae, Freddie Mac and smaller lenders, are not part of this figure. Additional settlement discussions are underway and more money will be involved.

3. Several of the banks have already agreed to “separate settlements.” I call them penalties that are in addition to the $25 billion. The additional settlements will be in the tens of billions.

4. Bank of America previously agreed to an $8.9 billion settlement, not covered in this February settlement. Wells Fargo announced their latest settlement the following day.

5. Lawsuits regarding the “MERs question,” along with the non-payment of recording fees to local governments and criminal behavior, are not covered under this settlement.

Good News for Appraisers
Three billion dollars is allocated to refinancing, which carries its own internal administration. When a borrower asks for a “loan modification,” usually no appraisal is required. However, under the Settlement, many owners will be refinancing instead of modifying their loans. Refinance requires a new appraisal. More work for appraisers. If the borrower has a disagreement about a loan modification or the value stated by an AVM, the borrower can request a “full appraisal.”
 

About Richard Hagar
Nationally recognized author, instructor and fraud expert, appraiser Richard Hagar, SRA puts a spotlight on appraiser rights and responsibilities. Learn from an appraiser with thirty years’ experience.  Hagar is presenter of the upcoming Webinar, 1,000 Appraisals a Year: Realities of Appraiser Liability. This series of webinars will help every appraiser provide better quality appraisals and keep safe from the increasing threat of lawsuits. The goals are better quality appraisals and lower liability. To learn more and sign up for Richard's Webinar, click here.
 

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