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APRIL 2011
* LIVEVALMAG.COM | 3
table of contents
&
co nten ts
| contents |
Feature
31
Blacklists: The Unchosen Ones
The exclusive list you don’t want to be a part of.
It is an emotional issue, for it reeks of the potential for severe damage to innocent independent fee appraisers, while at the same time being a useful tool to weed out dishonest and unethical appraisers among us.
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LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM
your monthly valuation publication
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LVM04.11 +
14
+ Departments
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24
Up Front The Blacklisting Issue
14
Best Practices How to write a service agreement. Mar k B e r g er, M AI, SRA
32
Lender Perspective an on ymou s c h ief apprais er of a n ati on al len der
18 6
Opposites Attract
Publisher’s Note
More than an ‘80s pop hit.
36
Appraiser Perspective
r o g e r staiger iii
f ran k gregoire, IFA, RAA
Contributors
22
39
10
Featuring Tony Pistilli, Chief Appraiser
Staiger on Stats
US Bank.
8
46
Voices of Valuation
The Hot Seat
Inside This Month
AMC Perspective an ton io little
41
Appraiser Perspective Ken Verrett
24 49
Common Ground
Directory
Improving communications
50
mortgage lending.
cover
For What It’s Worth
M ISM O
Blacklists: The Unchosen Ones
in property valuations for ®
Proper ty
& Valu at io n Services W or kgro u p
april 2011
The exclusive list you don’t want to be a part of.
31
APRIL 2011
* LIVEVALMAG.COM | 5
PUBLISHER’S NOTE
$
THIS WAY IN.....
It is part of human nature to want to be “set apart.” We all want to be
acknowledged for our distinctiveness, what
makes us unique, why we are worth being
organizations and become recognized authorities in the valuation field, again to set themselves
apart from the pack. Not only is it profitable it also feels good to be known as an expert in the field of valuation, to be on the “A” list.
But there are other lists out there too; blacklists and “Do Not Use” lists. If you find yourself on one of
recognized. We take
pride in being good at something and being renowned for our
achievement. From grade school on, no one wants
A Letter from the Publisher
the distinction they provide. Others join national
to be the last person picked for the team. It’s part of being human to take pride in excellence.
these lists you are an “unchosen one.” Usually, this is not the distinction an appraiser is looking for.
I say usually because sometimes appraisers end
up on these lists because they won’t “play ball.”
I know that there are some lenders out there that have excluded my firm in the past because we
acknowledged oversupply and declining values
Professionally, appraisers do the same thing. Many
pursue difficult designations, not because they add much to the bottom line but rather for
in the neighborhood section or were “simply too
conservative.” I would like to think we were dead
on right but we ended up being dead in the water. Whatever the reason, ending up on a blacklist or
DNU will negatively impact an appraiser. It is not the way you want to “set yourself apart.”
meet the team
In this issue of LiveValuation we address the 1
matter of blacklists and DNUs from three different
perspectives; lenders, AMCs and appraisers. There are certainly some differences of opinion but also
common ground on the impact of these lists on the
1. Publisher | Ernie Durbin II, SRA, CRP
valuation community. All of the participants are
2. Editor-in-Chief | Emily Vannucci 3. Copy Editor | Kersten Wehde
2
concerned about their misuse.
Blacklists are a hot topic among lenders, appraisers
4. Creative Director | Traci Knight
and AMCs. One of our authors is a chief appraiser
for a national lender. This author engaged the topic Printer | Ovid Bell Press
3
Advertising Information | P : 858.832.8900 / E : advertising@livevalmag.com
cornerstone in the debate. We certainly wish we
E : emily@livevalmag.com / W : LiveValMag.com
could acknowledge his name, but we understand 4
All rights reserved. LiveValuation Magazine is a California limited liability company and is the publisher of LiveValuation Magazine. Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in article and advertisement herein are not necessarily those of LiveValuation Magazine, its employees, agents or directors. This publication and any references to products or services are provided “as is” without any expressed or implied warranty or term of any kind. While effort is made to ensure accuracy in the content of the information presented herein, LiveValuation Magazine is not responsible for any errors, misprints, or misinformation. Any legal information contained herein is not to be construed as legal advice and is provided for entertainment or educational purposes only. Postmaster : Please send address changes to LiveValuation Magazine, 16745 W. Bernardo Drive Suite 450 San Diego, CA 92127
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of his employer (the national lender), this author will remain anonymous. His contribution is a
Subscription and Editorial | P : 858.217.5332
© 2011 LiveValuation Magazine.
with passion, clarity and insight. At the request
the sensitivity of his employer.
Make sure you check out the new section in our
magazine this month called “The Hot Seat.” We put Tony Pistilli on the spot with 20 questions of both a personal and professional nature. In upcoming
issues we will provide our readers with a snapshot of some of the personalities within the valuation
space. There is a lot more to people than just their title and that’s the purpose of this section. 6
| Publisher |
Ernie Durbin II, SRA, CRP
APRIL 2011
* LIVEVALMAG.COM | 7
CONTRIBUTORS
?
36
14
mark berger, MAI, SRA
Mark Berger is semi-retired with more than 30 years of professional experience in real estate appraisal. He holds a BS in business from San Diego State University with an emphasis on marketing and also attended law school in San Diego. He has appraised over $1.5 billion in commercial and residential properties. He is an experienced expert witness and a member of Relocation Appraisers and Consultants. 619.225.2225 thebergercompany.com
Frank Gregoire, IFA, RAA
Frank Gregoire is a former member and Chairman of the Florida Real Estate Appraisal Board and the current Chairman of the NAR Appraisal Committee. He provides valuation, expert witness and consulting services for a wide variety of local and national clients. Articles by Gregoire have been published in the REALTOR® magazine and the Journal of Property Economics. In his quest to improve the profession and keep folks informed, he authors “Appraiser Active,” an appraisalthemed blog.
39
antonio little
Antonio Little, Senior Vice President of Sales & Marketing, oversees business development for Valocity, LLC, a nationwide provider of valuation solutions. Little has been with the organization since 2007. His 15 years of industry experience includes stints as VP of Business Development and Relationship Management for Finiti, as well as sales, operations, and management roles at high profile organizations such as Citi, LandAmerica, and Bank of America.
50
JOSEPH PALUMBO, SRA
Joseph Palumbo is currently the Director of Valuation at Weichert Relocation Resources. Palumbo spent seven years at Washington Mutual Bank where he was a First Vice President. Palumbo holds an SRA designation, is AQBcertified and he is a state-certified residential appraiser licensed in New Jersey.
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22
10, 18
Tony Pistilli
Tony Pistilli is Chief Retail Appraiser and Vice President for Consumer Banking Risk Management at US Bank in Minneapolis. Pistilli has been involved in the real estate appraising and lending industries for over 25 years and prior to joining US Bank he was President of Park Appraisal Service, had previously worked at the Department of Housing and Urban Development as well as several mortgage companies. Pistilli is a member of several organizations, including The Appraisal Foundation’s Industry Advisory Council, the American Bankers Association appraisal committee and he is also the ViceChair of the Minnesota Real Estate Appraiser Advisory Board.
ROGER STAIGER III
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The MISMO Property and Valuation Services Workgroup The MISMO Property and Valuation Services Workgroup is a team of industry volunteers working together to advance the cause of open data standards to improve quality, consistency and accuracy in the reporting of appraisal results to the real estate lending industry. Join the conversation at wiki.mismo.org.
Roger Staiger III is Managing Director for Stage Capital, LLC. His areas of expertise are commercial and residential real estate portfolio investing, corporate business; and strategic planning, forecasting, valuation, financial modeling, asset repositioning and risk mitigation through financial hedging for physical assets. He holds positions at Johns Hopkins, Georgetown, and Loyola universities. rstaiger@gwmail.gwu.edu
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Ken Verrett
Ken Verrett has owned Acorn Appraisal Associates, a midsized appraisal firm in Houston, TX, for 25 years. Prior to starting Acorn he was the President and CEO of the Banking Division of a major regional financial services conglomerate, built a retail branch network statewide, and established a Commercial Lending Division. Verrett has been involved in several startup ventures, the most current being Zone Data Systems, LLC (ZDS), where he is a member of the managing committee. Verrett holds a BA in economics from Texas A&M University, an MA in economics from the University of Houston, and is a graduate of Southwestern Graduate School of Banking, Southern Methodist University. kverrett@oak-acorn.com
utors | contributors |
APRIL 2011
* LIVEVALMAG.COM | 9
STATS
STAIGER on STATS
The year is 1789. The place: Paris, France. The economic times are uncertain with the populace suffering from hunger and rampant
malnutrition. Inflation is omnipresent in society, with the cost of bread
alone increasing more than 50 percent that very year. The nation is close to
bankrupt due to the high debt levels amassed by the participation in the
Industry’s latest stats
Roger Staiger III
American Revolutionary War and
the high cost of colonial possessions abroad. The financial system is both
inefficient and ineffective for dealing with a crisis of this magnitude.
Further exacerbating the issue is the perceived disconnect of Versailles
from the rest of France. It was thought that Louis XVI’s rule was considered solid and untouchable by the
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Parisians. It, after all, was a monarchy.
However, there were derisive forces in Parliament, all of whom were hearing the Parisian cries for change.
Now the year is 2009 and a new
president in the U.S. has taken the post; much as Louis XVI took the
throne amidst the financial crisis in
France. Fast forward two additional
years and the year is 2011, the current year. An economic maelstrom of
hunger and malnutrition is taking hold of
asset values rise through inflation and debt
targets. In the U.K., inflation has hit more than
as a proportion of total asset level reduces
the globe as inflation outpaces central bank 4 percent, twice its target. In the European
remains constant at a fixed level, the debt “naturally” through inflation.
such as Brazil and China, inflation exceeds 5
The ability of the U.S. to monetize its debt after WWII was based on two realities:
during QE2, the U.S. now has inflation slightly
No.1. T he U.S. industrial facilities were intact
unemployment remains high at the stated rate
globe, thus creating economic prosperity;
Union, inflation has outpaced its intended target of 2 percent. In emerging markets
percent. After fighting off a bout of deflation
above 2 percent and rising. For the U.S., while
of 9 percent, total wages earned fourth quarter 2010 was an all-time annualized record of
$8,100bn – the American workers as a whole have never earned as much. (Note: This
further supports a polarization of the ”haves”
and therefore able to rebuild Europe and the and
No.2. A large portion of U.S. debt was owned domestically.
and the “have-nots.”)
Neither of these two realities exists in 2011,
The U.S. is close to bankruptcy, running a
of Europe and the globe for the U.S. and until
historic deficit of almost $1,500bn during
the current year and budget reductions that are more fantasy than reality. The U.S. is
embattled in two ongoing wars, Afghanistan and Iraq, while maintaining colonies (i.e., bases) in foreign lands such as Korea and
Guam. The current deficit since 2000 per taxpaying citizen in the U.S. is approximately $36,000. To put the $36,000 invoice in
perspective, it represents 74 percent of the
median household (not individual) income in
December 2010 China was the largest holder
of U.S. treasuries (Japan and China combined own the largest portion of single ownership today). Given the U.S.’s unwillingness to
and inability to monetize its debt due to the large portion of foreign ownership, current
strategies will be inefficient and ineffective in addressing the financial crisis present today.
Of further concern is the nation’s financial
disconnected from the rest of the nation.
this historically high total debt level. The last time the U.S.
debt reached current levels was after
WWII (actually the levels after WWII
were even higher). It is important to
note that a majority of the debt was
repaid after WWII
through the process of monetization, i.e., inflation. As
unwillingness to
World nation to not cut spending in 2011)
Finally, the U.S. capital, Washington D.C.,
eventually pay off
Given the U.S.’s
cut its deficit (it remains the single First
the U.S. In summary, the U.S. is mired in debt!
system and the ability to finance and
$
i.e., there is not historic rebuild on the scale
much like Versailles in 1789, has become
The stimulus plans in the U.S. have largely
cut its deficit (it remains the single First World nation to not cut spending in 2011) and inability to monetize its debt due to the large portion of foreign ownership, current strategies
benefited the U.S.’s
Versailles, i.e., DC-MSA.
will be inefficient
There is a quantifiable
and ineffective
structure shift in
housing performance
between D.C. and the
in addressing the financial crisis present today.
nation as measured by
the Composite-10; D.C. has lost touch with the rest of the nation as
measured by residential real estate performance. Stated more simply,
D.C. is not feeling the
pain of the nation, and is detached. >>
APRIL 2011
* LIVEVALMAG.COM | 11
To quantify the broken
between the DC-MSA and
structurally different. This
2010. The only MSA with a
MSA pricing and the rest of
due to the stimulus and
from 1988–2008, when the
was D.C., while the nation
relationship between the DCthe U.S., the standard test for a structural shift in statistics,
the Chow Test, was completed. Basically, the Chow Test
measures the slopes of two
relationships and quantifies if they are structurally
similar or different according to an F-test. Prior to 2008,
there was a high correlation
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the Composite-20. However, after 2008, the relationship broke and D.C. and the
nation became structurally different. In the graphic
was not true for the period two markets were structurally similar as quantified by the Chow Test.
above, the two nonparallel
Further anecdotal evidence of
year returns for both the
and the rest of the nation is
lines represent year-over-
DC-MSA and Composite-20.
As demonstrated by the lines not being parallel, they are
the disconnect between D.C. evident in the month-overmonth performance from
November 2010 to December
positive month-over-month as a composite reduced close to 1 percent. When viewing the equivalent relationship
on a year-over-year basis, the inequity is exacerbated, with
the nation losing over 2 percent and DC gaining more than 4
percent, i.e., a 600bp swing in pricing.
The public opinion in the U.S., just like in Paris in 1790, is shifting. America’s Egypt, Wisconsin, is rallying behind the current state governor to limit collective bargaining by unions and reduce pension benefits for many of the state workers. When comparing the nation and D.C. to Wisconsin, using the Chicago MSA as a proxy, a chartist’s perspective easily concludes the need for reform in Wisconsin. The ChicagoMSA has underperformed the
nation by more than 50 percent and is forecast to continue underperformance through the end of 2012. Without significant reform, Wisconsin cannot hope to balance its budget and resolve its deficit. Given the significant loss of wealth in the area’s family homes (see spreadsheet), revenue increase (i.e., taxation) provides little assistance. The only alternate solution is an expense reduction and the most obvious place is the underfunded pension(s).
The double dip in real estate pricing is a reality. The destruction of an absolute monarchy in the U.S. is a reality, i.e., 2010 loss of House of Representatives by the ruling party. The financial crisis is a reality. The near-bankruptcy of this great nation due to overextension for foreign wars and colonies, i.e., bases, is a reality. Rising prices due to inflation and a weakening currency are a reality. The disconnect between D.C. and the nation is a reality
as evidenced in real estate residential pricing. Given the eventual outcome for Louis XVI and the monarchy in France, the current leaders in America best take heed of history and listen to the people as the people will be heard! The question at present is how much different is today’s crisis than the crisis experienced in France in the late 18th century? 6
APRIL 2011
* LIVEVALMAG.COM | 13
U
up front An appraisal assignment
of an engagement letter
the client. It is at this point
which identifies details
begins with the inquiry by the appraiser finds out the purpose and scope of the appraisal, and negotiates the cost and the delivery time. Many times the
appraiser receives a request to appraise a house and
begins the work with the understanding that he
will be paid upon completion.
This is most
common in
residential
work with
relationships that are
+
Best Practices How to write a service agreement. Mark B e r g e r , M A I , S RA
A
service agreement is a necessary part of every appraisal practice and will help limit liability. It needs to be available and used to clarify the rights and obligations of all the parties to the assignment. It is the necessary document for collecting on your work from those that would take advantage of your professional expertise and training. 14
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formed
with lenders
or AMCs and
works well when
you have a familiar
client with an ongoing business relationship. There are times at the
beginning of an assignment when the scope of the work is unknown and there is no clear understanding of all
the valuation tasks or even the amount of time that
will be required. It is then
that a contract is necessary to identify the rights and obligations of the parties
for the variety of tasks that could be requested. This
or a service agreement,
of the assignment such as billing, payment, and a
request for information.
This is necessary in every assignment that involves litigation or with a new client about whom you
have payment concerns. If a
client does not want to enter into such an agreement,
then my recommendation is to tell them this is your business policy; if that is
not acceptable, move on to another client.
The first element in the
service agreement is a cover letter summarizing the
service agreement, retainer request and requests for information.
The agreement is a following document and will indentify: a the client a property address a nature of the report a scope of the work a fee for the service a any request for a retainer a provisions for delays in delivery
is particularly important
Additional contract
expand the assignment
collections are necessary
comps, comparing or
not pay their bill on time,
etc.). These contracts
provisions and references
with a client that tries to
provisions for late
(via rebuttal letters, more
in the event the client does
reviewing another report,
in addition to cancellation
typically take the form
to addenda. Another
important provision is some
These can also be shown as
The second addendum is a
clause from the client, should
billing rate and minimum
information that will be
kind of indemnification
a percentage of the office
there be a lawsuit with the
times. It is important to have
exception of negligence or
a billing rate to be named
willful misconduct on the
as an expert witness so the
part of the appraiser. This
appraiser is compensated
is the heart of the service
for the use of his/her
agreement and must spell out
reputation to settle a case,
the nature of the agreement/
whether or not an appraisal
assignment (partial interest
is undertaken or completed.
appraisal, current or past
Usually this amount is used
date of value, easement
as a deposit for billing and
value, leased fee, rent study,
if no work is required, the
etc.). This section will
appraiser retains the naming
reference another addendum that will be customized for
the particular property and
will include the appraiser’s CV, if requested.
The first addendum is the
rate sheet. It is a good idea to
have a place for a date on the top of this page and to refer
to the date in the main body
of the service agreement. This indicates to the client that
it is a current schedule. The
rate sheet will enumerate all the different billing rates for people in the office.
It enables the client to see the cost of the principal and associates, and indicates the billing rates for the different activities, such as: a conferences a research a standby for trial or travel time a sworn testimony for deposition or trial
fee. The rate sheet will also There are times at the beginning of an assignment when the scope of the work is unknown and there is no clear understanding of all the valuation tasks or even the amount of time that will be required. It is then that a contract is necessary to identify the rights and obligations of the parties for the variety of tasks that could be requested. This is particularly important with a client that tries to expand the assignment (via rebuttal letters, more comps, comparing or reviewing another report, etc.).
identify other costs that may occur with the assignment
for exhibits, copies of reports, trial preparation, etc. It is
also important to note the
time increments on which the billing is based. For
example, any portion of one hour is considered an entire hour. The page should note that billing for meetings
or conferences is based on portal-to-portal time; the
billing clock starts when the appraiser leaves the office and stops when he/she
returns. Another important
component is the notice that the client is not authorized
to designate any member of
the firm as an expert witness
until the agreement is signed and returned with the indicated retainer.
sheet that identifies all the
needed. The requested data
will be checked to customize
the assignment and will vary depending on the nature of the work that is commonly done in your office.
If it is residential, the requested information may be plans for: a a new house a a floor plan a previous appraisals a a list of improvements a dates of remodeling a information on any listings a current purchase agreement a title information a any structural problems with the property a copy of deed a title information A commercial assignment will also include: a request for data on income and expenses a ADA conformance and survey a leases and a rent roll a some of the items from the residential list >>
APRIL 2011
* LIVEVALMAG.COM | 15
The idea is to solicit as much information as
possible from the client. This checklist gives the appraiser the means to require actions on the
part of the client in order
Tech Rep rt
to complete the work
according to the rest of the service agreement. The client cannot later
come back for a breach of contract when they
have not provided the date requested. If the
second addendum is set up as a checklist, it is
then easy to determine
what is needed and then attached to the service agreement. It is also important to note the time increments on which the billing is based. For example, any portion of one hour is considered an entire hour. The page should note that billing for meetings or conferences is based on portal-to-portal time; the billing clock starts when the appraiser leaves the office and stops when he/she returns.
Finally, always send
the service agreement unsigned; that way if
any changes are to be
made by the client (i.e.,
in effect a counteroffer) you have the choice to accept them and form a binding contract or
continue negotiation. If you send out a signed
agreement and the client makes changes and then signs it, you may not
have a contract that is enforceable by either
party; this conforms to basic contract law.
These elements will help you make an effective service agreement
and provide a tool to eliminate disputes
between the appraiser and the client. 6
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Product Spotlight New tech products are appearing every day and we thought you might need help keeping track of them. Each month we will feature an emerging product just to make sure you don’t miss out on something new. Technology has moved in the direction of allowing us to access digital information regardless of where we are. Appraisers are now able to appraise a property, fill out forms and take photos with the swipe of a few buttons. PhoenixMobile is one of several up-and-coming smartphone applications that have this on-thego capability all boxed up into a pocket-friendly device – yes, in this case, size does matter! Featuring a simple-to-use program, PhoenixMobile is a star in our eyes for its easily created floor plans, GPS-activated maps, camera with customizable tag-list and workflow organizer. The time has come to go mobile, so keep your eye out for new products such as these to make your life so much easier. phoenixsuite.com
Peace-of-mind is just one of the advantages we offer. In addition to our unsurpassed real estate appraiser E&O program, we offer coverage for: AMC Professional Liability (E&O) coverage, worded by LIA specifically for AMCs Bonds for appraiser client contracts and state regulatory AMC requirements – extremely competitively priced General Liability coverage for real estate appraisers including additional insured options required by HUD and other clients E&O insurance for high risk real estate appraisers Health insurance for appraisers and their families through the same exclusive program endorsed by the AMA for its 400,000 physician members – includes 3-year rate guarantee options
n n n n n
LIA’s products are in response to requests made by real estate appraisers and other valuation professionals, seeking to meet the day-to-day challenges of the appraisal industry. In addition, LIA remains to be the leader in loss prevention and appraiser liability education.
For more information, visit our website at www.liability.com, or contact: Robert A. Wiley, Asst. V.P. robert@liability.com, 800-334-0652, Ext. 128 Peter Christensen, General Counsel peter@liability.com, 800-334-0652, Ext. 148
Serving the Appraisal and Valuation Industry since 1977
LIA Administrators & Insurance Services 16oo Anacapa Street, Santa Barbara, CA 93101 Ph: (800) 334-0652 Fax: (805) 962-0652 www.liability.com
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APRIL 2011 LIVEVALMAG.COM lia@liability.com
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CA License #0764257
up front
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portfolio, the most efficient. In portfolio parlances this is asset selection. Fortunately Harry Markowitz and Paula Abdul already solved this perplexing problem for us … opposites attract! As a means of
return of an asset. The quantification on an
extreme scale (ability to
have multiple partners) is as such:
t
E(μ) = Σ Wn E(μn) where:
n=1
t
Σ W = 1.00
n=1
background, let us
E(μn) = expected happiness (return) of person (asset) n
portfolio manager,
The quantification of risk
review the goal of a
i.e., person seeking
is not as straightforward
a fulfilling, lifelong
for a portfolio. Modern
not the maximization
that assets (people) that
partner. The goal is
of return but rather the
portfolio theory recognizes are not perfectly correlated
achievement of an
will contribute to the risk
Efficiency is risk/return
the relationship (portfolio)
efficient relationship.
(personality extremes) of
and quantified with
differently. Basically, non-
the metric coefficient of
Opposites Attract
happiness, i.e., expected
correlated assets actually
variation (CV), e.g.,
reduce the overall risk of a
of efficiency when
this is similar to the happy
counterintuitive as the goal
sad partner and/or the sad
i.e., have the smallest risk,
the happiness of the happy
μ.
risk of the overall portfolio
CV = . The maximization
portfolio. In a relationship
measured by CV may be
partner cheering up the
is to minimize the metric,
partner detracting from
σ, and the maximum return,
partner. It is a muting of
σ
(relationship).
More than an ‘80s pop hit.
The return for the
W
average of happiness put
portfolio (happiness) is
in a relationship.
of happiness (returns),
follows:
weighted summation of
Mu (happiness) = W1*H1
The following must be
the weight of happiness
portfolio theory:
and H is the amount of
E(σ) = Σ Wn E(σn)
R oger S ta i g e r I I I
hat have we learned about personal relationships while reading LiveValuation Magazine? So far, we’ve learned how to price the engagement ring of our betrothed and how to quantify/ recognize love (efficiency) over lust. Another important aspect – perhaps the most important – of a personal relationship is selection of the partner that will make you, i.e., the two-asset 18
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relationship is the weighted
While the return of a
forth by both individuals
the weighted summation
Quantitatively it is as
portfolio variance is not the
+ W2 * H2 where W is
contributed by each person
personality extremes (risk). understood to understand t
n=1
Portfolio theory and the
asset portfolio. This greatly
numbers. We will use two
(personality extremes)
formula and will directly
high happiness (return)
quantification of risk
recognize that non-correlated assets will contribute to the overall risk of the portfolio differently, thus muting
(reducing) overall portfolio
simplifies the generic
support why Paula Abdul was not just correct but
profound in her ‘80s pop hit “Opposites Attract.”
risk. (Note: For perfectly
Portfolio variance for a two-
the case.) Risk, as calculated
Portfoliovariance
correlated assets this is not
using portfolio theory, is as follows:
Σ Σ Χ Χσ N
N
i=l
j=l
i
i
asset portfolio is as follows:
x1 x1 σ11
x1 x2 σ12
x2 x1 σ21 ij
where: Χ : Weight of Asset i in i Portfolio
E(Ri) : Expected Return of
x2 x2 σ22
x1 x1 ρ11 σ1 σ1
x1 x2 ρ12 σ1 σ2
x2 x1 ρ21 σ2 σ1
x2 x2 ρ22 σ2 σ2
Asset i and j
σij = C ovariance of Assets i
negatively correlated assets
σij = ρij σi σj
ρij = C orrelation Coefficient of Assets i and j
σi = S tandard Deviation of Asset i
Note: Covariance, like
correlation coefficient (CC),
is an alternative measure of linear association between two variables. Covariance
and correlation coefficient
are transformations of each
other when incorporating the standard deviation of each
asset portfolio of perfectly reduces as follows:
Portfoliovariance
x1 x1 ρ11σ1σ1
x2 x1 ρ21σ2σ1
x1 x2 ρ12σ1σ2 x2 x2ρ22σ2σ2
x2 x1 (-1)σ2 σ1
x1 2σ1 2
coincidence always seem
to be at opposite poles, i.e.,
“Different.” Which couple is more efficient?
The two couples are similar correlation (as described
The quantification
for this analysis that each
straightforward for
of risk is not as
above). Further, it is assumed
a portfolio. Modern
partner in the relationship
portfolio theory
contributes 50 percent of the
recognizes that
effort, i.e., equal weighting of
assets (people) that
partnership.
are not perfectly correlated will
Please note that the return
contribute to the risk
(happiness) for each
pairing is exactly equal.
(personality extremes)
return (happiness for each
(portfolio) differently.
of the relationship
It is simply the weighted
Basically, non-
correlated assets
actually reduce the overall risk of a portfolio.
2x1x2σ1 σ2
correlation between the
(relationship) reduces the overall risk, i.e., the “-2” factor.
variance), we can look at
Now that we understand
a relationship, i.e., two-
attract, let us put it to real
the more simplified case of
bipolar disorder and by
x2 2σ2 2
two assets in the portfolio
square root of portfolio
but both partners have
Portfoliovariance
Now that we understand
is actually the positive
and (2) the same couple,
x2 x2 σ2 σ2
Notice the negative
calculated (portfolio risk
very similar, i.e., “Similar”;
x1 x2 (-1)σ1 σ2
asset (see equation).
how portfolio risk is
extremes (risk), who are
partner).>>
Portfoliovariance
x1 x1 σ1 σ1
and low personality
in every aspect other than
Portfoliovariance
Portfolio variance for a two-
and j
examples: (1) A couple with
the theory of why opposites
SimilaR
DifferenT
Return Man Woman
12% 18%
12% 18%
Risk Man Woman
7% 4%
7% 4%
0.08
(1.00)
Correlation
E(RRelationship)=w1E(R1)+w2E(R2)=(0.5)(0.12)+(0.5)(0.18)=0.15 (Same for both)
APRIL 2011
* LIVEVALMAG.COM | 19
The portfolio variance differs for each couple as the correlations are different. See below.
E(VarSimilar) = (0.5)(0.5)(1.0)(0.07)(0.07) + (0.5)(0.5)(0.8)(0.07)(0.04)
+ (0.5)(0.5)(0.8)(0.04)(0.07) + (0.5)(0.5)(1.0)(0.04) = 0.0006 + 0.0006 + 0.0004 = 0.0028
(0.04) + (0.5)(0.5)(-1.0)(0.04)(0.07) + (0.5)(0.5)(0.1)(0.04)(0.04) = 0.0012 - 0.0007 - 0.0007 + 0.0004 = 0.002
E(σDifferent) = E(VarDifferent) = 0.0002 = 0.0141 Therefore, the efficiency for each couple is as follows: =
E(σDifferent) E(R)
0.0529
0.1500 =
0.0141 0.1500
= 0.0940
Now, let us extrapolate further and determine which couple has the best chance to succeed. Using the skills we learned
probability of success can be quantified. (Hint: The negative reciprocal of CV is the z-score.)
1 1 == -2.8353 Z - scoreSimilar = CVSimilar 0.3527 1 1 == -10.6383 Z - scoreDifferent = CVDifferent 0.0940 The area to the right of these values is the probability of success
= 0.3527
for the couple. There is a 99.8 percent chance that the “Similar”
+
CVDifferent =
E(R)
“Different” couple, i.e., bipolar opposites, is more efficient.
understanding that humanistic data follows a bell curve, the
E(VarDifferent) = (0.5)(0.5)(1.0)(0.07)(0.07) + (0.5)(0.5)(-1.0)(0.07)
E(σSimilar)
coefficient of variation (CV) is minimized. Therefore, the
from “Granny on Valuation” in the September 2010 issue, and
E(σSimilar) = E(VarSimilar) = 0.0028 = 0.0529
CVSimilar =
Portfolio theory indicates efficiency is maximized when
couple with the above characteristics will succeed. However, there is a 100 percent chance that the “Different” couple will
succeed! Paula Abdul and Harry Markowitz agree: Opposites do
attract! 6
20
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U
up front
THE HOT SEAT
20 questions - things you need to know or may have been wondering april 2011
the hot seat From the heartfelt advice that will never be forgotten to the toughest property he’s ever appraised, we get the personal and professional facts from US Bank’s Chief Appraiser in our monthly edition of The Hot Seat. 22
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Tony
Pistilli
PERSONAL
Chief Appraiser
>
You can’t always be right.
US Bank
>
Ten years from now I hope I am doing exactly what I am
Minneapolis, MN
doing now… but from a beachfront home somewhere in the Caribbean.
Ten years from now I hope I am doing exactly what I am doing now… but from a beachfront home somewhere in the Caribbean.
>
When I was younger I wanted to be an attorney.
>
I can’t go without Diet Coke.
>
I’ll never forget my mom; I learned so much just by watching her live her life.
>
My parents taught me how to tell the difference between a need and a want. (I don’t always make the right choice!)
>
I’ve never been to Europe, Africa or Australia … all are places I would like to go before I die.
>
A good friend is always there when you need them the most.
>
My favorite time of the day is late at night when everyone else is sleeping. I get the remote all to myself, or I can just sit and read or wander aimlessly through the Internet.
>
My favorite book is The Shack.
PROFESSIONAL >
The most difficult property I ever appraised was two properties on the same site on a lake.
>
The greatest setback for appraisers was appraiser licensing.
>
The biggest challenge to the appraisal/valuation community is to become more consistently professional. With all that Dodd–Frank and the Interagency Appraisal Guidelines mandate, appraisers are going to have to step up to the plate and do what they are getting paid to do!
>
Dodd–Frank is ambiguous, complex, interesting, overdue, frustrating, fantastic, provocative, outstanding, imperfect,
unfinished and ongoing.
>
The biggest technological leap for appraisers was the first few years of emailing appraisals.
>
Ten years from now the valuation industry will be completely different because technology will transform the
>
way appraisals are completed.
If I could change one thing about the valuation industry it would be the way appraisers enter the business. It
should be more similar to other professionals, like accountants, attorneys, nurses and teachers. Graduate, pass the
tests and then practice. The 2,000 hours of experience requirement is impractical, unnecessary and extremely difficult to achieve. >
Before I entered the valuation industry I owned a landscaping/grounds maintenance company.
>
I entered the valuation industry because I needed a job after selling the landscaping company and there was an
The most difficult property I ever appraised was two properties on the same site on a lake.
opening in the Minneapolis FHA office in the valuation department…I had no idea! >
Chief appraisers are undervalued and have great pride in ownership!
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* LIVEVALMAG.COM | 23
| MISMO速 Property and Valuation | Services Workgroup
:
Improving communications in property valuations for mortgage lending
24
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Do all these new terms
MISMO® has recently completed work
The power of MISMO® Version 3.1 is in
and acronyms in the industry today
Version 3.1 Reference Model. This is
provide the common language for all
ma k e y ou r h e a d
s p i n ?
on the latest version of its new guideline, not a file format standard, but rather a
reference model that is used to generate files. It is actually best described as a
the semantics or data definitions, which constituents to share.
The previous versions of MISMO®
consolidated dictionary that is used to
(Version 2 series) were individual,
rapidly and with it comes an increased
it is referred to as a message model.
formats that represented the spectrum
heightened focus on transparency
ground up. A key advantage of XML
including the use of data files in
typing definitions. An XML schema
Language), can leave some of us feeling
elements, and even constrain it within
We all know that technology moves
build files or XML messages. Therefore,
need to communicate effectively. The
Version 3.1 is pure schema from the
and increased reporting requirements,
schema is its ability to implement strong
XML format (Extensible Markup
can define the data type of certain
overwhelmed. XML files are simply
specific lengths or values. This ability
digital documents that are notated so
transaction-specific, individual DTD
(loan application, mortgage insurance, underwriting, valuation, closing,
servicing and secondary marketing). So, you may be thinking, “What’s the difference?” As organizations
implemented V2 structures, they were faced with a number of challenges: g There were multiple conflicting
that they can be read by a software
program. That information, or tags, is
definitions for the same object (e.g.,
and what kind of information the item
17 different definitions of ”property”);
used to identify the name of the item
15 different definitions of ”borrower,”
contains.
and
To understand the content of digital
g Reuse was almost nonexistent across
to create common ground for parties
definitions, sometimes even within
Industry Standards and Maintenance
single Workgroup.
documents, data standards have evolved
the collection of individual transaction
exchanging information. The Mortgage
the transaction definitions from a
Organization (MISMO®) was created
to promote and support the common
System-to-system communications
residential mortgage markets. Its mission
understanding of the meaning of the
business interests of the commercial and
require that both systems have a shared
is to benefit industry participants and
data.
products and services by:
THE NEW MODEL
g Fostering an open process to develop,
MISMO® Version 3 normalizes
consumers of mortgage and investment
promote and maintain voluntary
definitions across the entire mortgage
standards for the mortgage industry;
servicing and secondary for a single,
electronic commerce procedures and
continuum, from origination through
and
common source. The purpose of
g Enabling mortgage lenders, investors,
ensures that the data stored in the XML document is accurate. A DTD lacks
servicers, vendors, borrowers and
strong typing capabilities, and has no
finance-related information and
types. The receiving program must
and economically.
XML schema has a wealth of derived and
other parties to exchange real estate
way of validating the content to data
eMortgages more securely, efficiently
provide for any validation requirements. built-in data types to validate content as well as uniform data types.
this effort is to unify and harmonize
information about the loan or “deal” from every business sector aspect.
Version 3.1 delivers many new areas
including regulatory changes such as
revised information for the Good Faith Estimate and RESPA requirements. It also provides the ability for in-depth collateral information to be >> APRIL 2011
* LIVEVALMAG.COM | 25
MISMO ® PaVS Timeline
incorporated into the loan record
beyond the minimum that is carried
forward today from the appraisal report.
are available in the model and map
across to the format published by the
JU LY 2006
The impact of collateral assessment
Valuation Response v2.4 is released (supports all current GSE standard forms).
property address and minimal property
MAY 2 009
reporting at the loan level beyond the
GSEs - MISMO® 2.6GSE.
The MISMO® Valuation Request/
Response format Version 2.4, based on
the GSE appraisal form, was originally
are critical to the recovery of the housing
Fannie Mae selects current MISMO standards for loan delivery and electronic appraisals to be effective March 2010 (announcement 09-14).
collateral means the ability for lenders,
OCTO BE R 2009
support of its Collateral Data Delivery
characteristics (such as year built and
financial details like loan-to-value ratio) markets. Robust characteristics about
®
rating agencies and regulators to provide
MISMO® publishes v3.0 Consolidated Reference Model.
transparency in risk assessment of the
NO VEM BE R 2009
the potential for improved levels of
collateral underlying mortgage-backed securities.
Services Workgroup (PaVS) is comprised of valuation industry volunteers
Reference Model. The team recently
JU NE 2010
UCDP replaces Fannie Mae’s Collateral Data Delivery (CDD) portal and Freddie Mac joins effort.
Freddie Mac selects MISMO® v3.0 for loan delivery.
review and refine definitions and
to expand the breadth of property
information available in the MISMO
®
Version 3.1 Reference Model.
In addition to custom types, the
MISMO Version 3.1 Reference Model ®
can easily be applied to create a variety of known reporting formats popular in the industry.
MISMO® Valuation Response v2.6 is released.
NO VEM BE R 2010
completed a 12-month initiative to
MISMO® completes public comment period on v3.1 which adds Property and Valuation definitions (all current GSE forms plus hundreds of new valuation data points).
DECEM BE R 2010
Ginnie Mae selects MISMO® v3.0 for loan delivery.
One key is that Version 3.1 provides rich data content in the appraisal process.
UMPD announces UAD format based on MISMO® Valuation Response v2.6 Errata with extension of 49 new data fields and established new effective dates for ‘11/’12.
details required by the URAR
JA NUARY 2011
For example, the subset of
along with the UAD details 26
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Freddie Mac then joined forces in the
Uniform Collateral Data Portal in June
launch schedule for UAD for September
MISMO® Valuation Response v2.6 Errata is released.
expand the MISMO® Version 3.1
(CDD) initiative. Fannie Mae and
JA NUARY 2010
SEPTEMBE R 2010
working together to improve and
in 2010 at the request of Fannie Mae in
2010 and decided to continue to use
MARCH 2010
The MISMO® Property and Valuation
amended and published as Version 2.6
Freddie Mac announces intent to align Loan Delivery to MISMO® 3.0. PaVS Workgroup elects Elizabeth Green, work begins on v3.1.
MISMO® FOR PROPERTY AND VALUATION
published in 2005. It was then slightly
MISMO® sunsets V2 file formats—no further maintenance. PaVS Workgroup completes reconciliation of UAD—20 updates identified.
Version 2.6 because of the initial planned 2010. Using Version 2.6 as a base, the
GSEs published their proprietary format,
MISMO® 2.6GSE, in December 2010. This publication includes 48 new data points specific to GSE business requirements. Also in 2010, the release of a
groundbreaking new version, MISMO® Version 3.0, based on a common
reference model supporting all facets of the mortgage industry, became available, and is now a candidate
recommendation published for use. The PaVS has spent all of 2010 reviewing
and refining the valuation and property sections of the new reference model and has put forward its changes in
Version 3.1 (published as a Candidate Recommendation in March 2011).
This latest version represents the most comprehensive, mortgage-centric
data standard ever published. The
significance of the new version relative
to support of new regulations imposed on the mortgage industry introduced
by the Dodd-Frank Act is tremendously important across the entire mortgage value chain.
Why do data standards matter? Given
the current state of the industry, systemic changes under way in capital markets have increased demand for efficient
data interchange
for true mark-to-market
This means that every detail that can
Lending decisions are
Moreover, better analysis
is now available to the comparable
and transparency.
becoming increasingly interdependent
on data from both
analysis on a life of loan basis. and monitoring capabilities
property, breaking the contrasts of only
of collateral valuation
having the sales comparison grid for
performance over time helps
electronic and
traditional sources; however, the
formats of these
this purpose. Condition and quality
to ensure transparency as to
ratings, along with descriptions and
the current and future value
adjustments, are now available at a data
of the home to both borrower
point level in addition to the aggregate
and investor.
data sources often
are not compatible
rating at the property level. This new
resolve this dilemma,
VALUATION PROCESS AND REPORTING BENEFITS
clients can embrace a
A significant improvement
guideline for collateral
the ability to express more
with one another. To appraisers and their
common information assessment. The
primary mission
of PaVS is to provide data definitions within the MISMO framework that ®
support improved processes for
valuation reporting specific to the
context of residential mortgage finance. In addition to verifying the mapping
of the existing appraisal report forms
commonly used in the industry today, the group has taken an important
additional step to think beyond the limitations posed by a paper form template.
MISMO® Version 3.1 contains the
full set of the definitions used on the current industry-standard appraisal forms including the newly released
GSE Uniform Appraisal Dataset (UAD).
cause of friction between appraisers
and market analysis and reporting
as “refrigerator,” Version 3.1 allows an appraiser to identify specific details
good working order) and include them
the selection of comparable properties.
as reporting details, not just occasional
ability to express a comparable property
the typical “comp grid.”
of individual kitchen equipment such
(i.e., new, stainless steel, sub-zero, in
and their clients is the justification in
commentary. High resolution of
comparable detail dramatically improves appraisal quality. >>
attributes
This is technically done
architectural_design
at the property level
exterior_features
by providing an indicator to designate subject or comparable.
exterior_WALLS FOUNdations
Additionally, hundreds of new data
points for improved, granular property
rather than just indicating the presence
intended user. For example, a common
that can are expressed on
has been applied across the model,
details such as amenities. For example,
organized way that can be
beyond the limited items
specific underlying details. This concept
room level, as well as more intricate
immediately used and understood by the
content available to the subject property
support that overall rating with the
or windows to interior details at the
information in a concise,
using the same data structures and data
level of detail provides the ability to
from construction details such as roof
in MISMO® Version 3.1 is
For example, we have introduced the
be described about a subject property
STRUCTURE
insulation
have been included. Compatible
roof
be seamlessly brought into context of
structure_analyses
also means that collateral analysis,
structure_detail
be managed efficiently and more fully
windows
ultimately enable improved methods
extension
valuation and property data can now the full mortgage loan details. This
management and monitoring can now at the loan level. These new levels
APRIL 2011
* LIVEVALMAG.COM | 27
C ONTAINER NAME TE R M O R CONTAINER NAME
D EFINITION
ROOMS ROOM FLOOR_COVERING ROOM ROOM_DETAIL ROOM ROOM_FEATURES ROOM EXTENSION ROOM ROOM ROOMS ROOMS ROOM ROOMS EXTENSION ROOMS ROOMS_EXT ROOMS_EXT ROOM_DETAIL ROOM_DETAIL AboveGradeIndicator Indicates the room is above grade and can be included in GLA. ROOM_DETAIL ComponentAdjustmentAmount The dollar amount (either positive or negative) adjustment being made for a specific component of the property. ROOM_DETAIL ConditionRatingDescription A free form text field used to describe in detail the condition rating of the identified component. ROOM_DETAIL ConditionRatingType A rating of the quality of the identified component. ROOM_DETAIL LengthFeetNumber The length measured in linear feet. ROOM_DETAIL LengthFeetNumber ROOM_DETAIL LevelType Specifies a particular level in the improvement of a property. ROOM_DETAIL LevelTypeOtherDescription A free-form text field used to describe the level if Other is selected as the Level Type. ROOM_DETAIL RoomType Specifies a type of room normally found in a living unit or residence . ROOM_DETAIL RoomTypeOtherDescription A free-form text field used to describe the room if Other is selected as the Room Type. ROOM_DETAIL RoomTypeSummaryCount Indicates the number of rooms of the type specified Room Type. (e.g. 2 dinning rooms, 3 bedrooms, etc. ) ROOM_DETAIL SquareFeetNumber Identifies the total area measured in square feet. ROOM_DETAIL SquareFeetNumber ROOM_DETAIL WidthFeetNumber The width measures in linear feet ROOM_DETAIL WidthFeetNumber ROOM_DETAIL EXTENSION ROOM_DETAIL ROOM_DETAIL_EXT ROOM_DETAIL_EXT ROOM_EXTENSION ROOM_EXTENSION ROOM_FEATURE ROOM_FEATURE ComponentAdjustmentAmount The dollar amount (either positive or negative) adjustment being made for a specific component of the property. ROOM_FEATURE ComponentClassificationType Specifies whether the component is considered real or personal property. ROOM_FEATURE ConditionRatingDescription A free form text field used to describe in detail the condition rating of the identified component. ROOM_FEATURE ConditionRatingType A rating of the quality of the identified component. ROOM_FEATURE MaterialDescription A free form text field used to describe in detail the material used in the identified component. ROOM_FEATURE QualityRatingDescription A free form text field used to describe in detail the quality rating of the identified component. ROOM_FEATURE QualityRatingType A rating of the quality of the identified component type. ROOM_FEATURE RoomFeatureDescription A free form text field used to describe in detail the identified room feature. ROOM_FEATURE RoomFeatureType Specifies the features of the identified Room Type. ROOM_FEATURE RoomFeatureTypeOtherDescription A free form text field used to collect additional information when Other is selected for Room Feature Type. ROOM_FEATURE EXTENSION ROOM_FEATURE ROOM_FEATURE ROOM_FEATURES ROOM_FEATURE ROOM_FEATURES EXTENSION ROOM_FEATURES ROOM_FEATURES_EXT ROOM_FEATURES_EXT ROOM_FEATURE_EXT ROOM_FEATURE_EXT
room reference example
28
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MISMO速 PaVS in Action We had productive participation for the 2011 January Trimester meeting in Jacksonville, Florida. The PaVS
Workgroup finalized review of some key areas in the
model. To accomplish this task, the team split into small groups and analyzed the sections of the model relating to key areas of the valuation process that had been
posted on the wall. Each group had at least one licensed/ certified appraiser assigned to it. On the first day of
the working sessions, the groups identified practical
appraisal applications within relevant areas contained in the model and brainstormed features using information contained in the model.
Thinking Outside the Box On the second day of the working sessions at Trimester, the findings from the Workgroup exercises were used to articulate business stories from which cases can be developed. Here is an example:
Mark-to-market Analysis Business Case As an entity needing to analyze current market
conditions in a population of properties/collateral
to support mark-to-market analysis, I would like to
compare key property and market data points using the MISMO速 3.1 standard to prepare a data set as input to analysis programs/processes.
Identify key information for the analysis: Property values, supply and demand, median and
average prices, average days on market, foreclosure rate Geographic Trends (by SMSA, by Neighborhood
Boundaries (polygon coordinates), by ZIP code, by county)
Housing inventories, occupancy trends, price range,
typical age and condition, economic indicators, typical financing, percentage built-up, new construction, etc.
>> cont. pg. 47 APRIL 2011
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DO NOT USE / DNU / DO NOT USE
r e is a r App ective persp o reg g nk f r a I FA , RAA
ire
X
DO NOT USE / DNU / DO NOT USE
X
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X
DO NOT USE / DNU / DO NOT USE
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DO NOT USE / DNU / DO NOT USE
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AMC e perspectiv anton
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the exclusive list you don’t want to be a part of | X
DO NOT USE APRIL 2011
* LIVEVALMAG.COM | 31
lender e perspectiv ef s chi u o m y of anon a is e r r p p a onal a n a ti e r lend
BLACKLISTs: A Necessary Evil?
A few weeks ago I received an email asking if I would provide LiveValuation an article on blacklisting from the lender’s point of view.
My initial reaction was: “Wow, thanks a lot, Ernie and Emily – what’d I ever do to you?” You see, I knew from the moment this magazine debuted that the day would come when I would
be requested to contribute an article. Honestly, I am flattered to offer my
insight to this publication’s readers.
However, I did hope that request would be for a topic a little less inflammatory than blacklisting. I know that some readers will dislike what I have to
share about this topic just on principle. Blacklisting is an ugly topic to begin
with and there isn’t a lot of good news 32
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to share about it. Other readers will
understand the subject and agree with
what I’m sharing. I only hope you keep an open mind and don’t blame the
messenger. Before I go any further I
want to state that even though I know this subject well, I am not an advocate
of blacklisting. I feel it is poor business
practice that can do irreparable damage to an appraiser’s reputation, career and livelihood.
I’ve been an appraiser since the ’80s,
having worked as an independent fee
next thing one needs to recognize and
than one national lender. I’ve owned
being placed on a lender’s ineligible
appraiser and a staff appraiser for more my own appraisal shop and have
administered a fee panel for a national lender for more than five years now. I feel that level of industry experience
qualifies me to author this article. The
understand is that being blacklisted and list are two totally different things. One is a necessary fee panel management tool and the other is a “shoot first,
ask questions later” approach to risk mitigation.
+
chief SAYS
To help explain the difference between
didn’t say lenders)
from the definitions of “blacklist” and
ineligible list that
those two terms, I’m including excerpts “ineligible” found on dictionary.com:
have some sort of
identifies appraisers that the entity does
not wish to provide
Blacklist | ‘blak,list | – noun
No.1. a list of persons under suspicion, disfavor, censure, etc.
No.2. a list privately exchanged among employers, containing the
names of persons to be barred from employment because of
untrustworthiness or for holding
opinions considered undesirable.
– verb (used with object)
No.3. t o put (a person, group, company, etc.) on a blacklist.
– synonyms
No.4. b lackball, bar, debar, proscribe, ban, shun, ostracize.
Ineligible | i-’ne-le-je-bel | No.1. n ot eligible; not permitted or suitable.
No.2. d isqualified to function as a juror, voter, witness, etc., or to become the recipient of a privilege.
– noun
No.3. a person who is ineligible, as a suitor or team member.
– synonyms
No.4. d isqualified, unsuitable. As you can see by these abridged
definitions, blacklist and ineligible are quite different. Most industry participants (note: I intentionally
appraisal assignments to or accept appraisal services from. (By
the way, an industry participant could be
a bank, credit union,
appraisal management company, government sponsored enterprise,
Before I go any further I want to state that even though I know this subject well, I am not an advocate of blacklisting.
participants have the
right and due diligence to protect themselves, their stockholders,
investors and their
customers from those licensees that are less than ethical, are in
possession of a limited
I feel it is poor business practice that can do irreparable damage to an appraiser’s reputation, career, and livelihood.
private mortgage
skill set, or don’t care
about customer service. In the lender’s world,
placing appraisers that have been recognized and confirmed as
insurance company or any number
being deceptive, incompetent, or
Anecdotally, there are untold numbers
on an ineligible list is known as risk
of other users of appraisal services.)
of reasons an appraiser could be placed on an industry participant’s ineligible list. However, the primary reason for
placing an appraiser on an ineligible list is to protect the lender from future loss caused by the appraiser.
The main causes for an appraiser being placed on an ineligible list include: • deception • incompetency • poor customer service We know that with all lines of work,
providing poor customer service
mitigation. A fee panel administrator placing a recognized “bad actor” on
their ineligible list is no different than an appraiser choosing not to accept
future assignments from a lender who failed to pay for prior assignments
they ordered, or somebody choosing
not to return to a restaurant after being exposed to lousy service and bad food, right? Placing unethical and unskilled licensees on an ineligible list is really
the lender’s primary defense in limiting wasted resources (i.e., employee time
and expense) and preventing potential future loss.
there are good practitioners and some
Speaking of loss, today the average loss
is no different. Even though the vast
between $100,000 and $150,000, which is
not so good practitioners. Our industry majority of licensees are good people
that are skilled and ethical professionals, we all know there are those among us
who are not ethical and/or skilled. With that in mind, it is not unreasonable to
recognize and understand that industry
to a lender on a loan that goes bad is
why lenders take this issue so seriously. As a fee panel administrator, it can be
very difficult to determine the difference between a deceptive appraiser and an
incompetent appraiser. Regardless, both can be equally expensive to a lender. >> APRIL 2011
* LIVEVALMAG.COM | 33
chief SAYS
An appraiser with
poor customer service can cause a lender to lose more business
in the long run than
either of those types. Like it or not, every
appraiser is a de facto representative of the
lender/client involved in each assignment in
the appraiser’s queue. Appraisers that are
rude to the customer
or lender/client’s staff,
As a fee panel administrator, it can be very difficult to determine the difference between a deceptive appraiser and an incompetent appraiser. Regardless, both can be equally expensive to a lender.
consistently late for or miss appointments,
ineligible list is our
has the chance to do it to them is simply
natural selection (i.e.,
This is also an example of what is
industry’s example of survival of the fittest, “may the best man win,” etc.).
OK, back on topic. What exactly is a
blacklist? For this
involved with.
As stated earlier, an ineligible list is the lender’s defense mechanism intended to prevent loss and fraud, and help retain customers. When properly
administered, ineligible lists are also good for the appraisal industry as a
whole. Hold on! I know that was a big statement. Please, hear me out on it.
Consider this: A properly administered
ineligible list identifies the less desirable licensees among us, prevents them
from providing appraisal services to
the lender, reduces resource expenses, reduces loss for associated industry participants, and effectively directs
more business to the skilled, ethical
appraisers in the area. Nothing wrong with any of those things, is there?
Like it or not, a properly administered 34
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ineligible lists of industry participants you’ve never heard of. It may not be fair, but it happens.
list to remove appraisers from a fee
Anecdotally, a blacklist is a compilation of various industry
participants’ (note:
ineligible appraisers from various
that one assignment the appraiser is
the next thing you know you’re on the
It is an action.
isn’t really a thing.
examples of poor customer service by business that is worth much more than
put on one or two ineligible lists, and
Good business or risk mitigation, call
again, I intentionally didn’t say lenders)
an appraiser can cost a lender future
known as “the snowball effect.” Get
discussion, a blacklist
are poorly dressed, etc., reflect directly on the lender/client. Any of those
good business or risk mitigation.
it what you like – using a combined panel without providing notice or
the opportunity to resolve the issue
is blacklisting, and it has been a real problem for many licensees.
ineligible lists. Compiling a list of
Legitimately, I am not aware of any
industry participants is not blacklisting.
together with the intent to create
It is simply that: compiling a list. The problem for many appraisers is how
a compiled list is used and by whom.
For example, a service provider doing business with numerous industry
participants compiles a list of their
customer’s ineligible appraisers. For whatever reason, the compiled list
is shared with or obtained by other
industry participants. Those secondary
users of the compiled list may conclude that if an appraiser on their fee panel is reflected on that compiled list any
number of times, then that appraiser should be placed on their ineligible
list as a risk mitigation effort. In that scenario the secondary user of the
compiled list assumes the appraiser did something, or some things, egregious enough to be placed on the other
industry participants’ ineligible lists, and that by putting the appraiser on
their ineligible list before the appraiser
industry participants that have gotten a combined list of appraisers to be
blacklisted. I’ve never been contacted by a peer wanting to do that, either.
The truth is we industry participants
are pretty busy trying to compete with each other for business, and don’t
chief SAYS
have the resources or time to schedule
If that risk mitigation
that activity even if we wanted to.
contributes to a “bad
meetings with each other to pursue
Over the years I’ve stumbled across
various lenders’ ineligible lists online, have been inadvertently included in
their distribution lists, and have even had appraisers send them to me. If I
can obtain other industry participants’ ineligible lists with little or no effort,
anyone can. Again, gaining access to
another industry participant’s ineligible
action eventually
actor” appraiser being blacklisted by another industry participant,
whose fault is that? It
is the appraiser’s own fault, and something that the lender can’t control.
list is not a real problem. Improperly
There is yet another
list can be.
appraisers that
using the information contained in that
In the past, lenders were not required to notify an appraiser when or why they had been placed on an ineligible list.
An appraiser that was blacklisted may
never be told of that action or provided the opportunity to defend themselves
and resolve the issue. An appraiser that
was blacklisted may only find out about the problem from another industry
participant that informs the appraiser, “We can’t use your service because
you are on Lender X’s ineligible list.” No doubt about it, being blacklisted stings the appraiser professionally,
emotionally and financially. And it can continue to do that for years.
Remember though, this article is
supposed to be from the lender’s
point of view. At today’s rate of loss
per loan (again, $100,000 to $150,000), lenders can’t afford to allow the use
of recognized “bad actor” appraisers.
problem affecting probably hasn’t
received the attention
Dodd–Frank and other legislation will prohibit an industry participant from placing an appraiser on an ineligible list without written notification of the action and providing the appraiser with the specific reason why, then giving the appraiser the opportunity to defend themselves.
that it should: HVCC. I know, you’re probably
proceed with the loan
through Lender B, the
borrower was required to obtain a new HVCC compliant appraisal using Lender B’s
HVCC protocol, which was not contrary to
HVCC. AMCs began receiving complaints from customers for
using an appraiser who was ineligible with the
lender they were trying to port the appraisal
to; this resulted in an
as portability, which was included in
provide customer service, the AMCs
HVCC for consumer protection. HVCC allowed an appraisal that was ordered in a compliant manner by Lender A to be ported over to Lender B if the
borrower decided not to accept Lender A’s loan terms. The idea behind it was that the borrower should only have to
pay for one appraisal and if their lender didn’t close their loan, the borrower
could have their appraisal ported over to another lender; that second lender could then use the appraisal in their loan process. Portability was a well-
intended idea that did work in the vast majority of cases, however, it didn’t work all the time.
There is no other way to do that than
who provided the assignment for
“bad actor” from providing services.
borrower wanted to
appraisal that was paid for but could
is caused by what is commonly known
The problem for appraisers began when
simply not allowing a recognized
the appraisal. If the
thinking, “Huh?” Right? The problem
Lenders have to use due diligence
and protect themselves from that risk.
to port in or accept
it was recognized that the appraiser
Lender A was on the ineligible list of
Lender B, and Lender B wasn’t going
not longer be used. In an attempt to provided free appraisals using an
appraiser who was eligible to provide
service to the second lender. Ultimately,
the free appraisal policy wasn’t popular with the AMCs for obvious reasons and
they quickly adopted a policy to prevent it from continuing to happen. The new policy was that if an appraiser was on any of their lending customer’s
ineligible lists, then the AMC would not continue to assign that appraiser
work for mortgage purposes (keep in mind that most national lenders have vendor relationships with multiple
AMCs). If an appraiser is on a lender’s ineligible list the appraiser most likely is not being used by those AMCs for anything other than non-mortgage
appraisal work. So in effect, HVCC, which was intended to promote
consumer protection and >> cont. pg. 48
APRIL 2011
* LIVEVALMAG.COM | 35
r e is a ee Appr ectiv oir sp g r e r pe k g n f r a I FA , RAA
Blacklists: blacklists: From Sensible to Unreasonable
The past couple of years have been trying for real estate appraisers involved in the specialty of completing appraisal assignments for mortgage loan origination. The volume of appraisal assignments is down, lenders and other users are filing more complaints with state regulatory agencies, and many appraisers are finding 36
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themselves on the receiving end of
lawsuits seeking damages for appraisals completed during the housing boom –
allegedly for improperly developing and reporting real property appraisals.
To add another straw to the camel’s
back, as a result of originators’ policies, the Home Valuation Code of Conduct, and the Dodd–Frank Wall Street
Reform and Consumer Protection Act, the sources of an appraiser’s or firm’s
assignments tend to be less diverse and
management company’s clients, and may
of dominant appraisal management
on the fee panel.
use of the Do Not Use list and appraiser
Long before licensing and certification of
practitioners. Ineligibility is likely to
lenders, loan originators, mortgage loan
receiving assignments from many of the
own rosters of approved appraisers.
more concentrated in a small group
companies. This last straw makes the
endanger their position as a contractor
blacklists all the more troublesome for
appraisers became the law of the land,
expand and exclude the appraiser from
insurers and guarantors maintained their
+ FRANK SAYS
Even the governmentsponsored mortgage
giant, Fannie Mae, had an approved appraiser
program. FHA appraisers were accepted for
approval and provided
a CHUMS number only after their work was scrutinized. An
appraiser’s clients were
interested in the level of
an appraiser’s education,
Ineligibility is likely to expand and exclude the appraiser from receiving assignments from many of the management company’s clients, and may endanger their position as a contractor on the fee panel.
the amount of experience, and professional
loans in the secondary market.
Despite the federal and Appraisal
Foundation promise of public trust
in the real estate
appraisal profession, lenders found work produced by some
of the credentialed
appraisers failed to meet professional standards, or the
designations. This attention changed
appraiser did not represent the lender
solve the appraisal-related problems
parties of the mortgage loan transaction.
in 1989 when Congress attempted to alleged to have contributed to the
collapse of the savings and loan industry by passing the Financial Institutions Reform, Recovery, and Enforcement
Act (FIRREA). The Act empowered The Appraisal Foundation, and recognized the Appraisal Standards Board as the
source for appraisal standards and the Appraiser Qualifications Board as the
authority for minimum qualifications of practitioners.
Reacting to the promise of the federal
solution, most mortgage lending clients surrendered scrutiny of an appraiser’s
background and experience to the state regulatory agency, and required only that the appraiser have the proper
state-issued appraiser credential. The
exceptions to this abdication of scrutiny are few: the Veteran’s Administration
Fee Appraiser Roster, some credit unions
and community banks. The credit unions
in a professional manner to one or more To protect their interests, the Do Not Use list was born. The names on the
and retention of real estate appraisers, the task of assembling a panel of fee
appraisers has been handed off to vendor managers or appraisal management
companies. If an individual appraiser’s name happens to appear on a specific lender’s Do Not Use list it’s likely the
appraisal management company will, in effect, blacklist the individual from any assignments to minimize the chance of
offending one of their clients. This might be a reasonable and acceptable means
of increasing the likelihood of ensuring
lenders receive credible appraisal reports completed by qualified and experienced appraisers if the creators of the Do Not
Use list provided some transparency to
the process. Unfortunately, the reverse is often true.
list usually included appraisers with a
If the appraiser is informed of their
state regulatory agency. Unfortunately,
is often that their work has been
history of disciplinary problems with the the rationale for placing an appraiser on such a list evolved from being sensible to unreasonable. During the housing
and refinance boom, many appraisers
found their names on such lists, not due to the quality of their work, but because of their resistance to loan originator
pressure to ignore adverse conditions, or failure to “make the number.” In
many instances, the lender neglected to inform the appraiser of the sanction or
the alleged infraction. Only after a loan originator informed the appraiser an
appraisal report had not been accepted due to their ineligibility did they learn their name was added to a mysterious list.
placement on the list, the explanation reviewed, and the review alleged
unacceptable practices. It’s not unusual for the appraiser to find the review was completed by a less qualified,
less experienced appraiser. Curiously,
many of these reviews fail to meet the
minimums spelled out in Standard 3 of the Uniform Standards of Professional
Appraisal Conduct. The appraiser may
find that comparable sales or information unavailable as of the effective date of
the appraisal was used by the reviewer
to impeach or impugn the appraisal and the appraiser. In some cases, the review appraiser was not provided a complete
copy of the original appraisal report and addenda.
and banks with approved appraiser
The Do Not Use list has evolved into
The reasoning in support of an appraiser’s
portfolio lenders not involved in selling
no longer involved in the selection
is likely to be more opaque if the >>
lists tend to be smaller institutions, or
the blacklist. Since most lenders are
placement on a Do Not Use list or blacklist
APRIL 2011
* LIVEVALMAG.COM | 37
FRANK SAYS
Mortgage Asset
Research Institute
(MARI) is involved.
MARI maintains the
Mortgage Industry Data Exchange database
(MIDEX-Complete).
This is a compilation of information obtained
by MARI and includes public sanctions,
information from federal and state regulators, and non-public incidents of
During the housing and refinance boom, many appraisers found their names on such lists, not due to the quality of their work, but because of their resistance to loan originator pressure to ignore adverse conditions, or failure to “make the number.”
alleged fraud or material misrepresentation
subscribers. The
rebuttals, it is clear many appraisers are
a copy of the incident
in mortgage loan appraisals. Also clear
appraiser may obtain report, but it will be
cryptic, will not name the complainant,
and will not include
evidence to substantiate the accusation. Because of their prominence,
name recognition and market position, the
effect of being included in the MARI database may be devastating.
contributed to MARI by participating
After examination of hundreds of
interpretation of these allegations to
nearly equal number of appraisers’
companies. MARI provides their
complaints against appraisers and a
rightfully excluded from being involved is the fact that anonymous complaints,
incompetently developed and reported reviews, and unfounded allegations
are often cited as reasoning to exclude appraisers from some fee panels. Due process is often ignored by the users of the Do Not Use list and blacklist.
Although a few appraisers have resorted to suits against lenders and appraisal
management companies, their results are mixed. An appraiser’s best defense is
attention to detail, a credible appraisal report, an ironclad workfile, and a
prompt, well-developed and supported rebuttal to claims of wrongdoing. 6
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AMC pa erspectiv nto
+
nio
l itt
AMC s AND THE DO NOT USE DILEMMA
Whether you refer to it as a Do Not Use (DNU) list, an exclusionary list or a blacklist, the fact remains that the placing of appraisers on lists that indicate they are not to be engaged for certain appraisal or property types, or that they are not to be engaged under any circumstances, has become an onerous and reviled norm in the lending and appraisal industries.
e
le
To their credit, these exclusionary
Appraisal Sub-Committee’s national
incompetent or dishonest appraisers.
licenses are no longer “compliant,” this
lists have helped to marginalize many But they have also inadvertently caught
many innocent and honest appraisers in their broadly cast nets.
registry that identifies those whose
discovery process is carried out on a lender-by-lender basis.
Domino Effect
Wild Goose…Consider Yourself Chased
Obviously the individual appraiser has
Another hurdle with which AMCs
of blacklists. But there have been many
authorization to access the exclusionary
felt the most direct pain from the use
consequences for valuation companies as well.
Chief among them is the seemingly
simple act of trying to gain access to
the lists themselves, which is not-so-
simple in many cases. Because there is no universal, centralized database of blacklisted appraisers other than the
have to contend is obtaining official
lists. Often, an equal amount of time is
spent working merely to ascertain who among the lender’s staff is responsible for providing the necessary clearance for release of the list to the AMC,
than it takes the AMC, (once the list
is received), to upload it, compare it
against the appraiser panel, and then determine who should be flagged >> APRIL 2011
* LIVEVALMAG.COM | 39
antonio SAYS
for exclusion for that client. And to
it is not complete
lists often vary between divisions of
acknowledgement of
add further complexity, exclusionary the same lender. An appraiser may
be excluded from mortgage but not
excluded from review appraisals or the default group.
The Name Is the Thing In some cases, when ordering an
appraisal, lenders are either hesitant or simply forget to provide the investor’s name. Without knowing who the
investor is, we have no idea which of
the multitude of lists we need to scrub against our panel. Even when lenders are managing their own exclusionary lists, it can be extremely difficult
with a specific
when an appraiser is removed from
the list. In fact, it is
extremely rare for an AMC to be notified when an appraiser has been taken off
the exclusionary list. More often than not,
we hear this from the
appraisers themselves.
To their credit, these exclusionary lists have helped to marginalize many incompetent or dishonest appraisers. But they have also inadvertently caught many innocent and honest appraisers in their broadly cast nets.
And of course, this
the order to an appraiser, received the
lending model safe from unprincipled
appraiser had recently been put on
that lender’s exclusionary list which was an updated version of that was
never provided to the AMC. This can create a contentious relationship not
only between the AMC and their client, but between the AMC and their panel appraiser, and between the appraiser
and the lender. And it’s a situation that
could have been avoided with a simple, routine distribution of the latest DNU list by the lender.
And the converse can be equally
frustrating for all parties involved
– especially appraisers. Often, even
when regular updates to the list are
provided by the lender or the investor, 40
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adjudication process that requires written notice to appraisers
(and AMCs) when an
appraiser is placed on a DNU list, and a process for them to officially
appeal their inclusion on any such list.
In fact, it is quite
very explicitly outlined the procedure
Recognizing, as I do, the necessity of the
a client, only then to find out that the
and formalization of an
work.
which can take time and cost them
frequently report having vetted an
completed report and delivered it to
limited to) the creation
interesting to point out that the much-
The AMC and the DNU
appraiser against a client’s list, assigned
include (but not be
requires confirmation from the lender,
to ensure that you always have the
most up-to-date information. AMCs
These measures would
exclusionary lists to keep the mortgage loan officers, real estate agents and appraisers, there are things that
could make the process more efficient and effective for AMCs and fairer
for appraisers. This would help the
maligned and now defunct HVCC
for adding appraisers to exclusionary lists. It stated that no appraiser could be added to an exclusionary list used
by any entity without prompt written
notice and evidence of: illegal conduct, USPAP violation, state licensing
standards violation, substandard performance, or substandard/
improper/unprofessional behavior or other substantive reason for removal.
whole industry maintain a completely
The bottom line is that everyone—
from coercion, collusion, extortion,
AMCs—wants the appraisal industry to
independent appraisal process free
inducement or undue influence. Since the use of the blacklist is not likely to
cease anytime soon, as an industry it is
incumbent upon all of us to continue to
take steps toward improving utilization.
including appraisers, lenders and
be as robust as possible, and appraisals themselves to be as accurate and
legitimate as they can be. Today, most in the industry would characterize
DNU lists as a necessary evil of the
risk management efforts that lenders
are compelled to undertake. But with
subtle changes to the way these lists are
managed and utilized, perhaps they can be downgraded from a necessary evil to merely necessary. 6
+
Apprais er perspectiv KEN e VErr e tt
The
Blacklisting Issue Time to Address It Again?
It was four years ago that appraisalscoop.com published a series under the “Runt Rants” column that addressed the blacklisting problem. The series discussed blacklists and Do Not Use lists, and solicited examples from appraisers of instances where the system was abused and threatened the livelihood of honest, ethical appraisers.
It was among the most read of the
a rebuttal is requested. The original
generates responses from appraisers
lender’s special review panel and their
“Runt Rants” series, and to this day still who have suffered from the system
that was rampant then and still exists today. It is an emotional issue, for it reeks of the potential for severe
damage to innocent independent fee
appraisers, while at the same time being a useful tool to weed out dishonest
review and the rebuttal are read by the decision is final. Those appraisers that
are found seriously deficient are notified of the deficiencies and are placed on a Do Not Use list for that lender.
Do Not Use lists benefit the lenders and the appraisal profession. The
and unethical appraisers among us. In
dispute resolution process allows the
approaches to the issue: Do Not Use
and his credibility. The dishonest
that series we attempted to define two lists and blacklists.
5 Do Not Use lists A fair policy is created and enforced. The lender conducts reviews of
appraisals by experienced, local experts.
honest appraiser to defend his report
appraiser fails the rebuttal opportunity and his business and damage is
curtailed. That helps the lender,
the public and the ethical appraiser profession. >>
Those reports found seriously wanting are sent to the original appraiser and
APRIL 2011
* LIVEVALMAG.COM | 41
KEN SAYS
5 Blacklists
Over time the
The lender uses input from their
lender who uses
appraisers from future use. Complaints
approach culls out
loans not being made. The complaints
appraisers who do
notification or recourse procedures, and
pressure in favor
other lenders, compounding the loss
values.” That hurts
often does not learn of the problem
and the ethical
It is an emotional issue, for it reeks of the potential for severe damage to innocent independent fee appraisers, while at the same time being a useful tool to weed out dishonest and unethical appraisers among us.
line employees or agents to exclude
the blacklist
include value conclusions that result in
the independent
are not properly screened, and have no
not yield to value
the exclusions are often shared with
of those who “hit
of business. The blacklisted appraiser
the lender, the public,
for months, if ever, as the lender
appraiser profession.
the decision with the appraiser.
The blacklist series
Blacklists are bad for the lenders and the appraisal profession. They
examples of blacklisting. We received
from future assignments simply for
Clearly there existed a threat to the
reporting their independent opinion of
to the appraiser profession. The series
instances of appraisal values coming
of action that could be taken.
from commissioned loan officers and
5 Blacklists violate due process. They
discourages their staff from discussing
asked readers to send real-world
scores of examples and published 26
encourage the banning of appraisers
of them. Each instance was disturbing.
not remaining independent, or for
soundness of the lending process, and
value. In times of declining markets the
concluded with three alternative courses
in below expectations rise. Complaints mortgage brokers naturally rise.
clearly fall under the legal definition of Tortuous Interference with
Prospective Advantage. A suit by individuals or by class
action could be filed against
the lenders who use blacklists
to violate due process and who
engage in Tortuous Interference with Prospective Advantage.
5 Another alternative suggested was to bring industry focus
on the issue, making the case
that blacklists harm the good lending industry and the
good appraiser profession by allowing abusive loan
officers to eliminate appraiser 42
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LVM
independence. We suggested that the
blacklisting issue be put
on the agendas of national and regional conferences
of lenders and appraisers and appraisal regulators.
Let both sides discuss and defend their practices and propose solutions.
Open Discussion Helps Class action suits have
been filed since that blacklist series. I’m
aware of three and there are likely more. After the blacklist series I received
a call from the New York Attorney
General’s office. Mr. Cuomo was then
head of that office and was conducting investigations into lender abuses. We discussed the blacklist problem and
the abuses that had been chronicled. I put each of the appraisers whose
cases were cited into touch with the
New York Attorney General to discuss their situations further. The Attorney
General investigations expanded into
many fronts and ultimately resulted in the Home Valuation Code of Conduct (HVCC).
The Mortgage Bankers Association had created a committee in 2007 that was
charged with making recommendations to improve the policies and procedures that their members followed in the lending process. A member of that
committee shared a draft of their final recommendations, which included
many of the points that we had raised. He indicated that the committee had
KEN SAYS
been aware of the Appraisal Scoop
own staff. (The AMC
deliberations.
80 percent of the
series and it had influenced their
Those responses indicate that public discussion of the blacklist issue can
yield positive results. Two of the most
frequently mentioned lenders who used the blacklist approach are no longer in
business today. Their portfolios were in severe distress and their practices were unveiled for all to see and judge. Their businesses subsequently merged into other institutions.
If Not a Conspiracy, Then What?!
oligopoly controls
mortgage origination market in the USA.) 5 The National
Association of
Realtors (NAR) continued to
promote Broker
Four years after the series ran I still receive emails from individuals who suspect they have been the victim of a lender blacklist; the most recent being last month.
(BPOs) as an
working for lenders and AMCs, eliminating the
word “independent” from their status?)
Each of these noted developments
represents an attack on the independent fee
appraiser profession,
push was aided by state regulators
conclude that these are deliberate
and local Realtor associations who continued to “look the other way”
years. In my view there have been
statutes forbidding BPO use for any
5 Dodd-Frank
groups.
Dodd-Frank was enacted last summer.
5 The HVCC summarily shifted
beleaguered independent fee appraiser
It held hope for some relief to the
business from local, vastly ethical
profession, including regulation of
between lenders and appraisers.
fees to the independent fee appraisers.
largely the AMC oligopoly. Many
powerful lobbying groups have gone
businesses and the HVCC provided
regulators to create the details. We now
developed and driven by the New
has not just been softened, but returned
Fannie and Freddie.
relief to the massive haircut business
and productive relationships
AMCs and reasonable and customary
The beneficiary was the AMC,
Tables have quickly turned as the
independent fee appraisers lost their
to work. Dodd-Frank left it to the
that opportunity. The HVCC was
see that “reasonable and customary”
York Attorney General as well as
to the status quo. There will be little
5 The AMC oligopoly began a process
identified for those
attacks that have clearly been
by independent fee appraisers. This
purpose other than securing a listing.
the profession from various powerful
class of appraisers be
alternative to appraisals performed
Much has happened in and to the
significant, insidious attacks upon
(Shouldn’t a new
Price Opinions
regarding enforcement of many state
appraisal profession in the last four
the appraisal process.
model controlled by the oligopoly. Relationships between the new
of hiring formerly independent fee
regulators and the oligopoly have
of controlling 30 to 70 percent of their
now continue their process of hiring
appraisers as employees with the aim
clearly been established, and the AMCs
appraisal assignments within their
formerly independent fee appraisers
successful. A cynical person could moves. Blacklists represent a back-room, “Black Op” approach to intimidate
and even eliminate independent fee appraisers.
Four years after the series ran I still
receive emails from individuals who suspect they have been the victim
of a lender blacklist; the most recent
being last month. Since 2007 we have
experienced the latest credit crisis, one
that brought our country and the world into a global recession. Residential real estate market values have declined
significantly, and continue to decline. More emphasis is also being placed on the critical importance of the
underlying value of the assets contained in mortgage-backed securities. More
emphasis is being placed on the value
of the independent fee appraiser in the lending process.
Isn’t it time to address the Blacklisting issue again? 6
to staff positions to exert control over APRIL 2011
* LIVEVALMAG.COM | 43
L
V
F EBR U ARY Reading this article and the reviews gives me some hope that I am not the last man standing as it were! I am not the only one who thinks the underwriter most likely was selling shoes at Macy’s last week! Does anyone else get request such as: “You inspected the property this morning, can we expect the verbal before 5:00pm today” (sound of self inflicted gunfire goes here!)
M
- R C Cooke
septemb er I’ve been appraising since 1991 when our company had just raised fees to $400 for a normal, typical everyday appraisal. I’ve seen AMC’s offer between $195 and $350 for the same product AND rarely more for unique, rural or acreage properties. What other industry would accept a 12.5% to 51.25% pay cut after 20 years of experience? And the AMC’s wonder why we don’t return their calls when they contact us on the hour every hour for status updates. - oregon appraiser decemb er/january All I can say is the AMC process will be here indefinitely. But all we can do is push our congress to regulate AMC’s very harshly. I don’t know about anyone else but I am tired of competing against appraisers that live 2 hours away that have no business appraising in my rural area. - dmc
april
may
june
{ FEATURE }
Coming Together and Reconnecting to Improve Our Industry
Re-Engineering The Appraisal Process
Connecting industry peers is critical if we are to improve our credibility and enhance our voice for the future
Are We Ready Yet? Leland Trice
1.1 4-2010 copyV3.indd 1
pg 16
1.3 copyOUTLINES.indd 1
4/16/10 9:13 AM
Beware of peter christensen Beware of Borrower Borrower Reducing the risk of legal claims.
leland trice, sra, frics Re-Engineering the Appraisal Process Are we ready yet?
Reducing the Risk of Legal Claims
1.2 5-2010.indd 1
Peter Christensen pg
18 5/5/10 11:01 AM
The Good
the
october
november
december/janu Do YoU kNow
who Is REVIEwINg
YOUR
AppRAIsALs? p32 Low AppRAIsALs:
the blaMe
GAME
FEATURE
3
p14
ways to INCREASE
business
From the net p18
| FEATURE |
FINAL 1.8.indd 1
brad stinson
1.6 October 2010.indd 1
44
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LVM
1.7 November 2010.indd 1
ZAIO... The Long and Winding Road The rise, fall, and reinvention of a valuation technology company. 10/12/10 2:22 PM
tony pistilli
10/29/10 11:58 AM
The Dawn of a New Era in Appraising Appraisers who adapt to the transforming valuation space will have a bright future.
e
things we’ve heard When you read parts or full copies of articles in other publications, see quotes from the magazine, and hear other appraisers discussing the articles, you know you have been a part of a good thing.
thank you
- Steve Papin
from the editor
I would like to extend a big THANK YOU to all of our readers, authors and advertisers of the magazine. You are the ones that make our jobs here exciting, fascinating, mind-boggling (at times) and ever-changing. We pour everything we have into each issue of LiveValuation Magazine in hopes that it will be well received among the community of our readers and hopefully we’ve lived up to that goal. This year has flown by and has been nothing but fun! Happy anniversary, LiveValuation Magazine – here’s to another great year to come.
july/august
september { FEATURE }
In just 12 short months, LiveValuation Magazine has firmly established itself at the top of my monthly must-read list; presenting fresh and relevant analysis in a time of rapid change, plus a sprinkling of unapologetic opinion, LiveValuation stands out head & shoulders above its cohorts. - Fred Holtsberry
Having been responsible for publishing magazines for trade associations, I appreciate the effort that goes into a quality magazine like LiveValuation. Better still, it is refreshing to see an industry pub that is objective and succeeds in giving coverage to all sides of an issue. Way to go! - Don Kelly
y
6/15/10 11:27 AM
chuck mureddu
Coming Together and Reconnecting to Improve Our Industry Connecting industry peers is critical if we are to improve our credibility and enhance our voice in the future.
AMCs:
d, the Bad &
Oligopoly
nuary
Ken Verrett, p24
mark chapin
Appraising in the 21st Century Collateral is king again and appraisers are expected to work harder and smarter. FINAL OUTLINES 1.5 September 2010.indd 1
Something About a Forest and Trees february LELAND TRICE, p28
jordan petkovski
Customary & Reasonable Fees Who decides what is “customary & reasonable”?
LiveValuation has proven to be a valuable and trusted resource for the professional appraisal community in its first year of business. Both the print and online versions are high-quality publications and the Herbert H. Landy Insurance Agency is pleased to participate with LiveValuation as an advertiser and editorial contributor. - John Torvi
9/3/10 11:08 AM
march
Nice to see a magazine that actually tackles the tough issues related to our ever-changing industry in such an open and honest way. There is not slant, just facts and these issues are discussed from industry professionals having to practice in the real world! - Brad Davis
PRIOR ACTS:
will your past
haunt
YOU?
?
p20
HAVE WE
OUTGROWN
U S PA P
p34
LEAVE YOUR
EGO BEHIND p40 12/17/10 4:34 PM
1.9 Feb 2011.indd 1
ken verrett
AMCs: The Good, The Bad & The Oligopoly There are benefits of working with AMCs if you play the game right.
1/14/11 9:09 AM
leland trice, sra, frics
Something About a Forest and Trees Scope Creep: What lax standards caused, unreasonable standards will not cure.
ernie durbin II, sra, crp Breaking the Paper Chain
The freedom of an electronic office.
LiveValuation is the one magazine that I open immediately upon receiving my hard copy in the mail. The layout and look of this magazine is fresh and easy to read with fabulous graphics. The articles are always interesting and well written by people and appraisers that I admire in this industry. Thank you for creating such a great magazine and congratulations on your anniversary! - Kelly McClain
APRIL 2011
* LIVEVALMAG.COM | 45
VOICES OF VALUATION
8
VOICES OF VALUATION Last month’s articles sparked a lot of debate. Here are some responses from our readers.
MLS and AVM Mash-ups
7
2 1
LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM
do you have something to say?
www.livevalmag.com 8
Bbsgarden The MLS data can be just as bad or worse than public records. A knowledgeable Realtor and/or appraiser can do a far superior job than any AVM. Statistics that can be tweaked to anyone’s objective? I think we have seen how well that worked for the credit rating agencies. Guest As both an appraiser and Realtor I am surprised at how incorrect the MLX data really is. Some realtors will list a single family home with illegal additions twice, once under “single family” and again under “duplex/income properties.” Some also include the illegal addition square footage in the MLX listing. Also, with so many people in default on their home loans and short sales becoming more common, to list a home for sale at a higher listing price to prolong the short sale is becoming common practice. There is no substitute for a “real” thinking appraiser.
Is Mobility a Myth?
Ben Goheen I can see where being completely mobile is an advantage. However, it seems to work best in warm weather climates with little rain, not here in Minnesota. Dropping a $600 iPad in 2’ of snow is enough to make anyone nervous, where a $10 clipboard can easily be brushed off.
Wall of
Shame We know you’ve been there – do stupid requests leave you pulling out your hair!? Well feel free to let loose on our Wall of Shame. Everyone remains nameless so no one gets hurt - it’s just a good ol’ venting session. Submit your Wall of Shame-worthy comments to info@livevalmag.com. We promise, you’ll feel better after you do!
46
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Unf@*%#believable! I have a request from an underwriter to bracket my subject’s GLA with a comp that is smaller and a comp that is larger. Keep in mind that this is a condominium unit and the appraisal has five comps that are exactly the same GLA as the subject. Unf@*%#believable! I believe this is the stupidest request in a 20-year career.
continued from page 29
in business transactions with their
the
MISMO®
respective trading partners. MISMO® structures can be extended using
fact sheet
proper protocols to include proprietary data elements. In 2011, the MISMO®
Property and Valuation Services (PaVS)
MISMO® (Mortgage Industry Standards and Maintenance Organization) is an open data standards group that:
Workgroup will be working to develop
the implementation guidance for related
topics using Version 3.1 Reference Model including the topics listed here from our
MISMO® v3. 1 Suggested Areas of Interest .... PROPERTIES/PROPERTY/MARKET/ MARKET_INVENTORIES/MARKET_ INVENTORY .... PROPERTIES/PROPERTY/MARKET/ MARKET_TREND .... PROPERTIES/PROPERTY/
January 2011 Trimester Meeting:
g Improve the productivity and
NEIGHBORHOOD_INFLUENCES/ NEIGHBORHOOD_INFLUENCE .... PROPERTIES/PROPERTY/ PROPERTY_VALUATIONS/ PROPERTY_VALUATION
Coming Soon At press time, Version 3.1 is scheduled
for a vote to Candidate Recommendation status by MISMO® Architecture
Committee in late March, 2011. This step
will signal that the new version has been scrutinized by the MISMO® Workgroups
and has completed a Public Review.
It is now ready for publication to gain implementation experience. The final step will be Recommendation status after at least two organizations have
g Reduces processing costs
appraisers
g Boosts investor confidence in
resulting in better appraisals and Benefits – have the ability to analyze large sets of data easily
Benefits – reduce exceptions and
stipulations and improve
mortgages and real estate as asset classes
g Dedicates standards for the
development, maintenance, and
promotion of data standards for both the residential and commercial real
g Support for Macro and Micro market analysis (Market & Neighborhood)
estate finance industry
g Develops a comprehensive, consistent and repeatable framework of
LENDER
common data elements that facilitates
g Engagement/Valuation requirements
innovation in services and technology
and special instructions
AGGREGATOR (Warehouse lender to Investor through to end-investor, etc.) g Collateral risk assessment for speedto-purchase
MORTGAGE INSURANCE COMPANY
MISMO® Property and Valuation Services Workgroup volunteers are: g Seasoned appraisers (from both the field, intermediaries and lenders)
g Collateral Policy representatives from lenders, investors and the GSEs
g Technologists (appraisal software providers, management platform
g Underwrite a non-delegated collateral
providers, MLS organizations, etc.)
package
RATING AGENCY g Pool level rating based on market
condition of the underlying collateral
VALUATION SERVICES PROVIDERS (AMCs, AVM
Version 3.1 Use Cases Under Development
providers) g Interoperability for appraisal audit automation, validation to lender requirements
define how the standard will be used
g Increases transparency
acceptance rate of reports
successfully implemented it.
Companies that implement MISMO®
providing common definitions
accuracy of the appraisal process
HOUSING
NEIGHBORHOOD/
mortgage transaction participants by
APPRAISER
NEIGHBORHOOD/HOUSINGS/
.... PROPERTIES/PROPERTY/
g Promotes consistency among
Open Standards Defined: g The standard is governed by a
formalized, not-for-profit organization
g The governance process provides stewardship and transparency, enabling trust in the data and
facilitating interoperability between multiple constituents >>
APRIL 2011
* LIVEVALMAG.COM | 47
continued from page 35
g Strict antitrust and intellectual
property policies are in place to
ensure it is not encumbered by IP claims
g There are no fees associated with the use of the standard
g Discussion and participation is
open to all via MISMO® Workgroup list serves and meetings (over 2500 listserv individual participants)
MISMO® PaVS Statistics: g v2.6 Errata Valuation Response
contains the data points on the GSE appraisal forms as of 2005
g V3.1 was created from all the data in version v2.6 plus the contributions of the Workgroup and contains
hundreds of new and improved
data points related to valuation and property information
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of MBA, MERS or the MISMO® organization or any members or sponsors. The MISMO® Property and Valuation Services Workgroup is an all volunteer effort. 6
appraiser independence, effectively created additional costs for borrowers and prevented many appraisers from doing work through third-party vendors. I’m not 100 percent sure this is a true example of blacklisting, but I do know that it is an unintended consequence of HVCC. Now that you understand the difference between the terms ineligible and blacklist, what should you do if you discover that you’ve been blacklisted or placed on an industry participant’s ineligible list? The first thing you need to do is contact the entity whose list you’re on, professionally request information as to the reason why, request the opportunity to resolve the issue, then work with the entity to resolve your problem. Unfortunately, it can be much more difficult than it sounds for many reasons, including an industry participant’s internal policy and confidentiality agreements, among others.
There is some good news for appraisers regarding this topic. Dodd–Frank and other legislation will prohibit an industry participant from placing an appraiser on an ineligible list without written notification of the action and providing the appraiser with the specific reason why, then giving the appraiser the opportunity to defend themselves. So going forward, blacklisting should be greatly reduced, if not eliminated, from our industry. I think that is a positive change for us appraisers and I welcome that change as a fee panel administrator. However, Dodd–Frank and other legislation regarding this topic are not retroactive. If you are currently on an industry participant’s ineligible list, that entity is not required to revisit the issue, provide you notification, or give you the opportunity to defend yourself. It is your issue to resolve. Understand though that if you find yourself on an ineligible list in the future, or if you’re on one now, the lender probably has a darned good reason for it. You might just have to accept the fact that the industry participant acted appropriately, was within their rights, and you’re being treated reasonably for something you were responsible for. Being on an ineligible list, in most cases, is no one’s fault but the appraiser’s. 6
things Appraisers See
From an aircraft parked on the front lawn to a run-in with a bear, appraisers come across many photo-worthy sights on a day-to-day basis.
We are bringing back the section Things Appraisers See to feature your personal bear and aircraft moments. So shoot us your photos at info@livevalmag.com or simply log on to our website to upload them under Things Appraisers See and look for them in an upcoming issue.
48
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2
directory
DIRECTORY ACI
PRIDE.
800.234.8727 aciweb.com
Acorn Appraisal
SFREP
713.681.8878 acornappraisal.com
The Berger Company
800.523.0872 sfrep.com
Stage Capital, LLC
619.225.2225 thebergercompany.com
202.640.8912 rstaiger@gwmail.gwu.edu
Buildfax
Relocation Appraisers and Consultants
877.600.2329 buildfax.com
Gregoire & Gregoire
727.344.3393 fl.living.net/realtor/gregoire
Global DMS 877.866.2747 globaldms.com
Intercorp
800.640.7601 intercorpinc.net
LANDY
800.336.5422 landy.com
LIA Administrators & Insurance Services 800.334.0652 liability.com
PASSION.
MISMO
800.646.6377 mismo.org
PROFESSIONALISM. Relocation Appraisers & Consultants RAC is a nationwide organization of Independent Appraisers who are trained professionals in relocation appraising.
What distinguishes RAC from all other appraisal organizations l
appraising and consulting.
972.658.9216 rac.net
TSI Appraisal
l
612.973.2559 usbank.com
The majority of our organizational activities are devoted to education,
877.762.5342 tsiappraisal.com
US Bank
Our exclusive focus on relocation
research, and client outreach. l
Each of our select group of members is considered the relocation appraisal experts in their respective markets.
Weichert Relocation Resources 877.882.1290 wrri.com
Valocity, LLC 612.235.5600 valocity.com
For more information visit our web site at: www.RAC.net
APRIL 2011
* LIVEVALMAG.COM | 49
}
FOR WHAT IT’S WORTH
}
FOR WHAT IT’S WORTH
Last week I had a toothache and went to the dentist. I have been there countless times over the years and he has always fixed me up. I knew the minute I called for the appointment that it would be like any other visit; my confidence in his abilities has never wavered and the start of the visit was status quo. As he poked and prodded at my teeth,
he described with certainty what he saw, what it was and what could be done
to cure it. “See,” he said, “you have a
whatchamacallit on the left side of your mouth. I’ve read and heard about them
The Right Tools at the Right Time
Joseph Palumbo, SRA
and I have been wondering when I would see one.” “Great,” I said. ”You can get
rid of it then. Good thing I called you.”
“Well, not exactly,” the dentist said. That’s when the mood and my feelings changed. “You see, there’s a new tool that I need
to be able to work around the sensitive gum area. I also don’t have the right
equipment for the extraction I need to do
after I work with the new tool. Sorry, I do specialize in this stuff; I just put off the
purchase of the new equipment because I didn’t have a promise of steady patients
who need the procedure. You understand, right?” he asked, “Ahh... yeah,” I replied. “I thought you could help.”
As I left the dentist’s office with a wad of
cotton in my mouth, my cell phone rang.
It was my plumber, who was sitting in my driveway. I had called him earlier in the day about my leaky sink. I raced home to let him in and he diligently started
working on the pipes as the small talk
flew back and forth. Then came the news: “Ah, I see the problem. You need a clamp
here and bypass there.” “Great,” I replied. “How long will it take and how much
will it cost?” I asked. “Well,” he said, “the bad pipe is rusted and the clamps I have are the old ones. They will fit but they
may leak a bit.” I led him out to his truck and pondered my next move, wet rag in 50
|
LVM
hand, cotton in mouth. Not a good day,
I thought. I am a disappointed customer twice today.
The Worldwide Employee Relocation
Council came out with a new Summary Appraisal Form in late 2010 for use in
2011. Like the FNMA form, the changes
in the market warranted a better way to
report the analysis. The form was revised from an earlier version, and the revisions where done via user group interfaces
with a task force of subject matter experts. The form is not all things to all people
but it is this: a new industry tool. Users
(clients) of appraisal services see and hear about these tools. By logical extension
users expect the latest and would rather not hear that you “know what you are doing.”
Having the latest and greatest tool says something about you as a professional. There are a lot of things forced on
appraisers that are negative and outside their control; this is not one of them.
Just for the record, it should be noted
that it is the appraisal (development) that makes the appraisal, not the form. The point is that every professional should have the right tools at the right time. We do all we can when we update a
resume to make ourselves attractive from a business perspective. In an industry
that has a large share of unintended and misinformed users, image is critical.
When you look in that toolbox, no one
really cares about why you don’t have the right tools, they just know you don’t have them. 6
Appraisers: Make compliance laws work FOR you not AGAINST you
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APRIL 2011
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Using S.M.A.R.T., studying seasonal trends and what the market is doing in the “macro” and the “micro” of my subject area is a breeze. The visual graphs have helped me more than once as a supportive visual aid to the underwriters. This software has not only made my appraisal job easier, but has actually taught me on a deeper level, how to understand the ebb and flow of the market place. S.M.A.R.T. is a must have for my company and I
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