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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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your monthly valuation publication

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LVM04.11 +

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+ Departments

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24

Up Front The Blacklisting Issue

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Best Practices How to write a service agreement.

Mar k B e r g er, M AI, SRA

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Lender Perspective an on ymou s c h ief apprais er of a n ati on al len der

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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

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10

Featuring Tony Pistilli, Chief Appraiser

Staiger on Stats

US Bank.

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Voices of Valuation

The Hot Seat

Inside This Month

AMC Perspective an ton io little

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Appraiser Perspective Ken Verrett

24 49

Common Ground

Directory

Improving communications

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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.

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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

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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

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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.

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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.

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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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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.

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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

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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.

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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!

APRIL 2011

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| MISMO速 Property and Valuation | Services Workgroup

:

Improving communications in property valuations for mortgage lending

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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

* LIVEVALMAG.COM | 29

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DO NOT USE / DNU / DO NOT USE

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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

|

LVM

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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LVM

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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Visit us at www.e3amc.com LIVEVALMAG.COM | 51 or *call 1-877-891-2620

APRIL 2011

ACI2010™

JUST PLAIN

Statistical Market Analysis in Real Time

ACI invites you to add S.M.A.R.T. to your line-up. S.M.A.R.T. is a gamechanging market analysis tool that integrates directly with ACI2010.

Why choose S.M.A.R.T.?

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Import Active, Expired, Pending, Withdrawn and Sold listings directly from your MLS systems using Neighborhood boundaries that YOU define!

Interact with the S.M.A.R.T. Dashboard to create powerful color charts to illustrate the current climate of the subject property’s market.

Auto-populate the 1004MC Addendum

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

Auto-Populate the 1004MC

am so glad that I found it.

-IL Appraiser

Powerful Charts and Graphs

No Monthly Subscription!

S.M.A.R.T. works with ACI ChoiceCreditsTM so there are no license fees or monthly subscription charges.

Get Started with S.M.A.R.T. today!

Call ACI Sales for more information.

Call 800-234-8727

AppraisersChoice.com

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