After years of taking it on the chin– with finger-pointing lenders looking to put the blame for faulty boom-era lending on appraiser’s shoulders and penny-pinching managers turning to automated valuation models and broker price opinions – has the tide finally shifted in favor of the appraiser?
There are signs the answer may be yes.
“I’ve talked to a lot of the [appraisal management companies (AMCs)], and they’re just inundated,” said Jerami Marshal, chairman of the Massachusetts Mortgage Lenders Association. “I know a local Boston AMC who’s getting 3,000 orders a week. It’s insane.”
Beginning in November, both Fannie Mae and Freddie Mac will allow banks who refinance loans as part of the federal Home Affordable Refinance Program (HARP) to do so without making “representations or warrant[ies] as to the condition of the value, marketability, or condition of the subject property” – but, critically, only if the lender has a full appraisal done.
That’s a big shift, said Steve Sousa, executive vice president of the Massachusetts Board of Real Estate Appraisers. When the HARP program began in 2009, guidelines left it up to the lender to decide what evidence to use to support the value of the loan, “which could also include the original appraisal that was done for the loan,” he said.
“But if I’m a lender and I’m looking at this and I’m wondering whether to spend $350 or $400 and get an appraisal done and be relieved of all these reps and warranties, I might be willing to spend that money, even it comes out of your own pocket, just for that assurance,” Sousa explained.
Making Money
That could be a boon to the HARP program. But it also indicates a shift in the GSE’s attitude toward appraisals, one taking place in the larger industry as well. For years, during the boom and after, lenders pushed to cut costs – and, some would say, corners – on appraisals. They relied more on automated valuation models (AVMs), computer programs that use comparable sales data to come up with a value. They also turned to broker price opinions (BPOs), a rough estimate of the appropriate sales price for a property delivered by a real estate agent. BPOs, which can be obtained for less than half the cost of an appraisal, were particularly appealing to lenders looking to market short sales and other distressed property.
But now, as the market begins to recover, it seems lenders are again learning to believe in the need for full appraisals, in order to fight back the specter of buybacks. Fannie and Freddie have taken a jeweler’s loupe to all that fine print on loan documents, and the least deviation from their guidelines can send a soured loan straight back onto its originator’s books. Having a full appraisal done is one way to for lenders to keep their underwriting buyback-proof.
It’s hardly even worth it anymore to attempt to complete a refinance without a full appraisal, said Amy Tierce, regional vice president at Fairway Independent Mortgage.
“You might as well just do it from the start, because very few truly get waivers,” Tierce said. “I think they’re just taking the few stragglers out of it and saying ‘you know what, we’re getting a full appraisal on everything.’”
From the appraisers’ side, it can be difficult to tell whether an increase in orders is driven simply by interest rate changes, or by changes to lenders’ underwriting guidelines, said Jonathan Asker, owner of West-Bridgewater based North Atlantic Appraisal. But they’re certainly feeling the effects.
“All I know is, we’re making money,” he said.
Email: csullivan@thewarrengroup.com
