Is That a Light at the End of the Tunnel?

Or a freight train?

Due to economic upheavals that this nation currently faces, wholesale changes are on the way. Some changes will actually benefit some of us. Other changes will make life miserable for some us. So, on average, it's all good, right? Y'know, if you had one foot in boiling water and the other one in ice cold water...on "average" you'd feel alright. /insert Dr. Evil's voice here/ "Riiiiiiiiight"

Well, back in 2007, New York's attorney general, Andrew Cuomo, announced that he was going to sue one of the country's largest appraisal management companies, eAppraiseIt, and it's parent corporation. Why? Because he had proof that they were allowing one of their client's, Washington Mutual, to hand-pick appraisers who they knew would inflate home values. Hmmmm...

Please read this article for a concise story of how it went down:

http://www.consumeraffairs.com/news04/2007/11/ny_wamu.html

This isn't an isolated instance. I provide you another article about a Seattle law firm that is suing Countrywide and Landsafe for rigging the appraisal process.

http://narblog1.realtor.org/mvtype/appraisalinsight/2009/01/countrywide_and_landsafe_sued.html?&WT.mc_id=LS012109&CAT=App

There are literally more articles out there with similar stories than I could post on my blog. Those two are just random samples. Nice press for appraisers, right?

So, like I said earlier, change is on the way. In what form, you ask? Let's start with the HVCC. The HVCC is the Home Valuation Code of Conduct. Fannie Mae and Freddie Mac, both government sponsored enterprises, have decided to adopt the code. Essentially, what will happen is the mortgage loan broker will no longer be able to choose the appraiser for an assignment. Instead, an AMC, will select an appraiser from its list. In theory, the appraisers will come up on a rotating basis and no single appraiser will receive more than another. That's good and that's bad. Here's why.

First, if you're not on the AMC's approved list...perhaps one that has a contract with a large lending institution...then there's no way in the world that you will ever get work from that lender again. Not on the list, S.O.L. And I can't help but wonder...did we learn anything from eAppraiseIT's infamous list? Does everyone get to be on the "list"?

One thing's for certain. If you are on the list, you'll be guaranteed work. Yeah, should be. But here's the caveat. For the "right" to work with the AMC, you have to offer them a discount on your appraisal fee. Typically, appraisers in our market earn $300 to $400 for an single family residential appraisal now. But with the AMC, they want the appraiser to accept between $200 to $275 per assignment. Ouch! That's gonna leave a mark.

In our market, like it is in most markets I presume, the Pareto Principle is in effect with regard to market share. The Pareto Principle, in case you're not familiar, states that roughly 80% of the effects come from 20% of the causes. You may have heard it called the 80/20 Rule or the 80/20 Principle. It actually can be a pretty accurate "thumbnail" look of most things, though. Take for instance our market here. I think it would be safe to say that roughly 80% of the appraisal work goes to about 20% of the appraisers.

Pop quiz time. If you've read my previous blogs about appraisals/appraisers you should be able to answer this without looking back. What one word is used by the lenders and Realtors to describe the appraisers in the 20% bracket? Come on, you can do it. Are you still thinking? Times up. The answer: good. So, doing my best impression of President Clinton, "It depends on what the meaning of the word "good" is." Maybe we should delve deeper into this.

I recently spoke with a lady who claimed to be a former appraiser. She also said she presently was a Realtor; although, she was working in another profession when we talked. She asked about my workload and I told her that it had been pretty lean lately. I explained that I expected things to change when the HVCC is officially adopted. She looked perplexed and asked, "What's the HVCC?" After explaining what is was, she looked at me and said something to the effect of, "Who thought of that? That doesn't seem right." I then hopped up on my soapbox and said that not everyone got to "share the wealth" when all the appraisal work was rolling in. Again, she looked perplexed and said, "Well, if you're a good appraiser, you should get plenty of work." I should have nodded my head in agreement and left it at that. But nooooooooo! I couldn't.

Me: "So, what makes a 'good' appraiser?"

Her: "You know, one that gets his work in on time."

Me: "That's it?" /waiting patiently for the truth to come out/

Her: "Yeah, and one that will appraise the property for whatever it's selling for."

Me: "So you're saying that a good appraiser should always "hit" the number?"

Her: "Yeah."

The conversation went on for a while longer, but you get the point. It doesn't matter if the Realtor calculated the square footage wrong or if the house has issues that need addressing. The good appraiser covers things up. Y'know, like a cat in a sandbox. I told her that I could hit the number 99 times out of 100, but if I missed on one...just one...I'd be labeled "conservative", which is tantamount to the black plague in the mortgage industry. You get that? Ninety nine attaboys, but it's the one "oh crap!" that causes the ship to hit the sand. Did that sink in? "Good" appraisers ALWAYS make the deal work. That, my friend, is still a prevalent thought in the real estate industry. When the nation is facing real financial crises...when the multi billion dollar bail out still isn't enough to save us from our own excesses and greed...it appears we haven't learned.

So I ask again, "Is that a light at the end of the tunnel?" Or is it a freight train that's going to plow us under because we're too ignorant to learn from our mistakes?

{This is my seventh submission in a series on the financial crisis here in America. I want this to be an honest account of why we are where we are based on my tiny perspective of the mortgage/housing debacle.}