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Guidance Document Change: Providing guidance to real estate appraisers and AMCs on the use of hybrid appraisals
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6/24/19  7:37 pm
Commenter: Beth Riedel,Maryland Association of Appraisers

Hybrid Appraisals
 

The following excerpts, taken from a joint letter signed by the Maryland Association of Appraisers along with 27 other State professional Appraiser Organizations and Coalitions from around the country and submitted to the Subcommittee on Housing, Community Development and Insurance in response to their recent hearing on “What’s Your Home Worth? A Review of the Appraisal Industry” held this past week in Washington D.C., are provided for your consideration as this trend is going in a very dangerous direction.

Hybrid or bifurcated appraisals should scare everyone as they are a recipe for abuse, fraud, and another mortgage meltdown waiting to happen. Utilizing minimally or untrained, unregulated, unaccountable and often unidentified individuals to perform the most critical part of deriving a credible, supportable, and reliable valuation belies common sense and puts the public and their most important financial decision at great risk. Common sense dictates that separating out the home inspection, the most critical part of deriving a credible, supportable, and reliable valuation, from the licensed professional appraiser is reckless and contrary to protecting the public trust. There are no standards or consistencies amongst the rapidly growing number of these products that, truth be known, benefit no one except those who are so strongly advocating for their use. Fannie Mae has already stated publically that by this time next year over 50% of their appraisals will be hybrids. We respectfully implore you to look long and carefully at this issue and ask yourself if you would feel comfortable having an unregulated individual going through your home – and should there be a problem – it will be too late as there will be no recourse.

“Since the housing crash and the subsequent implementation of Dodd/Frank and its appraisal independence requirements, the use of third-party appraisal middlemen known as appraisal management companies has proliferated. The role of formal valuations in the home-buying process is under attack, in part by those who wish to profit from the ordering process itself as well as by the GSE’s who have partnered with them. This poses huge risks to unsuspecting consumers and taxpayers. Their current efforts being presented in the guise of “modernizing” the appraisal process do nothing to improve the quality of appraisals and actually remove the credentialed appraiser from critical aspects of appraisal development.

There are significant inconsistencies in the rhetoric of those advocating major changes.

• Many lenders will not accept a report wherein the inspection was performed by a licensed appraiser trainee, asserting that such trainees have not yet acquired the necessary competency, despite that regulated individual having completed 75 hours of specialized education and oversight by a certified licensed supervisor. The GSE’s, however, are now utilizing “hybrid” appraisals predominant data in the GSE database of prior appraisals on the same properties. Despite numerous requests, the GSE’s have consistently refused to make that data available to appraisers for consideration in their analyses.

• The argument is made that the sole rationale for an appraisal in a mortgage transaction is to protect the lender. This is belied both by the GSE’s own appraisal form which declares that the borrower may rely upon the appraisal report and the prevalence of clauses inserted by buyers in purchase contracts declaring the contract void if the property does not appraise for the purchase price.

Congress enacted the Federal Financial Institution Reform, Recovery, and Enforcement Act of 1989 in the wake of the banking disaster that was due in part to a lack of appraisal standards. It is difficult now to understand this present drive to replace the analyses and informed opinions of a highly regulated professional who has years of experience, hundreds of hours of specialized education, and extensive local market knowledge, as well as errors and omissions insurance, with untrained and unregulated “inspectors” (essentially photographers) and opaque computer programs. This push to eliminate the single independent and unbiased valuation puts the unsuspecting public at great risk. Home buying decisions are highly personal ones; analyzing those decisions requires nuances only a highly-qualified human can recognize. The integrity of the housing industry depends upon maintaining public trust.”
• where the inspection is performed by an unsupervised, unregulated individual with just one hour of training.

• The GSE’s admonish – and even ban – appraisers when the opinions of quality and condition, the square footage and other data in the appraisal report don’t match the

CommentID: 72681