Appraisal Risk Exceeds Reward

The National Appraisal Congress recently announced the formation of the Society of Young Appraisal Professionals, described by DS News as an NAC subcommittee focused on addressing the declining workforce in the residential valuation space.

It is hard to imagine this story was not printed on April Fools Day.

They need a subcommittee to investigate the increasing shortage of residential appraisers?

Are the reasons not obvious?

Much, if not all, of the fault for the destruction of this industry, of which I am a professional in, stems from the passage of the Home Valuation Code of Conduct, a piece of punitive legislation spearheaded by the former Attorney General and now New York Governor Andrew Cuomo (D).  This is a big government piece of legislation, heavy on regulation, most notably forcing those who order appraisals for lending institutions to utilize Appraisal Management Companies.  These AMC's, most of which are partially owned or have fiduciary relationships with the banks, dictate the appraisal process, and sometimes the content, while "confiscating" half the fee.

As Ronald Reagan so eloquently stated, "I hope we have once again reminded people that man is not free unless government is limited. There's a clear cause and effect here that is as neat and predictable as a law of physics: as government expands, liberty contracts."

With the implementation of extensive government regulation of appraisers through the HVCC, the reduction of fees through mandatory use of AMC's and restrictions placed on the subjectivity of the appraiser, the risk of appraising in many cases has grown to exceed the reward.

It appears the free market has just officially informed us of just that.

Devastation of the Family Home

In the field of economics, one of the most difficult items to estimate is the ripple effect associated with major events that significantly affect the economic and social welfare of a community. The recent housing crash, for which our economy is still reeling from, is a classic example.

In my estimation, the entire response from our federal government was in error, as government intervention took the place of free market capitalism to create devastating economic consequences which continue to this very day.  While some may conclude the government was attempting to help in a time of "crisis", I am reminded of another of the timeless quotes from Ronald Reagan: "The most terrifying words in the English language are: I'm from the government and I'm here to help".

 

The housing crisis established a house of cards, pun intended, where lending institutions gave mortgages to anyone with a pulse, packaged the loans into mortgage backed securities and sold them as A rated to investors.  With the leverage unsustainable, bank failures emerged and the devastation began.

Rather than letting the market cleanse itself out, where those who invested in error or without proper due diligence, or both, paid the price, the government initiated bailouts of the major lending institutions. These government investments in the banking sector have come with a heavy price for the lending institutions, including appraisal regulation that has significantly impaired the industry.

The government now has an embedded regulatory mechanism within the banking sector, and Fannie Mae and Freddie Mac continue to run inefficiency, with these government sponsored enterprises possibly needing more bailouts.  The housing market, although now seemingly stabilized and improving slightly in some markets, remains a shell out itself.

Home ownership is at historically low levels, in large measure to stagnant wage growth, with the worker actually losing ground annually. Many former homeowners are joining the millennials, where a majority unable to purchase a home are forced to rent, pushing rent levels to historic highs.

Much of the government interaction in the aftermath of the potentially orchestrated housing crash has limited free market principles, prohibiting the market from returning to optimal health.  Perhaps it is part of the war the progressives have on suburbs, maybe a vehicle in the transformation of wealth or quite possibly it is Orwellian in that gave the government an a prime opportunity to seize control over a large portion of the economy, and the citizenry.

Most in the economic world who embraces free market principles knew the path of quantitative easing and government interaction and control in markets was most problematic. While we await the next crash, which we forecast to come right around the presidential election, the devastation the crash has left on families across the nation is troubling and sad.

Many feel the great American dream is no longer obtainable.  Without question, if you have yet to obtain wealth, the degree of difficulty in achieving it has risen sharply under President Obama due to the infiltration of government regulation and taxation.

It seems 99 Homes may focus on the trial and tribulation of a family whose life was turned upside down at the drop of a hat as the housing crisis placed a stranglehold on the US economy back in 2008.

My professional activities, involving residential real estate appraisal, rental property management and as collateral risk analyst have given me a front row seat throughout.  When 99 Homes hits theaters, I will be there to grab a front row seat.

Poll Queston Lacks Adequate Answers

An excellent source of information regarding the mortgage industry is found in The MReport. The MReport, self described as the pulse of the mortgage banking industry, covers the always changing components of the industry, directed by both the public and private sectors.

 

In an effort to grab the pulse of the readership, which is mostly comprised of professionals within the mortgage, appraisal and real estate industries, The MReport presents a poll regarding topics of current interest within the industry.

 

One such poll caught my eye recently, and led me down a road which elevated my blood pressure. Please see the following poll of the week, which asks what the "best course of action for the Congress to take to help improve the housing market." 

 

 

I do not know who writes the polling questions for The MReport; however, I would assume it is a member of their staff of writers, reporters or editors.  In review of the potential answers, one of two observations must be noted:

 

Either those comprised of writing the questions are borderline clueless on economic theory, or they are well familiar with economic theory and seek to nudge the readership into the acceptance that governmental interference, or as they apparently see it, helpful interaction, is a requirement in some form or fashion.

 

I find this troubling to say the least.  For those of us who champion free market capitalism, which would include our Founders I might add, there would be a few answer alternatives which we would respectfully submit.  Submitted for your review are the following:

1. Government should, at the earliest possible opportunity, exit participation in the mortgage industry, and allow the free market to find equilibrium and function in full efficiency.
2. Refrain from extensive regulatory action within the industry, eliminating attempts at engineering social justice through shaking down banks.
3. Retract Dodd-Frank, which has had significant negative affects on the banking industry, curtailing loan ability and strongly reduced the quantity demanded of potential buyers.
4. Retract The Home Value Code of Conduct, an anti free market control mechanism cast over the appraisal industry, which has had a historic ripple effect on negativism on the industry.

There is one thing Congress could do to help the housing market, and Ronald Reagan outlined it in his first inaugural address:  "Is it time to reawaken this industrial giant, to get government back within its means, and to lighten our punitive tax burden. And these will be our first priorities, and on these principles, there will be no compromise."

Immediately, several steps could be taken which give rise to employment and consumer confidence, providing a jolt to the anemic current growth levels.  Among those would be the reduction of the corporate tax rate and regulatory actions, both those employed through legislation and those implemented by executive order.  Retract all governmental interaction within the markets employed in the aftermath of the financial crisis, including the newly formed Consumer Protection Bureau.

Actions deemed supportive of a stronger workforce, the raising of the minimum wage and the new ordering of overtime payment, actually are an impediment to employment and negatively affect the marketplace and should be thwarted immediately.

Of all the ill-conceived actions interjected in the marketplace, with or without legislation, without question the most harmful to economic growth and prosperity is the implementation of Obamacare.  It fails in its publicized objective and is nothing short of a job killer, cutting freedom and prosperity off at the pass.

With such common sense applications at the finger tips of of Congress, it is apparent that the objective is not to provide elements for increasing productivity and prosperity of the governed, but in fact to implement through taxation, legislation and sadly coercion increasing control over those for whom the Congress is charged with governing.

Quoting Reagan again, "I hope we have once again reminded people that man is not free unless government is limited. There's a clear cause and effect here that is as neat and predictable as a law of physics: as government expands, liberty contracts."

Our government lacks adequate leadership at this time, with encroachment of freedom joined by mounting financial and geopolitical problems. Under Obama, government is not only far from limited, but is both legally and illegally seizing power over the citizenry, and predictably, liberty, along with prosperity, is contracting.

Sadly, in a nation drowning in a sea of irrelevance, few recognize the dear gift being taken from them right in front of their eyes.  It should be noted that Reagan was right; "Government is not a solution to our problem; government is the problem."

Does Shakedown Become Takedown?

According to President Obama, the economy is growing, jobs are being created with the unemployment rate decreasing and everything is just fine.  Thanks to him.

Obviously, this is Orwellian doublespeak, and nothing could be further from the truth.

The economy is growing, but at a historically small rate buoyed by exponential levels of stimulus, and the figures are certainly massaged.  Jobs are being created, but more jobs are being lost.  The unemployment rate is decreasing, because the pool of those counted continues to decline as less people are looking for work, as they recognized few job opportunities exist.  For a real gauge of the health of the American workforce, see the labor participation rate for full time workers, which is at rates not seen since the Carter administration.

Not withstanding the horrendous economic policies of the Obama administration, job killers most, perhaps the real culprit for job loss is Obamacare.  Yes, I know that Obama and his legion of handlers and yes men claim the opposite, but they have no idea what the truth is they lie so much.



Kathleen Sebelius/Washington Post

On Monday, U.S. Health and Human Services Secretary Kathleen Sebelius was in Orlando speaking to boost enrollment in the Affordable Care Act, or Obamacare, and presented an enthusiastic proclamation that the job market is gaining health and that Obamacare has not been responsible for any job losses.

There is absolutely no evidence -- and every economist will tell you this -- that there is any job loss related to the Affordable Care Act. Part-time positions are actually down since 2010, not up. The number of full-time workers continues to increase, so I know that that's a popular myth that continues to be repeated, but it just is not accurate.

The administration rarely checks facts on the ground, given they make up their own statistics, but had Sebelius taken the pulse of the Orlando market in recent days, she would have seen an article on the front page of The Orlando Sentinel within the prior week discussing how a major local employer in the mortgage industry was set to layoff approximately 750 staff members, although many may remain on in part time or independent contractor status and the company adopts a hybrid workforce model.

Certainly, real estate industries, from appraisers, who were already staggering from Andrew Cuomo's brainchild of the Home Valuation Code of Conduct regulations to mortgagers, who are reeling as 63% of residential sales in December in Florida were cash sales, are in turmoil in part thanks to governmental interference in the marketplace. Homebuilder sentiment is crashing, housing starts are dreadful and mortgage applications have hit a two decade low due to what Obama and Sebelius cannot see; a horrendous economic market and a bleak job market led by their orchestration.

As a company evaluates making the painful decision to layoff workers, not a signal of a healthy enterprise, each and every factor of where costs can be saved is thoroughly examined.  While a single reason may sometimes result in corporate layoffs, perhaps the loss of a major client, it is most often a collection of issues which make the move necessary.

In this day an age, notwithstanding the idiot thugs running our federal government, Obamacare is without question a major contributing factor to the greater majority of any layoffs taking place. 

However, this may not be stated publicly.

As Chris Stirewait, A FOX News contributor reports, the thought police are in control.  It seems that in the latest unconstitutional delay of Obamacare regulations, firms will be required to certify to the IRS – under penalty of perjury – that ObamaCare was not a motivating factor in their staffing decisions.

A corporate executive who certifies and signs such a document would be committing fraud, particularly if a public company, as a fiduciary responsibility to shareholders to present all facts as known, which would be inclusive of causation for employee layoffs, exists.

So, the IRS is willingly forcing executives to commit fraud, potentially placing themselves and their company in a box without escape, illegally, in an effort to prohibit Obamacare from facing negative publicity and shield the public from he hard truths of not only this horrendous piece of legislation, but the great level of peril our economy is statused in.

Governmental thugs should not dictate to public or private companies what their correspondence to employees, clients, partners or customers should be.  Sadly, many companies who, for whatever reason have found themselves in bed with the government, find that corporate independence quickly eludes management.  GM and the banks are classic, timely examples.

America is facing a coup from within.  As promised, the fundamental transformation of America by the takeover of major industries either through legal legislation and executive orders to legal and potentially illegal intimidation to unchallenged and potentially illegal regulatory and legal action.

Controlled lawlessness with a complicit electorate and mainstream media drunk on power.

It is far time for this encroachment to be thwarted by any and all legal means necessary.  In a seemingly obvious statement, it will take more than a handful of republicans; it will require you.

Help freedom loving America stop the shakedown before it is officially scored a takedown.

Tide Rolls on Agenda 21

Every two years, in keeping with governmental regulation, mandatory continuing education for many professional licensees is required. Last week, in order to keep my Certified Residential Appraiser license in good standing, 40 hours were taken in at the Peabody Hotel in on tourism row in Orlando.

Among the courses presented in the snore fest was The Introduction to Residential Green Buildings.  As you may suspect, the course provided the opportunity for advocacy of the green movement by the instructor, and the moment was seized.

The instructor surmised that homeowners were embracing energy restriction by downsizing the gross living area of homes being purchased.  To the contrary, the lowering of the average GLA is largely due to the economic status of America, which due to governmental interaction in markets has severely hampered job creation and created elevated levels of uncertainty.

Public and private sector organizations, the US Green Building Council and the Shelton Group, advocates for green energy initiatives, were referenced as leaders in assessing all things green, from measuring consumer acceptance to rating and regulating building energy efficiency.

On the course evaluation, I wrote "portions of the class unfortunately bordered on advocating the propaganda surrounding the pursuit of sustainable development, having the feeling of being "nudged" minus Cass Sunstein" closing with "Sustainable development infringes upon property rights".

It should be noted that all responsible citizens should engage in efforts to refrain from polluting and wasting energy.  In addition, in our free market society there are many opportunities as a property owners to maximize cost efficiency with regard to energy usage, and these are prudent investments.

Unfortunately, common sense initiatives have been expanded upon by governmental regulators influenced by left wing environmentalists, global warming alarmists and a very nefarious group who are supporters of Agenda 21, or sustainable development; a global effort to implement social justice.

As reported in Investors Business Daily, Agenda 21 is a frontal assault on formative principles of our founding fathers.  One of those is property rights. "Land ... cannot be treated as an ordinary asset, controlled by individuals and subject to the pressures and inefficiencies of the market," Agenda 21 says.

"Private land ownership is also a principal instrument of accumulation and concentration of wealth and therefore contributes to social injustice; if unchecked, it may become a major obstacle in the planning and implementation of development schemes."

Property rights are central to our sovereignty, and on these central principles there can be no compromise.

Agenda 21 is intended to foster what environmentalists call "sustainable development" in the belief that man since the Industrial Revolution has been a plague on the planet, plundering its resources while destroying nature and putting the world at risk of disastrous climate change, poverty and disease.

If you were thinking those attempting to implement strategies in this arena were those on the left wing extreme, you would be correct, and they are currently running our government. This group has done a masterful job in promotion of the greatest hoax of all time, global climate change, to the mainstream citizenry and business leaders. 

Many, perhaps fearful of being on the wrong side against a government who takes few prisoners, are eagerly on board.  Some are financially tied to government, and have no choice but to gleefully participate.  In fact, just yesterday, TARP recipient Bank of America (BAS:NYSE) pledged 50 million to combat global warming.  Have not seen a sell signal like that in a while.

Unfortunately, governmental regulators, which include the EPA, unelected regulatory Czars and Obama and his executive orders are shoving Agenda 21 down our throats, which increase costs in arenas inclusive of energy, building maintenance and regulatory compliance.  In fact, just this week President Obama said he would make climate change his top priority in his second term, although odds are increasing he won't get that chance.

Even so, as industries have bought into the climate change premise, policies in this regard are emerging to overwhelm business owners, limiting economic freedom and free market prosperity.

Agenda 21, an arm of the United Nations, is on the verge of gaining binding influence in our court system.  The Law of the Sea Treaty, up for vote soon in Congress, is a current example. As alarming as this is, America appears to be waking up as Alabama voters handed Agenda 21 such a lopsided loss, you would think Crimson Tide.

Our rights are being trampled under foot, and many remain unaware.  Under global climate change, arms of the movement are working like termites to gain control of the structure, pun intended, of our governance.  Time is of the essence, and with the Obama presidency seeming on the ropes, danger lurks behind every two by four.  Inform your friends about Agenda 21, and hit the voting booth in opposition at your earliest opportunity.

Information Misrepresentation: Appraisals

Information presented to the Public by various outlets is being crafted to misrepresent reality in an effort to skew political thinking, gain economic advantage and nudge social justice further down the American psyche. This is the first in a series of blog posts detailing instances in this regard, as it is imperative the Public recognize the significant level of misrepresentation and how vast the manipulation is.

Information Misrepresentation: Appraisals

The National Association of Home Builders (NAHB) reported this week one out of every three of its builder members has lost a sale during the last six months because of home values reported by appraisers.

NAHB Chairman Bob Nielson said, "The inappropriate use of distressed and foreclosed sales as comparables in determining new home values is needlessly driving down home prices, killing home sales, causing more workers to lose their jobs and delaying a housing and economic recovery."

The NAHB did not stop there, further hammering appraisers with the following:

* According the Association, appraisers are using "faulty" practices by utilizing distressed homes as potential comparable sales against new homes. Mr Nielson said in a statement that "This is not only unfair and unreasonable, but it perpetuates the cycle of declining home values, drives more home owners underwater, harms local economic activity and acts as an obstacle to the recovery of the housing market."

* Mr Nielson notes that in many cases, new home appraisals are coming in below the cost of construction, because of flawed appraisals for utilizing existing and potentially distressed homes.

* Per the NAHB, These appraisal practices are a major contributing factor to the current acquisition, development and construction (AD&C) lending crisis that has choked off credit for home builders and threatens to prolong the current housing downturn. Falling appraised values for land and subdivisions under development have led some financial institutions to stop lending to developers and builders, to demand additional equity and even to call performing loans.

* The NAHB has been having summits, with leaders throughout the housing industry in an effort to find solutions that will allow appraisers to develop realistic valuations based on sales that are truly comparable.

Mr Nielson and the NAHB concludes that, you guessed it, “Major reforms in appraisal practices and oversight are needed to ensure that appraisals accurately reflect true market values and don’t contribute to price volatility or harm aspiring home owners and move-up buyers.”

One thing I know from the real estate world: It is always the appraisers fault. NOT! What we do have from the NAHB is information misrepresentation.

This must have been some series of summits. A bunch of bureaucrats gathered together to central plan the housing recovery, culminating in the one thing we need less, not more, of; additional regulations.

If additional regulations were the answer, the sweeping regulatory action spearheaded by former HUD Secretary and Architect of Ruin Andrew Cuomo, The Home Valuation Code of Conduct (HVCC), would have done the trick. Instead, it has wrecked the appraisal industry, leaving unregulated Appraisal Management Companies to coordinate, and in many cases dictate, appraisal performance.

Since distressed properties make up approximately 65% of the market here in Florida, it would be highly inappropriate to fail to consider these as potential comparable sales, provided the gross living area, age, amenities, and, of course, condition, were reasonably similar.

By applying political pressure to "develop realistic valuations," made as instructed will become a reality and as a result, valuations will be lacking in adequate support and accurate value.

Appraisal practices, as governed by the Uniform Standards of Appraisal Practice (USPAP), provide a framework for appraisers nationwide to adhere to in an effort to provide consistent and accurate valuation through the three approaches to value. These voluminous guidelines are a contributing factor to providing the industry with appraisal reports arriving at well supported value indications , not further deteriorating the housing crisis as the NAHB says.

Conspicuously absent from the many factors cited by the NAHB for the continued downward pressure on the housing market are the actions of the Obama administration. It is well documented that the origins of the collapse centered around the governments efforts to provide housing to buyers the marketplace weeded out. These potential buyers were not weeded out due to race, as ACORN would have you believe, but due to the higher risk associated with their ability to repay the loan. Before political correctness ran amok, his used to be referred to as sound business practice.

Among those applying pressure to the banks in the form of threatening race related boycotts was a young attorney for ACORN, Barack Obama.

While George Bush made failed attempts at forcing Congress to rein in the Government Sponsored Entities known as Fannie Mae and Freddie Mac, under House Finance Chairman Barney Frank, the Congress looked the other way.

Meanwhile, instead of letting the market cleanse itself, the administration has invented program after program to reward bad behavior and prop up the values of housing, which has only prolonged the pain and the problem. Government, who cannot be trusted, should leave the housing marketplace and let the free market establish a base for prices. In fact, we now learn the housing numbers have astonishingly been inflated.

Housing is not the only place numbers are inflated. Government spending, regulation and taxation is what is crushing the job market, with unemployment actually around 12% rather than the reported 8.6%, and for buyers to feel comfortable making large purchases in the form of housing, the job market needs to be at worst steady. Under this administration, there is no job creation, debt is expanding exponentially and Americans are in fear for the future.

Until jobs can be created in large numbers and the government diminishes involvement in what should be private sector activity, continued negative pressure on the housing market and America will remain.

As Ronald Reagan accurately said, "Government is not the solution to the problem, government is the problem."

HVCC Wreaks Appraisal Havoc

Some inside baseball....

On May 1, 2009, the Home Valuation Code of Conduct became law as a regulatory mechanism on the hiring and management of the appraisal process.

Since many feel, inaccurately, that appraisers are central to the fraud associated with the Housing Crisis, the government, led by New York Attorney General Andrew Cuomo, D-NY, has implemented the HVCC. Although no governmental official is apparently interested in investigating the role of many of their own, inclusive of Chris Dodd, D-CT, with his sweetheart loan from Countrywide's Angelo Mozillo and/or Barney Frank, D-MA, who was the regulator of Fannie and Freddie while accepting campaign contributions from both, in the housing crisis, they did determine that legislation regulating appraisers was in order. Of course, as you may imagine, there already exists regulatory bodies that can examine appraisers conduct and the quality of the work through the Uniform Standards of Appraisal Practice. As is the case with Realtors and Brokers, licenses can be suspended or revoked and fines can be imposed.

The HVCC mandates that for an appraisal on a conventional loan, the appraisal must be ordered through a third party, referred to as Appraisal Management Companies, which are unregulated. The companies often receive orders from the lender and then employ an appraiser who has registered with the company to perform the appraisal. The fees are generally split, thus cutting the appraisers fee in half.

Beyond that, previous relationships the appraiser has worked hard to obtain and cultivate are lost. Needless to say, this legislation impacted the revenues of most appraisers as conventional appraisals now make up about 40% of the market. In addition, fees obtained by the appraiser for those orders they are fortunate enough to receive are halved.

Due primarily to having to meet strict time constraints, the quality of work delivered by appraisers under this system is diminished. With appraisers looking to recoup lost revenues, appraisers may be inclined to accept work in areas they are not particularly familiar with and in striving to meet time deadlines, they may not perform as much research as they commonly do.

Miller Samuel CEO Jonathan Miller speaks with Brian Sullivan and Dagan McDowell of the FOX Business Network about the HVCC. Take a listen:



The Orlando Sentinel recently presented an article outlining many of the issue swirling around the HVCC.

When an appraiser signs a report, that appraiser is responsible for its contents and must be able to defend the indicated value of the subject. If challenged by the current appraisal regulatory bodies, penalties, inclusive of loss of license (and ability to work in the business) are possible.

As usual, the government has infiltrated a business environment and caused more problems than they set out to correct. Whose to say the Appraisal Management Companies will not pressure appraisers for a value?

Free Market Capitalism, one where government regulation does not prohibit a business owner from doing business with his clients, is the best path to prosperity. Prosperity seems to be hiding these days, and I know why.