“This recent mortgage newsletter excerpt on appraisers and related regulations is nuts. It’s all form-over-substance. Nothing has really changed re. the methodology of home appraisals, despite the fact that they didn’t detect or prevent the housing bubble/bust. U.S. homes are still being valued using “market comparables,” which tend to confirm the direction of prices rather than challenge or refute them…
…What’s the alternative? Every other form of real estate is appraised based on the present value of net rental cash flows and so should homes. I am so glad to be out of the mortgage biz. You’d have to be crazy to start your career in mortgage lending these days and that includes wanting to become a residential appraiser. That’s why the average age of mortgage professionals is going ever higher. Young people aren’t going to put up with all this bureaucratic regulation. They are smart enough to understand it’s mostly nonsense.”, Mike Perry, former Chairman and CEO, IndyMac Bank
Appraisal Excerpt from April 2015 Mortgage Industry Newsletter (all names were changed):
“I received this note. “Nancy, one of my borrowers had their property appraised the other day. She mentioned that the appraiser looked like he was 85 years old and a hermit, could barely shuffle around the property, and seemed almost inconvenienced to be there. It reminded me that with all the talk about the average age of LOs and Realtors, no one talks about the aging appraiser population. As I understand it, it is almost as if the appraisal business has the odds stacked against it. No one goes through high school or college wanting to be an appraiser. The national group – whether it is NAIFA or the Appraisal Institute – doesn’t seem very strong. Appraisers need 3,500 hours of appraisal time and 200 class hours – what advantage do appraisers have to train someone and pay them? In the past banks had staff appraisers, and training could occur – but that is no longer the case. Is anyone out there making recommendations about how the industry can bring in new blood in a cost-effective, efficient, and prudent manner?”
John Doe with John Doe Appraisal Service wrote, “It is accurate that the average age for appraisers is rising. Depending on who’s calculating, it’s estimated to be in the mid to high 50’s (similar Realtors and loan originators). Recently I was in New Orleans at an appraisal symposium put on by the Collateral Group. Some of the industry’s best thought leaders shared their perspectives on what the future holds for appraising and what steps we should take to best serve our constituency; appraisers, lenders, and communities alike. One of the topics was on the very issue of ‘growing’ new appraisers. Tina, Chief Appraiser for one of the country’s largest banks (and largest mortgage lender), announced an initiative to bring on and train 10 appraisal trainees. Historically, the big banks were instrumental in being a training ground for new appraisers – and I think Tina was attempting to challenge all of us, banks and AMCs alike, to join in a movement to ‘replenish the herd’. It was encouraging.
“Here at John Doe, we’re about to ‘graduate’ our 1st trainee after a 2 year and 2500 hour experience requirement for Certified Appraiser Classification here in California. We currently have 2 others in training and look to increase our efforts. We’ve found that bright kids with technological skills coming out of college and paired with experienced appraisers (almost in the tradition of the old Guild system) make a perfect complement. And we believe that the natural attrition in the appraiser ranks will open up true career opportunities for those with 21st century skills infused with the tribal knowledge of their elders.
As for the barriers to entry for the profession, I personally agree with your reader, they’re inhibiting. We are living with a generation where instant gratification often takes too long. So the new threshold that requires an appraiser as of Jan 1, 2015 to have a BA Degree plus 2500 hours of experience over no less than 24 months and 200 hours of appraisal course education (which can vary a bit by state) is imposing. Given that neither Realtors nor loan officers have to demonstrate anywhere near that level of education or experience, it does seem disproportionate. That said, there is some movement to accelerate the training aspect and perhaps institute a series of testing protocols to shorten the timeline.
“I think most industries go through shifts that challenge their structure and roles. The more data we accumulate, the more imperative it is that we have skilled professionals to dissect and translate that data. Appraisers are only going to be more valuable and in growing demand if we are to meet the challenges in front of us.”
Jane Smith with Jane Smith VMS wrote, “Appraisers are going through an adjustment period after the wave of regulations over the past 8 years and are still trying to find their identity on how to be sustainable long-term within the current regulatory environment. There’s a host of issues on the table like new licensing, customary and reasonable fee’s and licensing regulations on trainees that all need to be addressed, and the current regulatory environment is not suitable for prosperous future for the industry. I think that unless there are changes made you will see the industry continue to struggle.
“If I was going to provide a solution it would be to first allow trainees to inspect the properties instead of requiring supervisors to do so at all times in federally related transitions, second it would be to allow working at a review position or staff appraiser position for an AMC or lender to be counted as field experience hours towards obtaining full licenses and finally establish some type of state wide minimum fee for appraisals so that lenders don’t have to compete on appraisal price at all times like they do now. If these 3 changes were made you would start seeing the industry be re-born very quickly. Without them you are dealing with an appraisal industry that is playing not to lose rather than playing to win.”
Lastly, Mike with XYZ Valuation said, “This topic has been a huge source of consternation not only for appraisers but lenders as well. I attend appraiser conferences where the numbers of appraisers are dwindling and there does not appear to be any way for new appraisers to get into the profession.
“Here are the facts: To become a licensed appraiser (and many lenders will only accept certified residential or certified general levels and you MUST hold a certified level licensed to be on the HUD-FHA roster) there is 150 hours of education and 2,000 hours of experience in no fewer than 12 months. So not only does an individual have to take courses, but then work for a minimum of a year BEFORE they can sit for their test to become licensed. For certified residential it is 200 hours of education and 2,500 hours of experience (along with at least an AA degree or 21 semester credits in specific subjects) and for certified general it is 300 hours of education, 3,000 hours of experience and a Bachelor’s degree or higher. Many lenders require, at a minimum, certified residential licensure or FHA Roster status in order to be an approved appraiser. So – this is akin to a company ONLY hiring folks with 10 years of experience or more. Other than a few appraisal companies around the country, I don’t know of any way for a new appraiser to get the required experience and enter the profession – I wish I had a more positive answer. Back when I started in appraising, many banks and savings & loans maintained staff appraiser positions and had trainee positions to bring in new talent – that just doesn’t seem to be the case these days.”
On the subject of appraisals Suzie with Loan ABC writes, “On HUD’s latest conference call it was stated that the primary role of an FHA Roster appraiser is to, ‘Observe, Analyze and Report’ what he/she encounters during their on-site visit to a property. There were a number of specific examples cited in which the HUD staff presenter indicated that the appraiser has effectively completed their assignment when they have documented and reported their concerns to the lender or underwriter. The problem, however, is that no specific guidance was provided to the lenders & underwriters as to how to deal with the problems reported by the appraiser. In fact, the draft 4000.1 Handbook has many examples of this dilemma and needs to be modified before it is implemented.
“One topic discussed was, ‘Appraisers must now make a statement as to whether or not the subject property can be legally rebuilt if destroyed when the property has a legal non-conforming zoning designation.’ However, what about situations in which the property cannot be rebuilt if it is more than 75% destroyed? Should the underwriter reject the property for mortgage insurance although the borrower’s will be required to have adequate hazard insurance coverage? No guidance is provided in the Handbook or on the call.
Another topic was, ‘Appraisers will report to the lender if they could not observe the roof surface.’ Should a lender then require a roofing certification, a roofing warranty or would a hold-harmless letter from the borrower be acceptable? No guidance is provided in the Handbook or on the call.
“‘An Appraiser must report whenever he/she cannot gain access to the attic area and state why it is not readily accessible.’ The underwriter will be required to make a decision as to what actions (if any) are deemed necessary to close the loan transaction. No guidance is provided in the Handbook or on the call. In fact, an underwriter on the conference call stated that she had a recent case in which the appraiser stated that he could not gain access to the attic area but observed no signs of problems with the roof shingles or any evidence of roof leaks on 2nd floor ceilings. This underwriter documented the file accordingly but received an Indemnification Agreement request from HUD subsequent to the loan closing.
“And, ‘Appraisers must perform a highest & best use analysis and let the lender know when it is determined that the subject property has Surplus Land.’ Specific guidelines, however, have not been provided to lenders as to how to deal with a transaction in which the Appraisers determine if there is Surplus Land.
“To access the draft Handbook [meant to consolidate much of HUD’s efforts] go to the www.hud.gov website and type in 4000.1 Handbook in the Search Box. NOTE: On April 22, 2015, HUD/FHA Headquarters staff conducted a follow-up industry conference call to discuss the recently published new Section of the draft “Origination Through Post-Closing/Endorsement” Handbook (4000.1) dealing with Appraiser and Property Requirements. This Handbook will ultimately serve as a single reference point for FHA underwriting and appraisal policies & procedures and is targeted to be effective for all transactions in which the FHA case number was assigned on and after June 15, 2015.””