By Charlie W. Elliott Jr., MAI, SRA
The Appraisal Review … Its Time Has Come
MISSOURI MORTGAGE PROFESSIONAL MAGAZINE
Most on the origination side of the lendThere is much pressure from lobbyists ing industry have scarcely heard the term, of the larger financial institutions to con“appraisal review.” Those who have heard tinue to allow the larger banks to conof it probably do not know what and tinue to order appraisals directly from when it has been used as a lending favored appraisers. This is done under resource. It is one of these obscure prod- the auspices of independence of sepaucts and terms that many are cognizant of rate departments within the institution. at a subliminal level, but that we seldom It is done, in many cases, with platforms have a reason for an understanding of. that select appraisers from a blind pool Historically, the term, “appraisal review,” of available vendors. In spite of the lack was one that was known of arm’s-length transand understood as a tool parency, some of these lurking in the background practices will still be perthat was kept mostly under mitted. Given this likeliwraps except for special sithood, regulators will have uations, such as forecloto resort to another way to sures, suspected fraud and verify the authenticity and challenges to an appraisals accuracy of the appraisal. that were not high enough Going forward, much of to meet the expectations of that other way is going to the borrower or lender. be the appraisal review. In Well, I suggest to you the past, it was used very that this is about to change. little in the origination of Unless I am grossly mistakloans. It has been mostly “Unless I am grossly en, you will hear the term mistaken, you will hear used for post-closing analy“appraisal review” more sis. I suggest to you that the the term ‘appraisal often in the months and time has come for the review’ more often in years to come. As I see appraisal review. It is time the months and years for it to come in out of the things, it is one of, if not the to come.” only, weapon of choice in shadows and stand on its the war against bad loans, own as a viable alternative mortgage fraud and bank bailouts. In to the simple appraisal being accepted at recent years, our industry and economy face value without question. has been riddled with problem loans. Yes, there have been informal appraisal Many, if not most of them, have been reviews performed in the past; however, linked to problematic appraisals. this has not proven to be very effective. In the past, we have seen mortgage These reviews have been performed, in lenders, with a financial interest in the many cases, by non-appraisers without closing of a loan, select and employ documentation. They have been little more appraisers to perform appraisals on than a cursory skimming over the appraistheir own loans. We reached the point al to catch glaring errors, with little or no where everyone who has a stake in the record maintained of the process. You may closing of a loan has exerted pressure, look for more formal appraisal reviews, political and otherwise, to impose as prepared by state-certified appraisers. In much control as possible over the some cases, the reviews will be field process, in order to favor the successful reviews, which mean that the reviewer closing of loans. Much of what has gone actually performs a follow-up inspection of on is under the microscope of Congress, the subject property and essentially perand it is unlikely that it will be allowed forms another appraisal of the property. in the future. Having said that, we all continued on page 20 know how politics work.
continued from page 11
disclosures for home mortgage transactions. The proposal includes significant changes to Regulation Z (Truth-inLending) and represents the second phase of the Board’s comprehensive review and update of the mortgage lending rules in the regulation. The proposed changes reflect the results of consumer testing by the Board, which will begin accepting public comment. The latest proposal would: Improve the disclosures consumers receive for reverse mortgages and impose rules for reverse mortgage advertising to ensure advertisements contain accurate and balanced information; prohibit certain unfair practices in the sale of financial products with reverse mortgages; improve the disclosures that explain a consumer’s right to rescind certain mortgage transactions and clarify the responsibilities of the creditor if a consumer exercises the right; and ensure that consumers receive new disclosures when the parties agree to modify the key terms of an existing closed-end mortgage loan. Under the proposal, the timing, content, and format of reverse mortgage disclosures would be changed to make the disclosures more useful to consumers. Currently, consumers typically receive lengthy disclosures when applying that do not explain the particular features unique to reverse mortgages. Under the proposed rules, consumers would receive disclosures on or with the application form, using simple language to highlight the basic features and risks of reverse mortgages. Shortly after filling out the application, consumers would receive transaction-specific disclosures that reflect the actual terms of the reverse mortgage being offered. For more information, visit www.federalreserve.gov.
Obama Administration announces additional aid to unemployed homeowners The Obama Administration has announced additional support to help homeowners struggling with unemployment through two targeted foreclosure-prevention programs. Through the existing Housing Finance Agency (HFA) Innovation Fund for the Hardest Hit Housing Markets (the Hardest Hit Fund), the U.S. Department of the Treasury will make $2 billion of additional assistance available for HFA programs for homeowners struggling to make their mortgage payments due to unemployment. Additionally, the U.S. Department of Housing & Urban Development (HUD) will soon launch a complementary $1 billion Emergency Homeowners Loan Program to provide assistance—for up to 24 months—to homeowners who are at risk of foreclo-
sure and have experienced a substantial reduction in income due to involuntary unemployment, underemployment or a medical condition. “We remain committed to helping struggling homeowners, and this program will provide additional assistance to states hit hardest by unemployment,” said Assistant Secretary for Financial Stability Herb Allison. “This is part of the Administration’s comprehensive housing policy that has helped to stabilize a fragile housing market and allows responsible homeowners the chance to reduce their monthly mortgage payments to affordable levels.” President Obama first announced the Hardest Hit Fund in February 2010 to allow states hit hard by the economic downturn flexibility in determining how to design and implement programs to meet the local challenges homeowners in their state are facing. Under the additional assistance announced, states eligible to receive support have all experienced an unemployment rate at or above the national average over the past 12 months. Each state will use the funds for targeted unemployment programs that provide temporary assistance to eligible homeowners to help them pay their mortgage while they seek re-employment, additional employment or undertake job training. “HUD’s new Emergency Homeowner Loan Program will build on Treasury’s Hardest Hit initiative by targeting assistance to struggling unemployed homeowners in other hard hit areas to help them avoid preventable foreclosures,” said Bill Apgar, HUD Senior Advisor for Mortgage Finance. “Together, these initiatives represent a combined $3 billion investment that will ultimately impact a broad group of struggling borrowers across the country and in doing so further contribute to the Administration’s efforts to stabilize housing markets and communities across the country.” States that have already benefited from previously announced assistance under the Hardest Hit Fund may use these additional resources to support the unemployment programs previously approved by Treasury or they may opt to implement a new unemployment program. States that do not currently have Hardest Hit Fund unemployment programs must submit proposals to Treasury by Sept. 1, 2010 that, within established guidelines, meet the distinct needs of their state. For more information, visit www.hud.gov.
PROGRESS in Lending Association formed to promote thought leadership and innovation
The PROGRESS in Lending Association
7 NMP MEDIA CORP. 1220 WANTAGH AVENUE WANTAGH, NEW YORK 11793 PRESORTED STANDARD U.S. POSTAGE PAID NMP MEDIA CORP.