A fascinating look at conflicts in the appraisal and mortgage industry SB2407
Back after a long break from blogging.

For daily news of activity at the capitol please visit the Senate Majority Blog at http://www.hawaiisenatemajority.com

For a fascinating inside look at "value pressure and conflicts" within the real estate appraisal industry read the below. This is a slightly edited version of an actual email I received after introduction of SB2407.

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Good morning Senator Hooser,

I hope this email finds you in good health and spirits and all is well with you and your family.

Senator Hooser, I’m writing to you in regards to the current lending industry chaos.

I started in the real estate appraisal field over 20 years ago working under XXXXXXX, and got licensed in XXXX.

I never realized just how political, chaotic and unethical the lending industry can be until I began operating my own business. There is so much that goes on behind closed doors that very few people are aware of, unless you are in the real estate business, specifically, appraisal and lending. It has been a frustrating uphill battle for me – do what is ethical, yet have the lending industry basically shoot you down for doing your job correctly - following rules and laws.

I’m referring to value pressures. I have been exposed to value pressure on a daily basis. Almost every client of mine, from mortgage brokers to big banks want you to hit a specific number to make the loan or purchase work. It usually starts with the realtors pressuring the loan officers to make a deal work or “I’ll take my business somewhere else”. The loan officers in turn put the pressure on the appraisers to make the deal work and if it doesn’t, guess what? No work from that lender anymore.

Sure, I can drop that client of mine, but, what if the majority (and I mean at least 90%) of the lenders/brokers work the same way? It’s a catch 22 for sure. Damned if you do and damned if you don’t.

If I don’t follow USPAP (Uniform Standards of Professional Appraisal Practice), lender and FANNIE MAE guidelines, my license could easily be revoked, I could get sued or both. If I follow the guidelines, rules and regulations, I don’t have much work, if any, from these clients. I am appalled at the current lending situation where a lot of homeowners will lose their property to foreclosure because they can’t afford to make the monthly mortgage payments. Why? Because values were stretched by appraisers who were pressured by their clients and also because a lot of loan officers put homeowners in loans they shouldn’t have gotten in the first place.

The pressure on us appraisers is so great that I believe if this continues, there will be no such thing as unbiased professional opinions of values. I have on several occasions been short on value on a purchase, especially when market prices were increasing at a high rate. Guess what the loan officer does? Hires another appraiser who WILL come in at value. This State is so small that the news eventually got back to me. I’ve had an actual situation where a loan officer from a MAJOR bank here in Hawaii requested not to use me any more on the appraisals for his clients because I’m “too conservative”. I guess conservative means following rules, providing unbiased professional opinions of value and running the business in an ethical manner.

I have yet to receive an appraisal order for this loan officer’s clients. Quite pathetic and an embarrassment to the industry as a whole. Is this the way the financial institutions are supposed to work? I highly doubt it.

My frustrations have grown over the years as I feel absolutely powerless against these “giants”. We as appraisers have little, if any voice in the lending industry.

We are basically abused and used. I have not, will not and refuse to succumb to value pressure. I have lost many clients as a result of operating my business in this ethical manner…yet some of my competitors who will stretch value opinions, not mention deficiencies (termite damage, woodrot, non-conforming uses, etc.) as they should and not do a proper appraisal conforming to USPAP and lender guidelines gets the majority of the work.

I’ve become frustrated to the point where I’m almost considering changing careers…at age XX. It is so disheartening and unfair that things operate in this manner and have been for many years. I have too much time invested in my career to give up and refuse to do so. I will also adhere to my ethical practice and will continue to provide unbiased, professional opinions of value regardless of the pressure or loss of work.

I spoke to XXXXXX this morning about this and he mentioned that you have proposed a bill, SB2407 I believe. I would like to learn more about it and hopefully be a part of providing insight into the situation and also give my opinion as to what can be done to help alleviate all the dishonesty and shameful business practices. I would like to meet with you one day, maybe over lunch and take up an hour of your time do discuss this matter further. I feel that it would be a huge benefit to the lending industry and state and federal government to hear the appraisers’ side of the story…let the appraisers give input as to just how corrupt the system is. We may have alleviated a lot of current and future foreclosures and the lending industry wouldn’t be where it is today…especially when the tax payer has to pay to help fix the problems…although the majority of the problems stem from the actual lenders, those who are truly responsible for the current lending industry chaos.

I look forward to your reply and hopefully we can schedule a meeting.

Sincerely,

XXXXXXXXXX
State Certified Appraiser #XXX