As hard as it is to believe, it appears that the goal of the government powerhouses (like Fannie Mae) is to destroy the appraisal industry. They started off literally stealing information from appraisers and then moved to using the appraiser’s own data to create a tool that helps to replace appraisers, and finally they are now sending complaints to state licensing boards about appraisers who do not agree with what their computer program selects as “comparable” sales. These complaints do NOT have any signature and the charged appraisers don’t have the ability to face their accuser. These complaints cost the appraiser to be placed on “do not use” lists, force them to hire attorneys, and can flat out end their business, for anything from a few years to forever. And, all because a computer program selected different comparables from that of a licensed and highly trained appraiser. The majority of these cases are ended after an investigation, but for too many appraisers the damage is done.
Looking at the big picture it’s hard to see any logical reason this is happening. After complaining of an appraisal shortage now FNMA appears to want to get rid of appraisers altogether. And, they are big and powerful enough to do it in what appears to be a very sketchy method. While I’m certainly not an attorney, there are two things here that seem very questionable.
#1 – Fannie Mae accepts appraisal reports from a lender. The appraiser delivers this report to the lender, who hires the appraiser (or their appraisal management company). That report is signed by the appraiser and submitted in a PDF or XML format. The lender sends this file to Fannie Mae or other government agency who then takes this signed report (with whom the appraiser has no obligation or agreement) and basically steals their real property data. They take this information and place into their ever growing database and then use that information to create their own “Zestimate” if you will. We all know how well these computer generated valuations have worked out for Zillow® and others. The facts are a computer will never be able to replace a breathing, thinking, highly trained appraiser. Not opinion, just a fact.
So, if Fannie Mae suspects any loan is “risky” to their portfolio, they can choose to have the valuation reviewed for a second time, and this time they will question the appraisal and decide to ask the original lender review (and buy back) the loan, triggering a letter to the state appraisal board for the inaccurate selection of comparable sales (as per their AVM). But remember, the first time they reviewed this loan everything looked okay. Fannie Mae is still in conservatorship and doesn’t want to have any loans at risk in their portfolio. We basically have a giant company at risk of losing their funding and power, and with that at stake, they are perhaps willing to work with their giant bank partners to keep them both in the green. That’s right, at the end of all the discussions, this all comes down to money.
Remember that the appraisal industry is a large financial pie and if appraisers were out of the picture someone would stand to bring in billions of dollars. Without those pesky appraisers, who try their best to create honest and unbiased reports, if lenders could get the GSEs to reply of automated valuations then they would gain a huge advantage over consumers. After all, who looks out for consumers other than the appraisal industry. Ask anyone who has earned an appraisal licenses. It is NOT an easy task and understanding ethics and fair valuation is driven into every appraiser’s thought process. Like their values or not, the vast majority are created based on the most honest and unbiased opinions possible. They do not bend to the agents or bankers, or anyone with a financial interest in the transaction. Perhaps we need to look at some modernization in the Realtor® community, the banking community, and take a very close look at the methods GSEs are dealing out unsigned complaints.
All in all, this is really difficult to believe. Fannie Mae does a lot of good for this industry. However, perhaps appraisers deserve to hear an explanation of how their information is lifted from their appraisals, added to a database that lenders and bankers have access to but NOT appraisers, and then that data is used to form the basis for filing a complaint to the state appraisal boards, without a signature or any chance to respond. That is almost un-American. The appraisal industry has been used as a scape-goat once to often. It’s time to bring it all out in the open…