New Dialogue, New Tools, Some of the Same Old Problems
December 21, 2014 |
The past couple of months have been busy! In that time I have attended multiple appraisal conferences on behalf of Hondros Learning and Hondros College to keep all of us up to date on what is going on in the appraisal world. Most of the meetings have been focused on the federal regulatory side of the business and provided valuable insight into appraiser qualifications and standards. However, this past month, I had the pleasure to attend the National Association of Appraisers (NAA) Appraisal Summit in Las Vegas. This event was one of the most worthwhile conferences I have attended in a number of years, focusing on the everyday world of residential appraisal. The conference consisted of two days of consecutive track sessions presented by some of the most recognized authorities in the financial and appraisal related industries.
As would be expected, several of the speakers focused on liability reduction for appraisers, presented by experts in the E & O industry and regulatory investigators. Also as expected, the top (valid) complaints against appraisers are still lack of sufficient explanation in appraisal reports and failure to use market based adjustments. In fact, most of the speakers mentioned “market based adjustments” in their presentations. So, one would believe that the topic of paired-data analysis would also be a significant part of that discussion. And…it was not mentioned one time. Not once. Instead, the term “regression” was spoken at least 7,000 times (just kidding, but it was repeated a many, many times).
Regression, regression analysis, modeled regression, etc. are the new buzzwords when discussing the sales comparison approach. Gone are the days of every fireplace being adjusted by $1,000, or each square foot difference being addressed by an adjustment of $10 per square foot.
Now, the discussion turns to a presentation by Robert Murphy, the Director of Property Valuation and Eligibility for Fannie Mae, who offered probably the most compelling presentation. Mr. Murphy noted that their studies explained that the majority of adjustments for square footage, found in appraisals for their use, are in the $10 to $25 per square foot range. Further study has indicated that in only 15% of the appraisals they have studied (thousands and thousands) is a $10 -$25 adjustment appropriate. The appropriate adjustment is usually found to be much higher. How do they know this? Studies of modeled data gathered from key data modeling entities. Under-adjusting is considered one of the key issues by Fannie Mae. One of the suspected culprits is that pesky 15% net/25% gross adjustment preference that appraisers attempt to stay within at all costs. In fact, Mr. Murphy announced that Fannie Mae will be removing this preference from their appraisal and underwriting guidelines to eliminate this issue, as they feel the preference unconsciously guides appraisers. Effective January 26, 2015, Fannie Mae will be using own modeled regression data for their own review process known as Collateral Underwriter (CU). Based on the discussion in the session, the CU seems to invoking fear in most all residential appraisers.
The message here for instructors is that regression analysis, and automated review mechanisms used by leading mortgage lending participants are a way of the future. No doubt, these topics will be (and should be) greatly discussed in the classroom. I urge all instructors to become educated and familiar with automated modeled regression (there are many available resources, such as webinars and forums), and the Collateral Underwriter (extensive info can be found on Fannie Mae’s website), so that we may be well prepared to address the concerns of our students. I assure you that I will be as we develop future course topics.
I hope everyone has a wonderful holiday season!